Natural gas is here to stay: 2 ETFs to add to your watchlist

Outlook for natural gas: 2020-2050

Indeed, the future for the natural gas and liquified natural gas (LNG) market looks bright. In a study by the McKinsey Global Institute published in 2021, the authors assert the growth for LNG will increase by 3.4 percent annually until 2035, then incrementally slow down to 0.5 percent from 2035 to 2050. The amount of natural gas needed to be produced at that rate post-2035 hovers around 200 million metric tons. The Energy Information Administration (EIA), which serves as the statistical agency for the Department of Energy, endorses this sentiment as they project the demand for natural gas to keep growing beginning from the early 2020s onward. The EIA estimates this projection is due to the increase in population and economic growth in the coming decades. 

Natural gas and geopolitics

Over the past two years, a strong interplay between natural gas and geopolitical events has transpired. The energy market was initially adversely affected during the peak of the pandemic, then recovered as demand surged. However, Russia’s invasion of Ukraine has had a larger disproportionate inflationary effect, as demand for the commodity increased even more due to the European Union’s (EU) reliance on Russia’s LNG. Western democracies have pledged to increase their own production in a bid to become more independent and rely less on autocratic states that do not share their values. Just recently, Canadian Prime Minister Justin Trudeau asserted his pledge to increase natural gas production as a solution to increase supply in the global market. 

Final takeaway and outlook for natural gas 

Natural gas prices surged to a 14-year high this month. With no end in sight to the geopolitical turmoil Europe is facing, as well as the fact that winter weather increases demand due to residential and commercial properties needing it as a source of heat, the natural gas market is likely to remain stable and strong. 

The following ETFs offer exposure to the investment potential of natural gas, and as commodity markets are typically very volatile, it is essential that investors understand the risks inherent in such an investment.

FCG – (Trust Natural Gas ETF)

• AUM: $912M
• Expense Ratio: 0.61%
• YTD performance: +45.78%

UNG – (United States Natural Gas Fund ETF)

• AUM: $546M
• Expense Ratio: 1.11%
• YTD performance: +117.29%

Data as of September 22, 2022.

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