Natural Gas Commodity Trading

In this guide:

Overview

The origins of natural gas can be traced back to ancient times when the famous Oracle at Delphi on Mount Parnassus produced a flame from the ground, and before that there is evidence of the Chinese in about 500 B.C, using rudimentary bamboo pipelines to transport gas that seeped to the surface in order to boil seawater and turn it into drinking water.

Fast-forward through the ages to Britain in 1785 to find the first natural gas produced from coal as a way to light houses and streets, followed by Baltimore in 1816 becoming the first city in the United States to achieve the same feat.

Natural gas subsequently became a major source of lighting throughout the 19th century until Robert Bunsen invented the Bunsen Burner and natural gas became a source of energy to heat homes and power appliances such as cookers and water heaters.

Natural gas is now firmly established as a vital solution to the world’s energy needs and it is estimated that gas accounts for more than half of all energy consumed by customers and over 40% of the energy used by U.S industry. There is strong evidence to suggest that natural gas is nowhere near reaching its full potential. There will be more reliance on this energy source in the future, especially for heating and cooling systems and industrial output. ExxonMobil predict that natural gas will surpass coal by 2040 in terms of all energy uses combined.

What Affects the Price of Natural Gas?

  1. Weather
  2. Economic conditions
  3. Competition between energy sources
  4. Crude Oil Price
  5. Reserve levels

If you are considering investing in natural gas and want to know how best to gain some exposure to this commodity you will also need to know what key factors tend to influence and drive the various markets.

One of the key drivers of the price of natural gas is the weather. Seasonal weather and extreme conditions such as storms and hurricanes can prove hugely influential on natural gas production and if refineries are forced to shut or slow down their regular output this is going to cause supply concerns.

Conversely, milder weather during traditional periods where natural gas usage would be higher is often the cause of lower prices when consumers don’t need to heat their homes as much. Always be mindful of weather conditions and high-profile seasonal events that force prices higher or lower.

The price of natural gas does also tend to be a fairly reliable indicator of the state of the economy. It is often the case that as the economy grows the price of natural gas moves upward in response to the favorable conditions. The reason for this is that with an increased demand for goods and services, industrial output rises and natural gas usage rises in parity.

Competition between different energy sources is also a factor that drives natural gas prices. Energy companies and industrial operations are constantly looking to leverage the most cost-effective natural fuel source currently available and fuel markets are interrelated. This means that any notable swings in the price of natural gas, oil, or coal, will often have the effect of driving down the price of the others.

Coal still currently generates more electricity than natural gas but the use of natural gas is rising because of its lower carbon footprint and greater availability, so it is possible that competitive forces might not be so pronounced in the future if the use of coal declines.

The price of crude oil has the ability to influence the use and price of natural gas.

Crude oil price fluctuations can affect natural gas prices far more than coal or other home heating oils. It is also worth remembering that crude oil refineries extract dissolved associated natural gas from crude oil as a byproduct of the purification process. The relevance of this is that if crude oil production costs rise it is going to mean that the cost of producing natural gas will rise in unison.

The factor that exerts the greatest influence on natural gas prices is the level of reserves. It stands to reason that if reserves of natural gas are not adequate enough to meet demand during peak usage months those scarcity concerns are going to be reflected in the price. Always aim to keep a watchful eye on the level of natural gas reserves, as it pays to anticipate whether low reserves could drive prices higher, or high levels and lower demand could have the opposite effect.

Natural Gas CFDs

A “Contract For Difference”, or CFD, is a contract between an trader and a broker where the underlying asset, in this case the natural gas, isn’t bought or sold but instead you’re buying or selling a number of units for a particular financial instrument, depending on whether you think prices will go up or down.

Start Trading Natural Gas

Plus500 logo

One broker for trading energy commodities, like natural gas, is Plus 500. They offer…

  • (T&Cs Apply)
  • Up to 1:300 leverage
  • (iOS, Android, Windows & web)

Start Trading at Plus500.com Important: Your capital is at risk. CFD services are suitable for experienced traders only.

Natural Gas Stocks

One way to gain exposure the natural gas as a commodity is to acquire shares in natural gas explorers and producers. Here are 5 natural gas companies that you might consider (this is not an investment recommendation):

 Current PriceOverviewListingsFoundedNumber of EmployeesInteresting Fact
BHP Billiton
Anglo-Australian multinational mining, metals and natural gas company.London (LSE)
New York (NYSE)
Johannesburg (JSE)
Sydney (ASX)
188560,000+The World's Second Largest Mining Company
Antero Resource Corporation
Natural gas and oil company based in Denver, CO.New York (NYSE)2002500Owns 485,000 acres in the southwestern core of the Marcellus Shale.
Enterprise Products Partners
Natural gas and oil pipeline company headquartered in Houston, TX.New York (NYSE)19686,000+Owns 50,000 miles of pipeline
Phillips 66
Multinational energy company based in Houston.New York (NYSE)191714,000+Warren Buffett's Berkshire Hathaway is a significant shareholder
Cheniere Energy
Developer and operator of natural gas terminals.New York (NYSE)1983900Cheniere's NYSE ticker is LNG, representing their biggest product - liquefied natural gas

Natural Gas ETFs

Exchange-traded funds or ETFs allow traders to track the price changes of natural gas and gain exposure to this market. You can choose funds that track the performance of natural gas prices using futures contracts or funds tied to a basket of gas company equities. Here are 5 leading natural gas ETFs (inclusion is not a recommendation to invest):

United States Natural Gas FundFirst Trust ISE-Revere Natural Gas Index FundS&P Oil & Gas Exploration & Production Select IndustryDow Jones U.S. Oil & Gas IndexVelocityShares 3x Long Natural Gas

Natural Gas Futures

Natural gas futures contracts are traded on the New York Mercantile Exchange (NYMEX) under the symbol NG. Natural gas is the third most traded of all the commodities. Traders are active Monday to Friday but activity spikes on Thursdays as the Department of Energy releases its weekly natural gas storage report.

NYMEX natural gas futures represent 10,000 million British thermal units (mmBtu), and are priced in dollars and cents per mmBtu.  The price for natural gas futures contracts is based on delivery at the Henry Hub in Louisiana.

It is possible to engage in natural gas trading on the Australian Securities Exchange (ASX), the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE), the European Energy Exchange (EEX) and the Multi Commodity Exchange of India (MCX), among others.

Ready to Start Trading Natural Gas ?

Plus500 logo

One broker for trading energy commodities, like natural gas, is Plus 500. They offer…

  • (T&Cs Apply)
  • Up to 1:300 leverage
  • (iOS, Android, Windows & web)

Start Trading at Plus500.com Important: Your capital is at risk. CFD services are suitable for experienced traders only.