As someone who may be fairly new to investing, you want to ensure you’re making the right decisions when it comes to your money and building real wealth. Rather than putting money into a low-interest-bearing savings account or a 5% government bond, you want to invest in securities like stocks as well as exchange-traded funds. You’re intrigued by the energy industry because you’ve heard it is stable and offers nice returns.
What you’ve heard is true. Energy investing is the right way to go about making money for a multitude of reasons. Energy investing is a great idea because the energy sector is huge. Every year, it makes record profits around the globe as more and more people need energy. The world will always require energy to run, so it’s a safe way to invest your money.
Even as alternative energy sources like solar and wind power emerge, they have yet to become as large as the fossil fuels industry, which includes oil and natural gas. If you’re looking into energy investing in natural gas, first discover some key facts about it so you know you’re making the right decision.
What Is Natural Gas?
Before you begin investing in natural gas, you need to know exactly what it is. Natural gas is a fossil fuel energy that is formed deep beneath the surface of the earth. It came from marine plants and animals that lived hundreds of millions of years ago under layers of rock, silt, and sand. Some of the remains were mixed with silt, sand, and calcium carbonate. Pressure and heat transformed some of the hydrogen- and carbon-rich material into coal. Some were transformed into oil and coal. Natural gas is made up of many different compounds with the largest being methane, and it’s used for fuel as well as to make chemicals and materials.
In some areas, natural gas is stored in spaces and large cracks between layers of overlying rock. This is called conventional natural gas. In other areas, natural gas is stored in the tiny spaces within various formations of sedimentary rock like shale and sandstone; this is called unconventional natural gas, tight gas, or shale gas. Some natural gas deposits are also found on the land or the ocean floor.
How Do We Locate Natural Gas?
We find natural gas by hiring geologists who can determine what kinds of geological formations are likely to contain it. On the land and in the oceans, geologists will utilize what is called a seismic survey to find natural gas. If geologists believe they have located it, then an exploratory well will be drilled, and the area will be tested. If there is enough natural gas found, a company will establish one or more development wells and the gas will be drilled for either vertically or horizontally. Prior to energy investing in natural gas, you should discover what the companies you’re investing in actually do. Perhaps they use innovative drilling technology or they’re the leaders of finding natural gas in places where other companies do not. That type of information is important to know before signing on.
How Large Is the Natural Gas Industry?
The natural gas industry is huge globally and it’s only getting bigger every year. In 1998, global natural gas production was 2268 billion cubic meters, and in 2017, it reached 3680.4 billion cubic meters. Natural gas supplies 23% of the global energy needs, and it’s expected to jump to 26% by 2040, which is why many are putting their money towards investing in natural gas.
The United States is the largest natural gas producer in the world, putting out 734.5 billion cubic meters per year. The other large natural gas producers are Russia, Iran, Qatar, and Canada.
As of 2017, the United States oil and gas industry brought in total revenue of about $146 billion, making it one of the most lucrative industries. The United States consumed about 20% of all natural gas in 2017 and uses 27.5 trillion cubic feet of natural gas per year. It will last the country another 90 years. The United States utilizes natural gas for electricity, petrochemical manufacturing, commercial uses, and heating and cooking.
China is also becoming a large consumer of natural gas as well. In 2016, its demand for gas increased by 15%, and by 2040, it’s expected to go up by 200%.
Is Natural Gas a Clean Fossil Fuel?
Natural gas is the cleanest fossil fuel, which makes it attractive to those looking into energy investing. When it’s burned, it releases 20 to 30% less CO2 than oil and up to 50% less CO2 than coal. When used for power generation, it puts out as much as 50% less CO2 than coal. Natural gas is a better alternative to coal and oil because it can improve public health as well as air quality.
Is Natural Gas a Reliable Industry?
Because of its ever-increasing demand and record profits, natural gas is thought of a reliable industry. However, there are risks involved for those who start energy investing in natural gas. For example, its profitability depends on supply and demand, so if gas prices fall, investors may be at risk of losing money. Since natural gas is a fossil fuel and does put out some harmful emissions, it faces pushback. Government regulations are also a concern because the government can decide where a company can and cannot drill.
When determining which energy investing path to take, investors should look at specific companies’ profits and reliability in the past. Did a company face government regulations for some of their practices? Have they been unsuccessful with exploratory drilling? Are they causing environmental harm? These are all factors you should investigate before making a decision.
How Do You Start Energy Investing in Natural Gas?
There are a few different ways you can begin energy investing in the natural gas industry. The first way is to invest in natural gas stocks. Some of the leaders in this industry include BHP (BHP), Antero Resources Corporation (AR), and EQT Corporation (EQT).
BHP is a natural gas and mining company that trades for around $45 per share. Its market capitalization is over $124 billion, and its dividend and yield are around $2.52 and 5.59%. Its headquarters are in Australia, and its revenue in 2018 was $43.64 billion.
EQT Corporation (EQT) is the largest producer of natural gas in the U.S., and it’s currently trading around $19 per share. In 2018, it made $3.378 billion. It is headquartered in Pittsburgh, Pennsylvania, and has more than 2,000 employees.
Antero Resources Corporation is a natural gas and oil company headquartered in Denver, Colorado. In 2018, it brought in $4.139 billion in profits, and it has a number of pipeline subsidiaries including Monroe Pipeline LLC. It’s currently trading for around $8 per share.
There are other natural gas companies out there to explore. Remember to look at earnings reports, who is in the leadership positions, their stock price history, and any news that has recently come out about them. You can begin energy investing in these companies by purchasing stocks through a platform like TradeStation or Ally. Remember to purchase all your shares at once since you get charged a certain fee per trade. These platforms will also have research you can dive into before making any decisions.
Another way to start energy investing in natural gas is through an exchange-traded fund (ETF). An ETF is a fund that encompasses many different natural gas stocks, so it’s less of a risk than investing directly in a company.
For example, United States 12 Month Natural Gas Fund LP has $4.85 million asset funds under management, and its stock name is UNL. Currently, it’s trading for around $11 per share. VelocityShares 3X Inverse Natural Gas ETN has $275.36 million in assets under management and is trading at around $94 per share. Again, do your research on each ETF and see how they have done for investors in the past before you put your money into it.
How Do You Learn More About Energy Investing?
If you want to keep learning about energy investing, then subscribe to Energy Advantage Investor, a newsletter that provides you with investing advice from Dr. Kent Moors. Moors is an internationally recognized expert in the energy industry and serves as an advisor to several governments around the world who seek out his expert insight. When you subscribe, you gain access to his knowledge about energy investing and can learn where to put your money to make it grow exponentially. If you want to take your energy investing to the next level, make sure you sign up for Energy Advantage Investor today.