Natural gas has been a reliable source of energy since the mid-19th century and currently makes up around 16% of Australia's annual electricity production. Australia is also one of the world's largest liquid natural gas producers (LNG). Thanks to its availability and necessity it has become a mainstream commodity on the investment market.
This guide discusses the four main ways that you can invest in natural gas, as well as any risks that may come with those options:
Buy gas stocks
Buy gas ETF units
Trade gas futures
Invest in MLPs
If you're looking to invest in gas oil (i.e. crude oil), you might find our guide to investing in oil helpful.
Investing in gas ETFs
Exchange-traded funds (ETFs) are a way of investing your money in a selection of assets rather than buying shares in a couple of specific companies. Find out more about ETFs.
ETFs are fairly simple and accessible, and trading them works in a similar way to regular stocks. As well as being relatively straightforward, ETFs are also seen as less risky. By investing in a basket of assets you leave yourself less vulnerable to the fluctuations of the market.
If you are new to the world of investment then ETFs may be the best choice for you. Gas is an incredibly popular commodity, with a range of companies and ETFs to choose from.
There are not any gas specific ETFs on the ASX however there are several energy and commodity theme funds that include gas companies:
BetaShares Global Energy Companies ETF - Currency Hedged (FUEL)
Pros
ETFs give you widespread access to the natural gas industry at a competitive price.
In comparison to some of the other options ETFs are seen as a safer, more reliable choice for investors.
Cons
There is less control over your investment due to the diverse range of assets in an ETF.
Trading gas futures
Futures are a direct but risky investment which are subject to both the fluctuations of the market and the knowledge of the buyer. A high-risk, high-reward system, newcomers may want to gain some experience in the field before purchasing futures.
Futures, as the name suggests, are a way of buying gas at a later date at an agreed price. Depending on market movements you may end up making a solid return on your investment, or just as easily losing money.
In Australia, one of the most common methods for trading gas and other commodity futures is through CFD brokers. When trading CFDs, you'll never actually own the underlying asset. Instead you will be trading based on the future price of gas. You can check out the table below for more info.
Some of the most commonly traded 'gas' commodities in the futures markets include:
Liquid Natural Gas
Low Sulphur gasoline
Gasoline
Pros
With a good knowledge of the market and some good fortune gas futures could bring you large returns on your investment.
A very direct way of owning a share of a commodity.
Cons
The market is unpredictable and constantly fluctuating - futures are vulnerable to these movements and making the wrong investment can lose you money.
If you don’t act on futures within the specified period they expire and are worth nothing.
Buying shares in gas companies
Stocks are one of the more conventional ways to invest in a commodity. Gas is a popular investment and a necessary form of energy for many households around the world, so there are multiple gas-producing companies to choose from: ranging from Chevron to BHP to Beach Energy. Stocks are simple to buy through brokers and advisors, but the decision on what shares to buy is up to you!
Buying stocks takes some knowledge of the market and its fluctuations, but this can be safer than investing in futures as you buy stock at the current price that is displayed. However, ETFs may still be a safer option as you aren’t relying on the performance of just one or two companies.
Pros
One of the most conventional and accessible ways of entering the market.
Choose from a variety of stock from different companies.
Exit the market at any time.
Cons
Interference from businesses involved in the refining process can curb a company’s stock value, so share prices don't always grow at the same rate as the price of the commodity itself.
As with all shares on the stock market, their value can go down as well as up.
Investing in MLPs
It is also possible to buy stocks in Master Limited Partnerships (MLPs). These are structured to offer certain tax advantages that mean profits are only taxed when they are distributed to the general and limited partners of a company. This type of set-up is appealing to some investors, as MLP returns are not taxed in the same way as dividend-paying shares.
MLPs also tend to be seen as a lower risk, but longer term, investment option. There are some risks that come with MLPs however, including demand, market volatility and the fluctuation of prices, as well as new legislation, environmental disasters/hazards and political and social shifts.
Pros
Some of the dividend payments offered can bring strong returns on your investment.
MLPs are easy to access through brokers and advisors.
Cons
As with shares, businesses with an interest in the manufacturing process of gas can influence market value, meaning stock prices may not be in line with commodity prices.
Demand and market risk can have an impact on MLPs, and companies may choose to withdraw their dividends.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Disclaimer: General information only. All forms of investments (and in particular, trading CFDs, commodities and forex) carry significant risk, including the risk of losing more than the invested amounts, market volatility and liquidity risks. Past performance is no guarantee of future results. Such activities are not suitable for most investors.
Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Is gas a safe investment?
The world relies on gas for energy, and its abundance makes it a quite a reliable commodity on the stock market. However, the market is never completely safe, and gas is no exception:
Pipeline incidents: A risk for the environment as well as your profits, a burst pipeline can have disastrous effects on both your investments and the ecosystem at large.
Dividend cuts: Gas companies often distribute dividends to shareholders, which allows their investments to make a regular income. If a company cannot make enough money however, dividends can be cut. This can lead to stock prices plummeting.
Price volatility: Prices for gas have fluctuated violently over the years, usually as a result of shifts in supply. Gas is also seasonal, with people using more during the winter, which can also affect prices.
FAQs
The price of natural gas fluctuates regularly, although as supply has risen the price has slowly fallen in general over the past few years. The price of gas hit its highest peak for four years in November 2018, but has been on a steady downward trend since then.
Gas is found in rock formations deep underground. Once an area has been scouted for natural gas, a drill is set up to begin extraction. Often gas is extracted from the same source as crude oil, although using a different process.
The world's largest gas-producing nations include the USA, Russia, Iran and Qatar.
Important information: Powered by Finder.com.au. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.
Charlie Barton is a publisher at Finder. He specialises in banking and investments products. Charlie has a first-class degree from the London School of Economics, and in his spare time enjoys long walks on the beach.
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