Natural gas ETFs

Gas price volatility has been a feature of the post-pandemic recovery, as soaring demand has collided with supply interruptions. It has been a reminder of the various different forces that weigh on gas prices – from growing demand in Asia, to infrastructure problems across Europe, to the decarbonisation of the global economy. For investors keen to participate in this volatile and multi-faceted market, natural gas ETFs are an option.

What is natural gas?

Natural gas is a source of energy of power, for heating, fuel, and electricity generation. It also has a role in manufacturing. The price of natural gas rises and falls according to fluctuations in supply and demand. The four largest suppliers of natural gas are the US, Russia, Iran and Canada, while the largest consumers of natural gas are the US, China, Iran and Canada.

Best natural gas ETFs

Top three ETFs traded in the USA by YTD (year-to-date) performance based on ETF Database to 8 February 2024:

If you’re looking for natural gas ETFs available on the London Stock Exchange, we’ve got you covered too:

It is worth considering that an investment in natural gas is very concentrated. Natural gas is subject to a range of market forces and everything from a pipeline problem to adverse weather conditions can influence the price. The recent volatility in prices has been created by both supply and demand problems and shows the complexities of understanding the market.

In selecting the best natural gas ETF, investors need to consider how closely it tracks natural gas prices and the cost of the ETF. Other options would be a diversified energy ETF or, more broadly, a commodities ETF.

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Bottom line

The natural gas market is volatile and is subject to a broad range of different forces. The price can be influenced by supply problems, such as pipeline disruptions or political uncertainty, but also by demand considerations, as has been seen as the world has emerged from the pandemic. A natural gas ETF is one of the few ways to get pure exposure to the natural gas investment market. If you’re unsure which provider best suits your investment goals, you can compare the features from a range of platforms that let you buy ETFs in the UK.

Frequently asked questions

• What drives natural gas prices?

  The International Energy Agency says there are three major supply-side factors affecting natural gas prices: the level of natural gas production, the level of natural gas in storage and the volumes of natural gas imports and exports. Demand can be influenced by variations in winter and summer weather, the level of economic growth and the availability and prices of other fuels.

  It adds: “Because of natural gas supply infrastructure constraints and limitations in the ability of many natural gas consumers to switch fuels quickly, short-term increases in demand and/or reductions in supply may cause large changes in natural gas prices, especially during the wintertime.”

• Will natural gas prices be affected by the energy transition?

  Natural gas is a fossil fuel. According to the US Energy Information Administration (EIA), “Coal, crude oil, and natural gas are all considered fossil fuels because they were formed from the buried remains of plants and animals that lived millions of years ago.” As such, countries and companies are trying to move away from natural gas to renewable energy sources in an attempt to reverse climate change. This will affect the price of natural gas over the longer-term.

  It is important to distinguish fossil fuel natural gas from renewable natural gas, which is generated by everyday waste such as landfill, dairies, wastewater treatment and other sources. This is not a fossil fuel and is the same quality as fossil fuel natural gas.

• Is natural gas a 'clean energy'?

  Natural gas is a fossil fuel. As such, its supply is limited. However, compared to other fossil fuels, such as coal, it is a relatively ‘clean’ fuel. Burning natural gas results in fewer carbon emissions and other air pollutants than other options for the same amount of energy. As such, countries are generally targeted coal-fired power stations first in their efforts to decarbonise. If you’re looking for best clean energy ETFs, head to our guide on ethical ETFs.