Which Natural Gas Strategy Is Right for You?
Of the traditional energy sources that America and the world rely on to provide heat, light and motion, natural gas has always been seen as a regional commodity. However, once the key was found to unlock oil production from shale in the 1990s, increased oil production led to an oversupply of associated gas produced with every oil barrel pumped and the search was on for new markets.
Soon the market turned to liquefied natural gas (LNG) and opportunities for international trading were opened. As a result, new strategies for investing in this clean burning fuel, including those offered at gas trading company Sugar Land TX, have become available.
Among the most popular investments include:
- Natural gas futures: Traded on the Chicago Mercantile Exchange, gas futures are based on delivery at Henry Hub, in Louisiana, and settled in volume units of 10,000 million Btu.
- Natural gas options: Contracts for options on gas futures are also traded on the CME and carry a strike price above which the option posts a gain after covering the purchase premium.
- Natural gas EFTs: These exchange traded funds are bought and sold as shares like equities but include a mix of companies. Some also include leveraged buys on the commodity and carry greater volatility risks.
- Natural gas shares: Direct investment in natural gas producers and mid-stream operators. While gas equities can provide leverage into the gas market, other factors such as regional demand, regulations and company management should be considered.
- Natural gas CFDs: These broker-managed investment instruments are known as a contract for derivative. Contracts are based on the difference in the current price of natural gas or gas shares and the price at the time of purchase and allow the investor to speculate on price movement without purchasing futures, options or shares.
Opportunities to leverage increased gas demand, as a hedge against inflation and a weak U.S. dollar and to diversify a portfolio may be found with investments in natural gas.