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How To Invest in Natural Gas UK

With energy prices set to rise this winter due to global supply chain issues and the war in Ukraine, natural gas demand could be set to increase. As a result, stocks and shares involved in the natural gas industry could be positioned for a strong year.

So, find out how to invest in natural gas in my guide, including everything you need to know.

Also consider: Best Stocks and Shares to Buy Now

5 steps to invest in natural gas UK

  1. Choose a trading platform – I have detailed the best options below
  2. Open an account – Select the appropriate account and provide necessary details
  3. Deposit funds – Do this with your payment method of choice
  4. Research natural gas investments – Research which natural gas investment to make
  5. Make your investments – Place your chosen investments with your broker and that’s it

5 easy steps to investing in natural gas UK

Step 1: Choose a trading platform

First, you’ll need to choose the trading platform or stock broker that you’re going to invest through.

Finding the right one for you will depend on various factors that you’ll want to take into account. This might include:

  • Fees, including account fees, withdrawal fees, and inactivity fees
  • Rates of commission on each investment
  • Range of assets available
  • Educational tools and materials to help you expand your knowledge of investing.

There are many different platforms and brokers out there, so read my list of the best investment apps to help you make a decision.

Step 2: Open an account

Once you’ve chosen a platform, you’ll need to open a trading account. There are various options here but some of the most common types tend to be:

  • General Investment Account (GIA) – invest as much as you like without limits.
  • Stocks and Shares ISA – invest up to the ISA allowance (£20,000 in 2022/23) each tax year. Any interest or returns you receive will be entirely free from Income Tax and Capital Gains Tax (CGT).
  • Lifetime ISA (LISA) – if you’re aged between 18 and 39, invest up to £4,000 each tax year and receive a 25% government bonus (up to £1,000 each tax year) on your contributions. LISAs come with the same tax-efficient benefits as Stocks and Shares ISAs, and your £4,000 will count towards your ISA allowance.
  • Self-invested personal pension (SIPP) – invest towards your future and receive tax relief on your contributions at your marginal rate of Income Tax. Any returns generated will also be free from Income Tax and CGT. You typically won’t be able to access your money before age 55 (rising to 57 in 2028).

Each account comes with various benefits and drawbacks, so read up on each kind before you open one.

Step 3: Deposit funds

Next, you’ll need to deposit funds to your chosen account. You’ll typically be able to do this online via credit or debit card, bank transfer, or potentially mobile payments such as Google Pay or Apple Pay.

Step 4: Research natural gas investments

After you’ve put money into your chosen investment account, you’ll need to research the natural gas investments you’re interested in.

I’ve included five natural gas stocks later in my guide that analysts are keeping an eye on at the moment to help you make a start. There are many other companies available across the stock market that may be suitable for you, too.

There are also various different ways to invest in natural gas, from buying individual stocks and shares to trading natural gas futures and other investment derivatives. Find out more about these options later in my guide.

Step 5: Make your investments

You’re ready to go! Place your chosen investments with your broker and that’s it.

Remember to keep an eye on your portfolio and make adjustments when necessary.

How can I invest in natural gas?

As I briefly mentioned above, there are a variety of ways you can invest in natural gas companies.

Here’s an in-depth look at the different ways you can invest in natural gas.

Buying stocks and shares

Buying individual stocks and shares is perhaps the most common way to invest, selecting companies and buying shares in them.

You can then make money from shares by either collecting dividend payments if the company offers these, or selling your shares for more than you paid for them if they rise in value.

Shares tend to be a fairly liquid investment, generally being easy to sell so you can access your money if you need to. They are typically more suitable as part of a long-term investment strategy.

Is natural gas a buy or sell?

Whether you should buy or sell natural gas currently comes down to the price of gas and the individual companies you’re interested in.

Below in my guide, I have included five stocks that some analysts have labelled as a “buy” in the current climate.

However, this does not mean that all natural gas stocks are a buy, or that they are appropriate for you personally.

Investing through funds

Alternatively, rather than selecting individual stocks and shares, you could instead choose to invest in multiple companies all at once by buying units in an investment fund.

In an investment fund, your money is pooled together with other investors. A fund manager then makes the decisions over what to include in the fund, keeping an eye on how the investments perform.

For you, buying units in a fund can be preferable to buying individual stocks and shares as it gives you exposure to other investments.

You might choose a fund that has a range of different assets alongside natural gas, or you could choose funds that specifically focus on energy and commodity investing, putting your money in a range of natural gas stocks all at once.

You can then generate a return from a fund from dividends paid out by the constituent companies, or by selling your units for more than you paid for them.

The downside to investing in funds is that you’ll have less control over where your money is invested. You may also face percentage-based fees charged on the fund to compensate the manager looking after the investments.

Are there natural gas ETFs?

While most of them are located in the US, there are also some natural gas ETFs that you may want to consider.

An ETF, or “exchange-traded fund”, is the same as other investment funds except that units in them can be traded like a stock throughout the day on an exchange.

Natural gas ETFs that you could invest in include:

  • WisdomTree Natural Gas ETF
  • United States Natural Gas Fund LP
  • ProShares UltraShort Bloomberg Natural Gas.

Make sure these ETFs suit your trading needs before you invest.

Futures contracts and trading derivatives

Rather than buying stocks or units in funds, you could consider futures contracts or derivatives to generate returns over a shorter time frame than with shares and funds.

Futures contracts

In a futures contract, you agree to exchange a commodity (in this case, either a contract for natural gas or a share in a natural gas company) at a predetermined price on a specific date in the future – hence the name.

You can make money here by buying or selling a natural gas futures contract depending on whether you think it is worth more or less than the predetermined price that you will have to pay when the contract finishes.

This can be complicated so only invest in futures contracts if you fully understand how they work.

Trading derivatives

You can also trade derivatives on natural gas stocks and shares, speculating on the price of natural gas companies.

Typically, there are two main ways to do this:

  • Spread betting, in which you speculate on whether a stock or share will rise or fall in value. You then make or lose money depending on whether your bet was correct and how far the stock moved in value.
  • Contracts for difference (CFDs), in which you speculate on the movement of a stock, receiving the difference in price from when you opened the contract.

Both futures contracts and derivatives can be traded on a margin, allowing you to magnify your gains with a smaller upfront investment. However, remember that this also means losses will be magnified too.

Bear in mind that derivative trading is highly complex and you there’s a high risk of losing money. In fact, between 50-70% of retail investor accounts lose money when trading CFDs.

You can read more about these options in my guides to spread betting and CFDs.

5 top natural gas stocks

Now that you know how to invest and the different options for doing so, you’ll also want to know about some of the most significant natural gas companies in the sector.

So, here are five stocks analysts have their eyes on in August 2022 that you could consider for investing in natural gas.

  1. Cheniere Energy
  2. Devon Energy
  3. Kinder Morgan
  4. Ovintiv
  5. Southwestern Energy
Cheniere Energy logo

1. Cheniere Energy

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A liquefied natural gas company, Cheniere Energy is headquartered in Houston, Texas in the US.

The business is involved in liquefied natural gas production and, since 2016, exportation.

Thanks to a business model that centres around long-term, fixed-rate contracts, the company is able to generate a predictable cash flow – indeed, through 2024, the business reportedly expects to produce $10 billion in distributable cash flow.

Shares reached an all-time high of $148.99 on 29 July 2022 and could be poised for more growth if the business continues to perform as it has done over the past few years.

At market open on 4 August 2022, shares traded for $145.18.

Source: The Motley Fool

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Devon energy logo

2. Devon Energy

[stock_market_widget type=”leaderboard” template=”color-frame” color=”#232F43″ assets=”DVN” display_currency_symbol=”true” style=”width: 100%;” api=”yf”]

Devon Energy is one to watch in 2022 after releasing Q2 earnings and revenues that exceeded expectations. The company also confirmed a 22% increase to its dividend, rising from $1.27 to $1.55 a share.

The business is involved in the production of both oil and gas, giving it another source of revenue if one of these resources is performing poorly in world markets. This can potentially help to insulate it from volatile oil prices, or less lucrative periods of gas production.

Share prices reached an all-time high of $76.97 on 1 June, but quickly softened to $52.16 by 15 July. Even so, the current economic climate could be favourable for Devon Energy moving forwards.

Shares were trading for $56.22 at market open on 4 August 2022.

Source: Seeking Alpha

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Kinder Morgan logo

3. Kinder Morgan

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Rather than being involved in the production of natural gas, Kinder Morgan is involved in the infrastructure that brings the resource to homes in the US.

As of August 2022, the company claims to operate or own an interest in around 83,000 miles of pipeline and 141 terminals, transporting natural gas as well as crude oil, gasoline, and carbon dioxide.

Kinder Morgan’s shares trade for a slightly lower price than gas producers, opening at $17.76 on 4 August 2022.

Source: Nasdaq

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Ovintiv logo

4. Ovintiv

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Ovintiv was formerly known as Encana, which was the largest natural gas producer in Canada.

Now, the business bills itself as an “exploration and production company”, producing oil and gas from shale. It claims to have returned $2 billion to its shareholders since 2018, having managed to generate free cash flow each year.

As of 4 August 2022, shares opened at $46.49 on the New York Stock Exchange.

Source: Investopedia

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Southwestern Energy logo

5. Southwestern Energy

[stock_market_widget type=”leaderboard” template=”color-frame” color=”#232F43″ assets=”SWN” display_currency_symbol=”true” style=”width: 100%;” api=”yf”]

A natural gas exploration and production business, Southwestern Energy is based in Houston, Texas.

The company’s Q1 results were largely positive, reporting:

  • $317 million in free cash flow
  • A $508 million reduction in debt
  • $544 million invested in operational performance.

Shares in Southwestern Energy are remarkably cheap for a natural gas business, opening at $6.61 on 4 August. While this may make it more accessible for you as an investor, it’s important to remember that discounted shares may also present more of a risk to your money.

Source: Yahoo Finance

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

What is the best natural gas company to invest in?

As with most investments, the best natural gas stock for you will depend on your investment goals, your wider portfolio, and what your research reveals about the investments you’re considering.

If you think that gas prices are set to rise, investing in companies that produce and export it could be a sensible decision.

On the other hand, if the market is more uncertain, investing in businesses responsible for energy infrastructure could be a prudent choice – after all, even if the price of gas is low, it still needs to be transported to homes and businesses.

Take these considerations into account before you decide to invest.

Is natural gas a good investment?

Natural gas investing can potentially be a useful way to generate returns in your portfolio, provided that you do your research.

In the current high inflation environment as of August 2022, some businesses may struggle to attract investment as consumers tighten their belts, seeing share prices slump.

Meanwhile, companies that produce and export natural resources and commodities that are necessary for creating power and heat, such as natural gas, may be less affected by this pressure as their goods are practically irreplaceable.

Of course, this isn’t guaranteed and your investment could fall as well as rise in value.

If you’re unsure whether natural gas is the right investment choice for you, consider taking personal advice from a financial advisor.

What factors can affect the natural gas market?

When choosing gas stocks, it’s worth noting that there are several factors that can affect the price of natural gas and the performance of the entire energy sector.

Here are a few to bear in mind when investing in natural gas.

Government support

While it may be the cleanest-burning fossil fuel compared with crude oil, natural gas is still a fossil fuel. This may see gas producers struggle with government support.

For example, with the UK government seeking to meet a net-zero emission commitment by 2030, UK gas producers might not expect much natural gas investment and support over the next few years.

International relations and global events

The production and exportation of natural gas is an international business, meaning relationships between countries can directly affect supply and prices.

The current situation with Russia’s war in Ukraine is a notable example of how global events can affect the natural gas sector.

Russia is responsible for a great deal of natural gas production. So, as western economies impose sanctions and refuse to buy Russian gas, this will likely see natural gas prices rise as these countries seek to source their gas from elsewhere.

Time of year

Demand for gas will vary depending on the time of year, dictating natural gas prices. For example, UK homes typically use more gas in the winter for heat than they likely will in the summer.

How to invest in natural gas UK FAQs

Can I buy shares in natural gas?

Yes, you can buy shares in companies involved with the production and management of natural gas or its infrastructure. Simply research the companies you’re interested in, search for them on your investment platform or stock broker‘s website, and make your investment.

Is it a good idea to invest in natural gas?

Yes, it could be a good idea to invest in natural gas, provided that you do your research and understand the company you’re interested in. Our top pick for doing so is with eToro.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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