The global liquefied natural gas industry is projected to maintain an 8.1% compound annual growth rate from now until 2030, according to Grand View Research. The high growth rate comes as individuals and businesses look for energy sources that emit fewer carbon emissions than coal, though natural gas has its own environmental drawbacks.
Consisting mostly of methane, natural gas is accessible from natural reserves. It gives individuals and businesses options for powering their vehicles, electricity and heat. The U.S. is the world’s largest natural gas producer, with almost a quarter of the market.
While U.S. natural gas producers make a sizable amount of their money in the U.S., they also transport the natural gas to other regions where they can charge higher prices.
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Liquefied natural gas, in particular, can be cooled and transported by ship. It’s more convenient to transport than non-liquefied natural gas.
Transporting natural gas has been a game changer for the industry, says Davide Accomazzo, instructor of finance at Pepperdine Graziadio Business School. “Modern technology has reduced the cost of liquefying the gas and delivering it around the world on special cargos. This development has opened up the door to opportunities in LNG terminals and cargos, and allowed for better pricing of the commodity.”
Many natural gas investments aren’t for beginners due to their volatility, but they have the potential to outperform the stock market. David Materazzi, CEO of Galileo FX, outlines the investment opportunity: “Natural gas is turning into a strong investment as demand grows for power, factories and heating homes, with a 2.5% increase expected this year.” Asia is seeing rapid growth, but the U.S. and Middle East will remain key suppliers. Seen by some as a “bridge fuel,” natural gas burns cleaner than coal or oil, making it a reasonable option while economies transition to renewables.
Investors should also note there is a rising interest in liquefied natural gas in countries in Europe and Asia that are eager to import more for energy security. Natural gas prices can jump around quite a bit due to weather, political policies, demand and other factors.
This sector isn’t for the faint of heart, but these seven natural gas investments have the potential to outperform the market:
| Natural Gas Stocks/Funds | Yield |
| Cheniere Energy Inc. (ticker: LNG) | 1.0% |
| Sempra (SRE) | 3.0% |
| Kinder Morgan Inc. (KMI) | 5.5% |
| Invesco Energy Exploration & Production ETF (PXE) | 2.4% |
| Hennessy Gas Utility Fund (GASFX) | 2.2% |
| First Trust Natural Gas ETF (FCG) | 2.8% |
| Antero Resources Corp. (AR) | 0.0% |
Cheniere Energy Inc. (LNG)
The Houston-based energy company owns and operates two natural gas liquefaction and export facilities. It has a total production capacity of approximately 30 million metric tons of liquefied natural gas per year.
Cheniere Energy generated $3.3 billion in the second quarter of 2024, prompting the company to raise its full-year 2024 financial guidance. The LNG exporter anticipates consolidated adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, ranging from $5.7 billion to $6.1 billion. It also expects full-year 2024 distributable cash flow to range from $3.1 billion to $3.5 billion.
The energy company also distributed a quarterly dividend of about 44 cents per share. LNG’s yield is a hair below 1%, but the company has maintained a double-digit dividend growth rate for multiple years.
Sempra (SRE)
Sempra is a premier energy infrastructure company headquartered in San Diego. The company generates revenue through its energy networks and investments in California, Texas, Mexico and the LNG export market.
Shares are up about 11% year to date and come with a 3% yield. The stock has also almost tripled over the past five years, and the company has a $52.9 billion market cap. The company touted “stable, contracted cash flows with strong earnings visibility” in its second-quarter earnings presentation. The company built, rebuilt or upgraded 1,050 miles of pipelines in the quarter.
GAAP earnings per share came in at $1.12 in the quarter compared to 95 cents in the same quarter last year. That’s an 18% year-over-year increase.
Kinder Morgan Inc. (KMI)
Kinder Morgan is up by nearly 20% year to date and comes with a dividend yield approaching 5.5%. It’s one of the largest energy infrastructure companies in North America and the largest energy infrastructure firm in the S&P 500. Kinder Morgan operates about 79,000 miles of pipelines and 139 terminals. The energy firm has 702 billion cubic feet of working natural gas storage capacity.
The company reported flat EPS year over year in the second quarter of 2024 while delivering an annualized dividend of $1.15 per share. Executive Chairman Richard D. Kinder expressed optimism about the company’s continued internal investments and high cash flow.
“We continued to internally fund high-quality capital projects while generating cash flow from operations of $1.7 billion and $1.1 billion in free cash flow (FCF) after capital expenditures,” Kinder stated in the Q2 2024 earnings press release.
Invesco Energy Exploration & Production ETF (PXE)
You don’t have to invest in one natural gas stock to get exposure to the industry. Instead of picking the right stocks, you can put your capital to work in the Invesco Energy Exploration & Production ETF. This exchange-traded fund has a 12-month distribution rate of 2.4% and a 0.63% expense ratio. It’s been around since 2005.
Most of the fund’s 30 holdings are small- or mid-cap companies. The largest holdings are Marathon Petroleum Corp. (MPC) (5.3%), Valero Energy Corp. (VLO) (5.2%) and Phillips 66 (PSX) (5.1%). PXE uses the Dynamic Energy Exploration & Production Intellidex Index as its benchmark. The fund contains a mix of companies that generate revenue from crude oil and natural gas from land-based or offshore wells. The fund is balanced every quarter in February, May, August and November.
Hennessy Gas Utility Fund (GASFX)
The Hennessy Gas Utility Fund has rallied by more than 14% year to date while having a yield above 2%. The mutual fund prioritizes distribution-focused natural gas companies by incorporating an index strategy. Many of GASFX’s holdings are mid-cap value stocks.
Ryan C. Kelley and L. Joshua Wein are the two portfolio managers, and they’ve had a relatively long tenure. Kelley has been with the fund for 12 years, while Wein’s seniority with the fund exceeds six years.
GASFX holds shares of publicly traded members of the American Gas Association, which compose the AGA Stock Index. The fund uses an equal-weighted approach. It tracks the index on a real-time basis and has a 1% gross expense ratio. The top three holdings are currently Cheniere (5.6%), Oneok Inc. (OKE) (5.2%) and Atmos Energy Corp. (ATO) (5.1%).
First Trust Natural Gas ETF (FCG)
FCG consists of publicly traded companies that make most of their revenue from the exploration and production of natural gas. The fund has a volatile history but has generated an annualized net asset value increase of 26.8% over the past three years. Almost 98% of its holdings are in the energy sector, while the remaining holdings are in the utilities sector.
The First Trust National Gas ETF has 44 holdings with a median market cap of $4.9 billion. FCG has a 12-month distribution rate of 2.8%.
Antero Resources Corp. (AR)
Headquartered in Denver, Antero Resources has a large portfolio of low-cost, liquids-rich drilling opportunities that prioritize oil and natural gas. It gathers resources in the Appalachian Basin and also focuses on the Marcellus and Utica shales, which are two of the premier North American shale options. The energy infrastructure firm has been around since 2002.
In the second quarter of 2024, net production averaged 3.4 billion cubic feet equivalent per day (Bcfe/d), which represents a 1% year-over-year increase. Antero Resources raised its 2024 full-year guidance, suggesting production will range from 3.375 to 3.425 Bcfe/d.
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7 Best Natural Gas Stocks and Funds to Buy Now originally appeared on usnews.com
Update 09/10/24: This story was previously published at an earlier date and has been updated with new information.
