Investing in natural gas mlps

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This was due to natural gas being the energy of choice for utilities and as industrial and commercial use fell, residential usage increased. Margins on residential gas are higher than on industrial and commercial. Because of this phenomenon, gas utility funds in particular may provide a more stable commodity for investors seeking true asset class diversification. Risks of Investing in Natural Gas Any investment comes with risks. This should cause natural gas prices to rise, but likely remain at relatively low and competitive levels.

Lower-priced substitutes: If prices from other sources decrease dramatically or if natural gas prices increase for a prolonged period, utilities may consider converting their plants. Global economic or political turmoil: Turmoil elsewhere would likely strengthen the US dollar and weaken demand for commodities.

Other approaches, such as natural gas futures, options on futures, and contract for difference CFD derivative instruments can be quite risky and require a high degree of sophistication. Individual Natural Gas Stocks Buying shares in publicly held natural gas companies — natural gas producers or production infrastructure companies — has advantages and disadvantages.

The investor has complete control of which companies to invest in and the stocks they buy are highly liquid. However, building a diversified portfolio requires extensive research given that the energy sector comes with risks beyond typical management issues and competitive dynamics.

Geopolitics can upset markets overnight and natural gas prices are based on many complex factors and can be volatile see the Natural Gas Value Chain section below for a more in-depth look at the categories of companies in the sector.

Further, many natural gas companies are involved in other energy products such as crude oil and will be significantly impacted by those sectors. Natural Gas Mutual Funds To mitigate the risk associated with picking individual stocks, many investors choose natural gas mutual funds. These funds represent a portfolio of investments in stocks of natural gas companies and can cover a wide range of market caps and styles.

They can also focus on a particular aspect of the industry. For example, funds that focus on natural gas distribution provide investors the opportunity to benefit from the growing demand for natural gas while limiting exposure to negative trends affecting other energy companies such as companies that operate in crude oil drilling in addition to natural gas.

Selecting Natural Gas Mutual Funds We encourage investors considering how to invest in natural gas to look at all available natural gas mutual funds to find the best funds that match their portfolio objectives.

Hennessy offers the Hennessy Gas Utility Fund , a natural gas mutual fund. Here are a few highlights: Focus on Distribution: The fund invests in the distribution side of the natural gas industry. This provides exposure to the growing demand for natural gas while limiting exposure to negative trends affecting other energy companies. Historically Steady Dividend Payouts: Due to their relatively stable revenue streams, we expect dividend payouts to remain steady for the vast majority of our portfolio companies.

Participation in Expansion of Renewable Energy: Many of the companies in the fund offer a diverse portfolio of energy solutions, providing not only natural gas but also renewable energy sources including solar, wind, and hydropower. Natural Gas Overview To aid in your decision on whether and how to invest in natural gas, this section provides more background on the sector overall.

What Is Natural Gas? Natural gas is a mixture of gases created deep underground as pressure and heat transformed carbon and hydrogen-rich plant and animal remains millions of years ago. Sources of Natural Gas Natural gas is found in four main places as follows: Conventional natural gas occurs in spaces between layers of overlying rock formations.

Unconventional natural gas, also known as shale gas or tight gas, is found in small spaces within sedimentary rock such as sandstone or shale formations. Associated natural gas occurs with crude oil deposits. Coal bed methane is found in coal deposits. Horizontal drilling and hydraulic fracturing in sedimentary rock account for the majority of the increase in natural gas production since and shale gas currently accounts for roughly two-thirds of the total natural gas produced. Each of these segments has unique characteristics and unique investment opportunities and risks.

Below we provide a summary of the main segments. In general, in the Natural Gas value chain, the closer you are to the end-user, the potentially more stability you have in your investments. This includes exploration, processing and field equipment and services companies. Profits for these companies are usually highly correlated with natural gas and oil prices. Midstream companies can often pass through fluctuations in natural gas prices to their customers and therefore their profits are not as correlated with natural gas and oil prices.

The infrastructure and processing required to convey natural gas from wells to residential consumers, commercial manufacturing or electric power plants can be simplified into 3 main steps as follows: Storage. Indeed, a primary driver of the current strong growth in demand for natural gas is that U. And, as a reliable and flexible source of energy, natural gas is well positioned to be used in combination with renewable energy sources such as wind and solar. Learn more about the role of natural gas in the energy transition.

Plentiful domestic supply and production capabilities According to the U. Energy Information Administration EIA , as of February , the United States has enough natural gas to last about 92 years, assuming the same production rate as in In addition to having plentiful reserves, the US has the infrastructure to take advantage of these resources. Since , the United States has surpassed Russia as the largest producer of natural gas.

Low cost of energy and high efficiency Not only does natural gas have a lower fuel cost than other fossil fuels, it has a lower levelized cost of electricity LCOE 1. LCOE represents all costs for a generating plant over its lifetime, such as operations and maintenance, in addition to the cost of the fuel. Plus, natural gas is extremely efficient. Increased exportation Developments such as liquefied natural gas LNG and compressed natural gas CNG have made trade in natural gas more practical and have made investing in natural gas more attractive.

The US is one the largest exporters of natural gas in the world and is expected to be the largest global exporter of LNG by Natural gas prices held fairly steady while oil prices fell to historic lows. This was due to natural gas being the energy of choice for utilities and as industrial and commercial use fell, residential usage increased.

Margins on residential gas are higher than on industrial and commercial. Because of this phenomenon, gas utility funds in particular may provide a more stable commodity for investors seeking true asset class diversification. Risks of Investing in Natural Gas Any investment comes with risks. This should cause natural gas prices to rise, but likely remain at relatively low and competitive levels.

Lower-priced substitutes: If prices from other sources decrease dramatically or if natural gas prices increase for a prolonged period, utilities may consider converting their plants. Global economic or political turmoil: Turmoil elsewhere would likely strengthen the US dollar and weaken demand for commodities. Other approaches, such as natural gas futures, options on futures, and contract for difference CFD derivative instruments can be quite risky and require a high degree of sophistication.

Individual Natural Gas Stocks Buying shares in publicly held natural gas companies — natural gas producers or production infrastructure companies — has advantages and disadvantages. The investor has complete control of which companies to invest in and the stocks they buy are highly liquid. However, building a diversified portfolio requires extensive research given that the energy sector comes with risks beyond typical management issues and competitive dynamics.

Geopolitics can upset markets overnight and natural gas prices are based on many complex factors and can be volatile see the Natural Gas Value Chain section below for a more in-depth look at the categories of companies in the sector. Further, many natural gas companies are involved in other energy products such as crude oil and will be significantly impacted by those sectors.

Natural Gas Mutual Funds To mitigate the risk associated with picking individual stocks, many investors choose natural gas mutual funds. These funds represent a portfolio of investments in stocks of natural gas companies and can cover a wide range of market caps and styles. They can also focus on a particular aspect of the industry. For example, funds that focus on natural gas distribution provide investors the opportunity to benefit from the growing demand for natural gas while limiting exposure to negative trends affecting other energy companies such as companies that operate in crude oil drilling in addition to natural gas.

Selecting Natural Gas Mutual Funds We encourage investors considering how to invest in natural gas to look at all available natural gas mutual funds to find the best funds that match their portfolio objectives. Hennessy offers the Hennessy Gas Utility Fund , a natural gas mutual fund. Here are a few highlights: Focus on Distribution: The fund invests in the distribution side of the natural gas industry.

This provides exposure to the growing demand for natural gas while limiting exposure to negative trends affecting other energy companies. Historically Steady Dividend Payouts: Due to their relatively stable revenue streams, we expect dividend payouts to remain steady for the vast majority of our portfolio companies.

Participation in Expansion of Renewable Energy: Many of the companies in the fund offer a diverse portfolio of energy solutions, providing not only natural gas but also renewable energy sources including solar, wind, and hydropower. Natural Gas Overview To aid in your decision on whether and how to invest in natural gas, this section provides more background on the sector overall.

What Is Natural Gas?