A beginner’s guide to natural gas: Price, uses & market overview

Explore a thorough overview of the natural gas market, learn how it works in simple terms and get to grips with its significance as a popular global commodity.
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Updated: Nov 23, 2023
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On this page, we explore everything you need to know about natural gas. Gain insights into natural gas market trends, pricing mechanisms, and the environmental impact of natural gas. 

Read on to learn more about this popular commodity and find links to beginner friendly guides explaining how you can get involved in natural gas.

What is natural gas?

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Natural gas is one of the world’s cleanest and most important fossil fuels. Formed beneath the surface of the earth and a byproduct of oil drilling, it is mainly composed of methane. In its pure form, natural gas is clean burning and emits less carbon dioxide than other fuels like coal and oil. 

In recent decades, drilling innovations have allowed new shale gas reserves to be tapped. This has made the United States the world’s top natural gas producer. 

It is now a vital energy source and heats homes, generates electricity, fuels appliances, and is even used in manufacturing industries like petrochemicals. The development of liquified natural gas (LNG) has also made gas more transportable. 

Natural gas market overview

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Natural gas has been an important energy source going back decades, but it is only in recent years that the market has expanded. Natural gas consumption has grown to record levels thanks to new extraction techniques and infrastructure. 

In the 1990s, technological developments allowed liquefied natural gas to be chilled and shipped globally on tankers. This grew an interconnected global natural gas market. Major natural gas trading hubs have emerged in the US, Europe, and Asia. The United States and Qatar are the world’s largest exporters, while Japan and South Korea are the biggest importers. 

Natural gas is one of the most traded commodities, and the New York Mercantile Exchange (NYMEX) offers futures contracts for it. The natural gas market experienced a surge in value in 2020 – 2022, appreciating almost 500%. Since then, however, a sell-off has resulted in natural gas dropping back. 

Is natural gas valuable?

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Yes, natural gas is a valuable commodity and there are numerous reasons why investors are attracted to the market. We have highlighted some of these key fundamentals below, explaining what they are and why they matter.

  • Hedge against inflation. Inflation is something all investors have to contend with. Investing in natural gas is one way to protect or ‘hedge’ against it. Inflation is when money loses value over time. As inflation rates rise, energy commodities such as natural gas will also rise in value. 
  • Portfolio diversification. There are many ways to diversify a portfolio. Some investors include stocks from different sectors and geographies, while others include assets like cryptocurrencies. Investing in a commodity like natural gas adds a different approach. Its widespread use can add safety to a portfolio, when other parts of it are struggling. 
  • Speculating on demand. As global populations increase, especially in areas like Asia, the Middle East, and Africa, demand for natural gas will likely rise too. These regions are where natural gas consumption is growing and is necessary as an energy source. The consumption of natural gas should benefit from the growing population. 

How to invest in natural gas

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You can invest in natural gas by using a commodity trading platform. These platforms offer a range of commodities and are very easy to use. There are different platforms suitable for specific requirements.

Some let you buy natural gas, others let you trade natural gas, and many are designed for investing in the commodity. You can visit our dedicated guide to discover how to invest in natural gas

Natural gas in your investment portfolio

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A diverse investment portfolio can help protect you during market uncertainty, and including natural gas can add value while allowing you to spread your money across various markets. 

Natural gas often moves independently to traditional investments like stocks and bonds. You can include natural gas in your portfolio as a hedge against potential losses. During times of economic uncertainty, investors view energy commodity markets such as natural gas as attractive options. 

Natural gas’ long history and the fact it is a growing clean energy source for much of the world makes it a good long term play.

Natural gas vs other energy commodities

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Natural is part of the energy family of commodities, including oil, coal, and propane. Each commodity is unique in its own way and offers different features for investors and traders. You can learn more about specific precious metals using our dedicated guides below. 

  • Ethanol. Ethanol is a renewable energy fuel made from corn, sugarcane, and other plants. 
  • Oil. Oil is a fossil fuel that is refined into gasoline, plastic, and other products. 
  • Uranium. Uranium is a metal used as a fuel source for nuclear power plants. 

FAQs

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Prash Raval
Financial Writer
Prash is a financial writer for Invezz covering FX, the stock market and investing. For over a decade he has traded spot FX full time while... read more.