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How to invest in natural gas in 2023
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Nearly 20% of the world’s energy comes from from natural gas. This page explains what you need to know before investing in this precious commodity; read on to find a step-by-step guide on how to invest in it and take a look at the year ahead for natural gas.
Where can I invest in natural gas online?
To invest in natural gas you will first need to register with an online broker. Our commodity experts have selected the best platforms around that offer natural gas. Click any of the links below to get signed up in just a few minutes.
Why invest in natural gas?
Investing in natural gas can have a wide range of benefits and there are many reasons you may want to add it to your portfolio. Typically, the main reasons to invest in natural gas are to hedge against inflation and diversify a portfolio. Below we’ve highlighted some of the other reasons you should consider investing in it.
- Demand. Natural gas is the cleanest burning of all fossil fuels and has a range of uses including heating and electricity production. Its demand has been growing year on year for the past two decades. It is expected that by 2040, it will be providing a quarter of the world’s energy needs. As demand grows, so will its price.
- Hedge against inflation. Inflation is something that all investors risk encountering and one way to protect, or hedge against it is by investing in commodities such as natural gas. Inflation is when money loses value over time and if inflation rates rise, it’s highly likely that commodity prices will rise too.
- Portfolio diversification. A lot of investors have portfolios consisting of stocks and bonds. Including commodities such as natural gas provides an easy way to diversify and protect your portfolio. When the stock or bond market is down, commodity prices tend to be up, making natural gas a good option to add diversification.
- Speculation. Betting on the price of natural gas is a common reason to invest in it. It can be a volatile market providing lots of opportunities to buy and sell. For example, in 2021, its price rose more than 170%, before falling back lower. Its up and down swings in price make it an attractive market for speculative investors.
5 top tips for investing in natural gas
Investing in natural gas is a simple process and in the section below we’ve highlighted the steps you could take before making your first investment.
- Decide on an investment strategy. Before you start you should consider whether you’re going to be an active or passive investor. It will also be helpful to decide on how much risk you want to take on, as this will guide you towards how to invest.
- Do your research. You’ll need to conduct well balanced research into the natural gas market while also planning how you want to invest in it. At the bottom of this page we’ve explained the different factors that move the market.
- Set a budget. You may have already decided how much you plan to risk and its a good idea to set a budget and stick to it. You could consider allocating a small portion of your portfolio to your natural gas investments.
- Choose between the long term and short term. While carrying out your research you may have decided your outlook for the price of natural gas. It is advisable to choose how long you plan to invest for between the long and short term.
- Find an investment platform. Finally you’ll be ready to make your first natural gas investment. You’ll need a broker that offers a way to invest in the market. Further up the page we highlighted a few of the top brokers around which you can use.
Ways to invest in natural gas
Natural gas is widely traded and invested in, resulting in a number of different options to choose from. In the section below we’ve explained the different ways you can invest in natural gas and offered a brief explanation of each.
Invest in natural gas stocks
A lot of oil companies have started heavily investing in natural gas and buying stocks in them gives a way to gain exposure to the market. You could also invest in smaller exploration businesses that search for nat gas, or companies involved in its transportation. The share price of natural gas companies will most likely be correlated to the commodity.
Invest in natural gas ETFs
Exchange traded funds that track the performance of natural gas are often the easiest way to invest in it. You can find ETFs that cover the energy sector, wider commodity markets, and that track the futures price of natural gas. ETFs tracking the futures price give investors easy and cheap access to pure play natural gas prices.
Invest in natural gas mutual funds
Mutual funds are similar to ETFs and investors can buy shares in them. However, they are managed funds where a professional manager buys and sells assets according to their expertise. There are funds which invest in the energy sector including many natural gas companies.
Invest in natural gas futures
The most common way to speculate on short term prices is to use futures contracts. Futures are an agreement to make a trade at a pre-agreed price in the future. Although it’s worth noting that futures contracts are highly complicated, require a lot of underlying knowledge, and are best suited to experienced investors.
How does the natural gas market work?
It works like any other market with supply and demand largely moving its price. Although, there are a lot of factors that impact its supply and demand and below we’ve highlighted some of the main ones:
- Weather. One of the main uses of natural gas is for heating homes and other buildings. Unsurprisingly weather plays an important role in the demand for natural gas. Cold winters lead to higher consumption of the gas, ultimately leading to higher prices. Keeping track of weather conditions can help with timing an investment into it.
- Chinese market. China is the world’s largest importer of natural gas as it looks to move to more environmentally friendly energy sources. As the Chinese economy and population grows, so will its demand for heating fuels. Monitoring Chinese demand is a good way to take advantage of natural gas’s longer term outlook.
- Production. Natural gas is produced around the world although there are few countries where it is concentrated. The United States is the largest producer, with Russia, Iran, and Canada not far behind. If output rates drop in the largest producing countries, supply will be lower and prices would rise.
- Geopolitical issues. Natural gas is largely produced in countries where economies and governments are stable. However, a few countries such as Russia and Iran often encounter a difficult geopolitical landscape. Most recently, Russia’s invasion of Ukraine caused natural gas prices to spike higher, as it supplies a large part of Europe.
- Other energy sources. Natural gas is much more environmentally friendly compared to oil, coal, and petroleum. However, other energy sources such as wind and solar are much cleaner. Although competing renewable energy may not impact natural gas prices today, as the world shifts to clean energy, its likely demand for nat gas could fall.
When should you invest in natural gas?
There are a wide range of times when investing in natural gas could be a good decision. When inflation rates are on the rise, the price of natural gas will likely also go up. The same can be said for when cold winters are experienced, especially in regions like North America, Europe, and China.
In the section above we considered some of the top contributing factors that impact the price of natural gas. Keeping track of them could help with timing your investment into it. For example, paying close attention to winter weather can provide opportunities to buy, as can staying informed with geopolitical issues in gas producing regions.
Is natural gas a good investment in 2023?
Yes, it could be although there are a few things to consider before investing. Much of what we have covered on this page will help drive the price of natural gas this year, most notably the Russian invasion of Ukraine. Russia provides almost a quarter of natural gas consumed in Europe and many pipelines run through Ukraine. The impact of the war will most likely cause prices to rise, although conflicts are inherently uncertain and you should be careful when trading.
Outside of the war, energy prices have generally been rising, especially in Europe. Demand from China continues to grow, and both factors combined could positively affect the price of natural gas. Worldwide inflation rates have also been creeping higher and it is worth tracking them as the price of gas will increase alongside them.
What should I do now?
If you’re ready to make your first investment into natural gas then you’ll need to register with a broker that offers it. You can click the blue button below to be taken to our list of expertly selected platforms. If you do decide to invest, its a good idea to keep up to date with the latest news and price analysis, which you can do so by visiting any of the links below.
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