In a world of electric cars and an increased interest in alternative energies, the average investor may think that the heyday of natural gas has already come and gone.
However, with natural gas prices expected to rise over the next two years, it seems that this industry is posed to be back on top once again. In order to turn this to his advantage, the average investor must understand why this is happening and understand his best investment options.
Not Just the Summer
In the short-term, gas prices typically rise in the Summer. For instance, the Wall Street Journal reports that “natural gas rose to a 10-month high Tuesday as warm weather forecasts kept stoking expectations for strong demand this summer.”
This fact is typically lamented by fathers and mothers as they drive their families around on assorted vacations and visitations. However, this phenomenon may leave investors curious if this is just a seasonal phenomenon. After all, gas would be a rockier investment if it always settled down after Summer.
Interestingly, though, that is not the case: natural gas prices are expected to rise over the next two years. There are a variety of interesting reasons why this is happening, and it represents a great opportunity for savvy investors to profit from.
Why Is This Happening?
One of the chief reasons why this is happening is because of consumption growth, mainly from the industrial sector, that outpaces near-term production growth.
The production growth is impressive in its own right, though. In September of 2015, “total marketed production of natural gas hit a record high of 80.2 billion cubic feet per day,” and projections show that “as natural gas prices rise and more demand comes from the industrial sector and liquefied natural gas (LNG) exporters.”
This represents a historic time, especially for the United States. The United State Energy Information Administration reports that, for the first time since 1955, America will be a net exporter of natural gas, helped greatly by Mexico’s growing demand for natural gas. In short, it’s one of the absolute best times to invest in natural gas.
How Can the Average Investor Profit?
There are several paths to profitability for investors when it comes to natural gas. As usual, it’s going to come down to your personality and investment style.
For those who prefer to invest in the production of natural gas directly, it is wise to buy stock in companies such as Stone Energy Corporation, McMoran Exploration Co., SandRidge Energy , or PetroHawk Energy Corporation.
This increases your exposure to this lucrative market and keeps you from having to worry about investing in futures.
Alternatively, there are several natural gas ETFs that are certainly worth looking at. Commodity HQ reports that the most popular of these options within the United States is the Natural Gas Fund which invests in front month futures contracts and whose prospects are most closely tied to spot prices (and their potential fluctuations).
For those who don’t like that close correlation, there is the 12 Month Natural Gas Fund. As the name implies, this spreads exposure to futures contracts across 12 separate months, helping to insulate the investor from adverse yields but which may also diminish some of the benefits of spot price correlation.
One final ETF option is the Teucrium Natural Gas Fund. Whereas the United States Natural Gas Fund is more suited to shorter-term investors, this gas fund is better for long-term investors.
This is because it spreads exposure across multiple maturities, and was designed to be more reflective of spot prices over the long term. While this is not suitable for every investor, it may make an ideal investment for those banking on the long-term viability and profitability of natural gas.
Ultimately, there is no better time to invest in natural gas than right now. Its prices will only rise in the next two years, and beyond that its value may even continue to grow.
Whether you prefer to invest in stocks directly or in futures and ETFs, there is an investment option to suit your personality and your style. The only thing left to do is grab this rising opportunity…and hang on for the ride!
Regards,
Ethan Warrick
Editor
Wealth Authority
