Gas Trading - How to Invest in Natural Gas

Natural gas, due to its energy qualities and its "green" ecological advantage over other fossil fuels, is considered as an intermediary energy source between the "dirty fuels" that leave a carbon footprint and the advanced energy future of the Earth. The energy transition could take decades or several decades, depending on a country. Meanwhile, the demand for energy is cyclical both in industry and households, resulting in dynamic fluctuations of natural gas supply and its value. 

The 2022 was one of the greatest periods for natural gas bulls because Russia's war with Ukraine changed the European ‘energy supply chain’. In the end, the winter wasn’t so bad and Europe survived the gas crisis well, with higher than expected storage levels. But the next winters are coming and natural gas still has a cyclical nature. The current situation, after huge gas prices declines in 2023 may indicate that the gas market will be even more dynamic, and interesting for traders. The energy crisis has shown the potential for very important and economically crucial energy commodities, like NATGAS.Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.

The energy policy of each country varies depending on the level of the developed economy and available natural resources. However, we can recognize that humanity is in an energy transition to green energy sources that is supported by powerful institutions. 

This article is a quick overview of gas trading basics and after reading it you will know more about investing in natural gas and companies from this well developed energy sector.

The benefits and use of Natural Gas

Natural gas is used to produce fuels on an industrial and private scale. It is also a needed ingredient in the production of detergents, synthetic fibres, paints, plastics, and synthetic rubber.

Compressed liquefied natural gas is also a convenient propellant for stationary energy equipment such as boilers, turbines, dryers, industrial thermal processing furnaces and domestic cookers. There is no substitute for NATGAS in the manufacture of light bulbs or gas turbines.

The main application of NATGAS is of course the household warmth generation, i.e. convenient automation and regulation of the combustion process, makes more and more households use gas installations. Gas in households is also necessary for warming water and preparing meals.

Gas is also used on a mass scale in animal husbandry, drying of cereals, seeds and production of fodder or animal feed. In industry it is also used to heat production and office space, to heat halls and in technological processes.

Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.

Because of its relatively low natural gas prices compared to crude oil, NATGAS is used on a mass scale as fuel for both cars and trucks. Uniform combustion temperature, calorific value, automation of combustion processes, ease of regulation and no problem with waste disposal are powerful advantages of all gas-fired systems.

These are all important aspects for entrepreneurs in investing in gas because understanding how the industry works is a very important part of every decision-making process and it's necessary to take that into account.

How to Buy Natural Gas

You have the choice and you can choose to invest in natural gas or trade it. There are several differences between these methods. Of course it’s also possible to use both of them at the same time.

 Investing

Natural Gas investing is possible through the purchase of ETFs or shares of gas sector corporations or via other financial instruments. NATGAS stocks like Exxon Mobil (XOM.US), Kinder Morgan (KMI.US) or Royal Dutch Shell (RDSA.UK) are well known for paying regular dividends. Also specific stocks like Cheniere (LNG.US) or EQT (EQT.US) may be still good investment opportunities.

 Trading

Investing in NATGAS is speculative and only the moves of the price of NATGAS are important here. Gas CFD is a financial contract that you trade to earn the price difference between your open and closed positions, without physical delivery of NATGAS. It’s also a good option for CFD traders, who like high risk ventures and dynamic trading.

You can start investing in NATGAS by opening positions on NATGAS CFD (contract on price differences) and using financial leverage. Thanks to leverage options, NATGAS requires only a certain percentage of the whole position. For example using 1:10 leverage gives you the opportunity to open a 10,000 USD contract by using only a 1000 USD margin. Thanks to the use of CFD, day traders can earn money even when gas prices fall down - by opening short positions. This kind of speculation can be especially dangerous and volatile because of NATGAS price action. A NATGAS contract of difference trading gives buyers an opportunity to maximise their profit faster even when price action is not very big, but loss can also be much bigger because of using leverage.

Our NATGAS price instrument is based on contracts from Chicago Mercantile Exchange CME Henry Hub NATGAS quotations.

 Trading Gas Online

There is no way to simply purchase a physical supply of gas. Especially merchandising this physical commodity is complicated and not similar to precious metals like gold or silver. The storage facilities of gas is also an additional, big challenge for buyers.

Therefore, in order to make money on the movement of the blue fuel market, the most optimal solution is, of course, online gas trading.

Online investing is also the easiest, has the most favourable charges conditions and allows you to customise your personal investing strategy by choosing complex instruments such as CFDs (contract on price differences) on NATGAS, futures contracts, stocks and ETFs.

Online NATGAS investing gives you exposure to an extremely volatile and popular market without leaving your home. The only thing you need is an open account inside one of the brokerage firms. Of course with trading platform access.

Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.

How to Trade Natural Gas CFDs

First of all, NATGAS CFD trading gives traders the opportunity to open short and long positions. CFDs work in a way allowing them to go for Short positions - giving buyers the opportunity to take profits even when the price of natural gas is falling.

By trading CFDs for gas, a trader can use market instability and open positions during very fast gas price movements. Financial leverage with margin is risky and can result in large losses, but can multiply a day trader’s profit.

When entrepreneurs trade CFDs, the only fee that a trader pays in this case is spread (the difference between ASK buy price and BID sell price) and swap points. The spread is very small and costs cents depending on the size of a position, swap points are the costs that the broker incurs in financing leveraged positions; swaps are accrued daily to the yield of the opened NATGAS position.

Gas stocks and ETFs

Stocks

There are many ways to diversify the risk of your gas stock assets portfolio. One of them is certainly buying shares of large European and American companies operating in the NATGAS market. Natural gas stocks in the long term are in general less volatile than NATGAS spot prices. Of course smaller gas stocks are more volatile and risky but in the same have bigger gains potential because of relatively smaller market cap. Of course, if they are well managed and profitable. That’s why we recommend all stakeholders who are interested in the NATGAS market to do an analysis of each company - before placing any investments into account.

You can invest in NATGAS by buying shares of corporations from the gas energy sector like Exxon Mobil Corporation (XOM.US) and Royal Dutch Shell (RDSA.UK) and many, many more.

Cheniere (LNG.US) is the biggest US LNG export company, biggest LNG supplier to Europe and second, biggest LNG operator in the world. In 2022 its shares were one of the biggest beneficiaries of the gas prices rally. The European gas demand was higher due to the Russian-Ukraine war and problems with Nord Stream pipe. The firm is growing and taking a few, innovative initiatives to find ‘eco’ opportunities in its own business. Despite 2023 natural gas price declines (almost 90% for Henry Hub), Cheniere shares are only 10% below its ATH level. It may be a signal that the company business is relatively resistant. If the gas price and demand will grow again, Cheniere probably may rise also but the firm is operating on relatively high debt, which may be a risk for its business. 

In 2022, the company initiated a 1,4 bln USD worth shares buyback program and has 1,4 bln USD net income. In 2022 total number of company cargos was 2650 - to 39, different countries, with 638 cargos exported to Europe. LNG volume delivered to Europe was 74 % higher y/y. Over 10% of Europe’s natural gas imports in 2022 were produced at company facilities in Sabine ass and Corpus Christi (approximately 72% of the volumes Cheniere has produced).  

Exxon Mobil Corporation (XOM.US) is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D.Rockefeller fortune and Standard Oil.

One of the world's largest corporations by revenue, ExxonMobil has ranged from the first to the sixth largest publicly traded company by market capitalization from 1996 to 2017. The company ranked third in the world on the Forbes Global 2000 list in 2016. ExxonMobil was also the tenth most profitable company in the Fortune 500 in 2017. As of 2018, the company ranked second in the Fortune 500 list of largest U.S. corporations by total revenue. More than half of the company's shares are held by institutions. Shareholders include such giants as The Vanguard Group and BlackRock.

ExxonMobil is one of the world's largest energy firms and has influence over American foreign policy and its impact on the nation's future.

Royal Dutch Shell (RDSA.UK) is an Anglo-Dutch multinational petroleum and gas company headquartered in The Hague, Netherlands and the fifth largest company in the world by revenue in 2020. Shell is the largest company headquartered in Europe and the largest company not headquartered in China or the United States. Forbes Global 2000 ranking of 2020 ranked Shell as the 21st largest public company in the world. In 2013, Shell ranked number one on the Fortune Global 500 list of the world's largest enterprises and in that year its revenues were equivalent to 84% of the Netherlands' GDP.

Since then, Shell has slipped lower among the largest firms on the Global 500, but is still the largest non-state energy corporation in the world.

Shell operates in all areas of the gas industry, including exploration and production, refining, transportation, distribution and marketing, petrochemicals, and power generation. But is also active in renewable energy, including biofuels and hydrogen.

Shell operates in more than 70 countries and has approximately 44,000 gas stations worldwide. As of December 31, 2019. The company has subsidiaries in the US and is also a large shareholder in other energy companies; including in developing countries.

Also worthy of buyers attention are other big NATGAS companies like Chevron (CVX.US), Hess Corporation (HES.US), Contango Oil & Gas Co. (MCF.US), NiSource (NI.US), Oneok Corp (OKE.US), Pembina Pipeline (PBA.US), UGI Corporation (UGI.US), BP (BP.UK), Total Energies (TTE.FR), Gaztransport ET Technigaz SA (RTT.FR), Rubis (RUI.FR), Avance Gas Holding (AGAS.NO), Naturgy Energy Group SA GAS.ES, Enagas (ENG.ES), Italgas (IG.IT), PGNiG (PGN.PL), Grupa Lotos (LTS.PL).

ETFs

Investing in Natural Gas by purchasing exchange traded funds instruments (ETFs) is a more diversified choice than a position in the one gas stock company. Investing in gas ETFs gives you a wider exposure to the natural gas market.

This kind of investment is more balanced and and also gives the opportunity to receive dividends from distributing ETFs like iShares STOXX Europe 600 Oil&Gas (SXEPXE.DE) or buying accumulating ETFs like iShares Oil&Gas Exploration and Production (IOGP.UK). Those instruments are tracking share prices of a group of gas sector corporations from the industry. You can also choose an ETF which is tracking natural gas prices. For example WisdomTree Natural Gas (NGAS.UK) which is tracking the Bloomberg Natural Gas Subindex. On the other hand, another ETF iShares Oil&Gas Exploration and Production (IOGP.UK) gives direct exposure to a broad range of global companies involved in the exploration and manufacturing of gas and petroleum. Fund IOGP.UK has a lot of gas stocks in holdings like EOG Resources, Canadian Natural Resources, Conocophillips, Devon Energy Corp or Hess Corp.

Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.

Another possible choice may be iShares STOXX Europe 600 Oil&Gas (SXEPXE.DE) a well known fund which aims to track the performance of the STOXX Europe 600 Oil & Gas index. SXEPXE.DE is a distributing ETF, which means that the fund distributes income received to shareholders. This is especially good information for long term gas ventures. The fund has such big concerns i.a. Total Energies (TTE.FR), Royal Dutch Shell (RDSA.UK) and BP (BP.UK) in holdings which makes its price is not as variable.

Investments in gas by ETFs creates diversified resources portfolios with lower risk but also with lower growth potential.

What Is the Best Time to Start Investing in Natural Gas?

Many investors are wondering when to start investing in the gas market But also traders are analysing the NATGAS market every day. In 2022, the rise in natural gas prices has become a global issue and has particularly affected European countries, still heavily dependent on external supplies. The war in Ukraine broke Europe's energy market dependence on Russia. This critical situation had a powerful impact on prices. And Europe was left without a visible alternative for a while. 

Europe began importing large cargoes of LNG from the US. This created favourable circumstances for higher margins and operations of US companies like Cheniere. Growth took place in both Dutch TTF and HenryHub spot prices in the US. Higher gas prices added to inflation and raised concerns about the overall economy. Ultimately, however, thanks to the warm winter, the crisis in Europe did not escalate, and gas prices fell powerfully. The situation has shown, however, that gas can respond with powerful changes when the supply and demand relation changes dramatically.

Natural gas is used in power and heating, heavy and light industry and transportation. This means that as long as industries have energy needs and households around the world use gas for cooking and heating, traders can expect demand for the commodity to remain high.

A reason for the growing demand for gas is also the "green" policy of decarbonization and moving away from fossil fuels. Natural gas reduces CO2 emissions as well as nitrogen and sulphur oxides. This fact, along with competitive prices, has led to gas being recognized in the European Union as a transition fuel on the road to climate neutrality.

It is possible that the price of gas - including that produced by Norwegian or British companies - will increase, also due to higher extraction costs and geopolitics. In such a situation, gas imports from the U.S. may increase, since Henry Hub gas is relatively cheap. This raises the field of LNG and LNG transportation concerns - the largest US stocks in this specific segment are Cheniere (LNG.US), EQT (EQT.US) and Kinder Morgan (KMI.US). Demand for LNG supplies may also grow in the face of the prospect of high demand while gas resources are limited, with low storage levels

In winter, household demand for gas also increases due to heating, often resulting in higher yields on natural gas stocks and higher prices in the gas market. Gas is relatively cheap and less harmful to the environment than coal. Until the economy finds effective renewable energy storage technology or builds nuclear reactors on a massive scale we can expect demand for gas to grow. Gas-fired power plants are relatively easy to operate, and can be turned on and off at any time.

Natural gas is an intermediate resource between fossil fuels "without green" and the modern energy of developed economies based on uranium or hydrogen. However, the energy transition may take decades. Investing in Natural Gas seems to have strong fundamentals but investors should know the risk and cyclical characteristics of natural gas companies business.

The issues that NATGAS traders should pay high attention to are:

• Fluctuations in the balance of gas demand and supply
• Production costs
• The weather outlook in the U.S. and various types of anomalies
• Reports on gas inventories (f.e weekly EIA report)
• Cyclicality (positive impact on prices during cold and very high temperatures, when air conditioning use increases)
• Geopolitics and infrastructure

Natural Gas Trading Hours

What about available gas trading hours? This information is especially important for day traders. Spot natural gas trading is available 5 days per week between 00:00-23:00 CET from Monday to Thursday and between 00:00-22:00 CET on Friday. Investments in natural gas are not available during weekends on our platform. Natural gas spot market is static when the market is closed. At all other times the natural gas prices are constantly fluctuating, both whether you buy or sell.

Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.

Of course, the best time for NATGAS investing is during periods of very high liquidity, when market variability is higher. When there are high trading volumes in the market, volatility increases. This situation can be a big opportunity not only for entrepreneurs who sell or buy, but also for day traders, who are using leverage and margin to take large profits even on short positions. Also kindly bear in mind that leverage could result in larger losses. All CFDs are high-risk assets.

High volatility could be influenced by information about current storage levels (f.e cyclical EIA report),  important geopolitical or even company reports. NATGAS is one of the most volatile raw materials and it’s still very sensitive to political issues. The Russian - Ukraine war showed that gas prices can react sharply when traders see potential supply - demand imbalance. Despite the European heating crisis not occurring  finally, the gas prices had a huge rally in 2022. Mostly because of market expectations.

The weather forecasts and long-term predictions are also very important for the natural gas market; information about harsh winters or periods of higher temperature can be a spark igniting the gas price. When heating demand grows, the NATGAS price may be higher. But there are also many more growth factors like infrastructure, US storage stocks level etc. 

But you don’t need to follow temporary market variability. On our platform - xStation - you have the opportunity to purchase NATGAS ETFs like Natural Gas (NGAS.UK) or big and recognisable stocks like Exxon Mobil (XOM.US), Kinder Morgan (KMI.US), Cheniere Energy (LNG.US), EQT (EQT.US) or Shell (RDSA.UK); in these cases as an investor you don’t need to look at natural gas fluctuating prices and just be long term on the financing.