The U.S. natural gas industry has become an important global supplier amid a shifting global energy landscape.
Because of constraints in transporting gas by pipeline, the global natural gas market has historically been fragmented into regions. But the emerging industry of liquefied natural gas, or LNG, has begun to turn natural gas into a global commodity. LNG is natural gas cooled into liquid form so it can be transported by ship.
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The shale oil and gas boom has enabled the U.S. to become the biggest natural gas producer in the world, helping to keep domestic prices low. But the nation doesn’t need all of that gas domestically, so producers are eager to export it to Europe and Asia, where prices are higher.
The U.S. Energy Information Administration expects U.S. LNG exports to grow by 2% this year and another 18% next year as new export facilities come online.
“The main trend in the natural gas market is a significant shift toward liquefied natural gas as infrastructure for LNG expands, making it a more distinct and preferred product,” says Julia Khandoshko, CEO at international broker Mind Money. “There’s growing investment in LNG from both the U.S. and Europe, partly driven by its crucial role in overcoming the recent energy crisis.”
That crisis was spurred by Russia’s invasion of Ukraine in 2022, which threw global energy markets into turmoil, sent natural gas prices spiking and increased the urgency for Europe to wean itself from Russian natural gas. Although U.S. LNG exports have climbed since the invasion, there is still room for growth, although supply is constrained because of a lack of infrastructure.
In shorter-term dynamics, U.S. benchmark natural gas prices have been on the rise amid forecasts for warmer weather in sections of the nation. For domestic gas transported by pipeline, weather is a big factor in pricing, as more air conditioning in the summer or heating in the winter takes more electricity, which is often generated using natural gas.
Developed nations around the world are increasingly relying on natural gas to produce baseload electricity as they work to build out renewable energy sources.
“The transition to wind and solar will require trillions of euros in new infrastructure to accomplish,” says James Hill, CEO of MCF Energy Ltd. (ticker: MCFNF), a Canadian company exploring for natural gas in Europe. “That will take decades to build.”
With that backdrop, here’s a look at seven natural gas investments to consider:
| Stock/fund | Yield* | YTD Return as of June 20 |
| Cheniere Energy Inc. (LNG) | 1.1% | -3.7% |
| Sempra (SRE) | 3.3% | 1.9% |
| Kinder Morgan Inc. (KMI) | 5.8% | -4.3% |
| Invesco Energy Exploration & Production ETF (PXE) | 2.3% | 6.5% |
| Hennessy Gas Utility Fund (GASFX) | 2.3% | 4.9% |
| First Trust Natural Gas ETF (FCG) | 2.3% | 7.9% |
| United States Natural Gas Fund LP (UNG) | N/A | -6.2% |
*Forward dividend yield for stocks, trailing-12-month yield for funds.
Cheniere Energy Inc. (LNG)
This company’s ticker symbol says it all, as Cheniere is a major U.S. exporter of LNG. The company has production capacity of about 30 million metric tons per year (mtpa) of LNG from its Sabine Pass terminal in Louisiana. It is developing an expansion next to that project with expected capacity of up to approximately 20 million metric tons a year.
Meanwhile, Cheniere has about 15 mtpa of LNG at a terminal in Texas. An expansion will add more than 10 mtpa. First production from the expansion is expected by the end of 2024 and is one of the projects cited by the Energy Information Administration as adding to U.S. LNG exports. Beyond that, the company is developing about 3 mtpa of additional LNG capacity in Texas.
Sempra (SRE)
Tony Tursich, co-portfolio manager at Calamos Investments, expects U.S. LNG infrastructure to continue to grow and adapt for decades. That demand stands to benefit Sempra, he says.
This energy company develops, builds, operates and invests in energy infrastructure, including LNG facilities and development projects. It also operates more than 1,600 megawatts of power generation in Mexico and has more than 7,700 kilometers of natural gas transportation and distribution pipelines as well as a refined products terminal network under development or in operation.
As the energy transition continues, Tursich likes the company’s “flexible business model” that is well positioned as renewable natural gas and green hydrogen markets expand.
Kinder Morgan Inc. (KMI)
Kinder Morgan is also an energy infrastructure company. It operates major natural gas pipeline and storage systems; gathering systems and processing and treating facilities; liquids fractionation facilities and transportation systems; and LNG regasification, liquefaction and storage facilities.
“We expect demand for natural gas to grow substantially between now and 2030, led by more than a doubling of demand for liquefied natural gas exports and a more than 50% increase in exports to Mexico,” CEO Kim Dang said in a statement accompanying first-quarter financial results.
“We are also anticipating significant new natural gas demand for electric generation associated with artificial intelligence operations, cryptocurrency mining and data centers,” Dang said.
Invesco Energy Exploration & Production ETF (PXE)
For investors who don’t want to pick individual stocks, exchange-traded funds (ETFs) that invest in multiple companies can provide instant diversification.
Companies involved in natural gas are also often involved in oil, so it’s no surprise that this ETF includes companies that do both.
The fund invests in U.S. companies that explore, extract and produce crude oil and natural gas, including petroleum refineries, companies that gather and process natural gas or manufacture natural gas liquid.
Khandoshko says the fund is a strong pick. “It invests in U.S. companies engaged in energy resource exploration and production, offering broad exposure to the sector,” she says.
The fund has an expense ratio of 0.6%, or $60 per year for every $10,000 invested.
Hennessy Gas Utility Fund (GASFX)
This mutual fund invests in members of the American Gas Association that are in the AGA Stock Index.
More than 60% of the companies in the portfolio are in the utilities sector, giving this fund a more defensive nature than the Invesco offering, which has less than 3% allocated to the utilities sector through just one company.
Utilities are considered defensive investments because people will need to keep their lights on and homes heated and cooled regardless of what the economy is doing. That can be an important strategy in energy investing because stocks tied to oil and natural gas prices can be quite volatile.
The fund has an expense ratio of 1%.
First Trust Natural Gas ETF (FCG)
If you want a more aggressive fund in addition to PXE, you can consider this ETF, which is made up of companies that derive a substantial amount of their sales from the exploration and production of natural gas.
It only holds one utility company, which makes up less than 2% of its holdings. The rest are in the energy sector.
Although companies in FCG often are also involved in the oil industry, they must have proved natural gas reserves that meet certain requirements.
The fund has an expense ratio of 0.6%.
United States Natural Gas Fund LP (UNG)
This is a different type of fund. It doesn’t hold stocks but instead tracks natural gas futures.
The fund is good for investors who want to make short-term bets on the price of natural gas, rather than companies that produce it, but who don’t want to go through the hassle of getting special permission from their broker to trade futures directly.
But the fund has to be used wisely. It’s not a buy-and-hold strategy.
Because UNG doesn’t have the option of taking natural gas delivery or exiting the futures market, it has to continually roll over expiring futures contracts into farther-out ones. Because farther-out contracts are often more expensive, UNG loses value on that rollover.
“Generally, it is recommended to buy stocks or ETFs for investment purposes, and ETFs that track the dynamics of gas prices only for speculative short-term purposes, due to their loss in value when switching from the current futures contract to the next one,” Khandoshko says.
UNG has an expense ratio of 1.06%.
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7 Best Natural Gas Stocks and Funds to Buy originally appeared on usnews.com
Update 06/21/24: This story was previously published at an earlier date and has been updated with new information.
