How can you invest in natural gas?

There are several exchange-traded funds that track gas prices listed in the US, the UK and Canada. They are: US Natural Gas Fund (AMEX:UNG), iPath DJ AIG Natural Gas TR ETN (US), ETFS Natural Gas in the UK (dollar (LON:NGAS) and sterling (LON:NGSP) versions), and Horizons BetaPro NYMEX Natural Gas Bull Plus ETF (Canada) (PINK:HZBNF).

Although all major oil companies have substantial and increasing gas interests, only a handful of listed firms are gas specialists:

Gazprom , the Russian company whose shares or depositary receipts are listed in Moscow (RTD:GAZP), New York, London (LON:GAZP) and Frankfurt, is THE giant. It owns one-third of the world’s proven and probable reserves and accounts for a fifth of global production. Trouble is, the enterprise is clearly viewed by the Russian government as its political instrument, so the interests of foreign shareholders have low priority. Also, it has no spare productive capacity and a poor record for developing additional capacity.

BG Group (LON:BG) is the leading international natural gas specialist. Although originally British Gas, the North Sea now only accounts for about a third of its production, the rest coming from wells in Trinidad, Egypt and Nigeria. It is a front-runner in LNG, owning several liquefaction and regasification plants, including one of only four operating in the US.

It has landed a long-term contract with Singapore for three million tons of LNG that it plans to supply from a new Australian venture. It has a 25 per cent share in Tupi, the first field to be brought into production in Brazil’s newly-discovered and massive deep-water Sugar Loaf resource. And it has part of a promising prospect in Kazakhstan. Analysts expect its production to increase twice as fast as its giant rivals BP and Shell over the next few years.

Investing in natural gas: other exploration/production companies of interest

Woodside (ASX:WPL) is Australia’s leading independent with a strong focus on LNG. It operates two projects tapping the enormous gas reserves off the Northwest coast and has stakes in other sea-bed gas ventures off Australia and in the Gulf of Mexico.

North America offers the Canadian natural gas specialist EnCana (TSE:ECA), several producers with a strong focus on gas such as XTO Energy (NYSE:XTO), EOG Resources (NYSE:EOG) and Cimarex (NYSE:XEC), as well as trusts distributing income from gas royalties such as San Juan Basin (NYSE:SJT) and Hugoton (NYSE:HGT).

European Gas (ASX:EPG) is an interesting speculation. This Australian specialist in coal-bed methane has tied up the rights to tap gas from a large area of coalfields in France and Italy. It is drilling test wells at several sites this year.

If you remain positive about prospects for energy resources generally, as I do, because growth in supply will continue to struggle to keep pace with growth in demand, especially from China, then it’s a good idea to have some related holdings in your portfolio.

Natural gas looks even better than oil because of its superior attractions – in particular its relative price.

The Canadian analyst Kurt Wolff, reporting recently that demand for natural gas in the US electricity generating industry surged by 11 per cent last year, said that sign of strength “bolsters our confidence that natural gas price in million BTUs is headed to oil price in barrels divided by five – equivalent to twice today’s level.”

By Martin Spring in ‘On Target’, a private newsletter on global strategy

Source: How to Tap In to the High-growth Gas Business

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