Natural Gas (NG)
The world's cleanest-burning fossil fuel and a key transition fuel in the shift to renewable energy.
2-Minute Beginner Summary
Natural gas heats homes, generates electricity, and powers industrial processes. It's the "cleanest" fossil fuel, producing less carbon than coal or oil. Prices are highly seasonal—spiking in cold winters and hot summers when heating and cooling demand surge. The U.S. is now the world's largest gas producer thanks to shale drilling.
What Is Natural Gas?
Natural gas is a hydrocarbon fuel found underground, often alongside oil. It's primarily methane (CH4) and is used for heating, electricity generation, and as a petrochemical feedstock.
Why NG Matters
Natural gas generates ~40% of U.S. electricity and is crucial for heating. As a "transition fuel," it bridges the gap between coal and renewables in the energy transition.
What Moves the Price?
Top 6 drivers affecting Natural Gas prices:
Weather
The #1 driver. Cold winters = heating demand. Hot summers = cooling/electricity demand.
Storage Levels
EIA reports weekly storage. Below-average storage = bullish. Above-average = bearish.
LNG Exports
U.S. LNG exports to Europe and Asia create new demand, supporting prices.
Shale Production
Prolific U.S. shale production keeps supply abundant, capping price rallies.
Coal-to-Gas Switching
When gas is cheap, utilities switch from coal. This creates a floor under prices.
European Gas Prices
TTF (European hub) prices influence U.S. LNG export economics.
Market Structure
Spot vs Futures
Henry Hub in Louisiana is the U.S. pricing hub. Futures are highly liquid but volatile. The front-month contract can swing 10%+ on weather forecasts.
Contango & Backwardation
Natural gas typically shows seasonality in its curve—winter months trade at premiums to summer months due to heating demand.
Key Exchanges: NYMEX (CME Group), ICE
Contract Size: 10,000 MMBtu per contract
Seasonality
Natural gas is the most seasonal major commodity.
Peak Months: December, January, February
Low Months: March, April, September, October
Winter heating season (Nov-Feb) typically sees highest prices. "Shoulder seasons" (spring/fall) are weakest. Summer can rally on AC demand.
Macro Sensitivity
Natural gas is less dollar-sensitive than oil because most trading is domestic. Industrial demand ties it to economic growth. Weather typically dominates macro factors.
- USD Sensitivity: neutral
- Inflation Sensitivity: positive
- Growth Sensitivity: positive
- Rates Sensitivity: neutral
Stock & ETF Exposure Map
Related Stocks
- EQT - EQT Corporation: Largest U.S. natural gas producer
- SWN - Southwestern Energy: Appalachian gas producer
- AR - Antero Resources: Natural gas & NGLs producer
- RRC - Range Resources: Marcellus Shale operator
- CHK - Chesapeake Energy: Major gas producer
- LNG - Cheniere Energy: Largest U.S. LNG exporter
- KMI - Kinder Morgan: Gas pipeline operator
- WMB - Williams Companies: Natural gas infrastructure
Related ETFs
Key Calendar & Reports
EIA Natural Gas Weekly Update (Weekly (Thursday))
Source: U.S. Energy Information Administration. Storage changes and production data
NOAA Weather Forecasts (Daily)
Source: National Oceanic and Atmospheric Administration. Temperature outlooks that drive demand forecasts
EIA Natural Gas Monthly (Monthly)
Source: EIA. Detailed production and consumption data
How to Trade Natural Gas
Trade via ETFs like UNG, or gain exposure through utility and pipeline stocks. Futures trade on NYMEX with high volatility.
Frequently Asked Questions
Why is natural gas so volatile?
Weather is unpredictable, storage is limited, and production takes time to adjust. A cold snap can spike prices 20% in days.
What is Henry Hub?
A Louisiana pipeline junction where the U.S. natural gas benchmark price is set. Most U.S. gas contracts reference Henry Hub.
How do LNG exports affect U.S. prices?
LNG exports create additional demand for U.S. gas. More export capacity = higher domestic prices, all else equal.
Is natural gas cleaner than oil?
Yes. Natural gas emits about 50% less CO2 than coal and 30% less than oil when burned. It's considered a "bridge fuel" to renewables.
What is contango roll yield in gas ETFs?
UNG and similar ETFs suffer when gas is in contango (futures > spot). They must sell low, buy high each month, eroding returns.
Why do gas prices differ by region?
Pipeline capacity limits can strand gas in producing regions (like Appalachia) while consuming regions (like New England) pay more.
How does renewable energy affect natural gas?
Wind and solar intermittency actually increases gas demand—plants ramp up when the sun doesn't shine or wind doesn't blow.
What are NGLs?
Natural Gas Liquids (ethane, propane, butane) are separated from gas and have their own markets. They're valuable petrochemical feedstocks.
Glossary
- MMBtu
- Million British Thermal Units - the standard pricing unit for natural gas.
- Henry Hub
- The Louisiana pipeline junction that sets U.S. natural gas benchmark prices.
- LNG
- Liquefied Natural Gas - gas cooled to -260°F for shipping in tankers.
- Storage
- Underground facilities (depleted wells, salt caverns) where gas is stored for winter.
- Heating Degree Days (HDD)
- A measure of heating demand based on how cold temperatures are.
- Cooling Degree Days (CDD)
- A measure of cooling demand based on how hot temperatures are.
- Shoulder Season
- Spring and fall periods between heating and cooling seasons when demand is lowest.
- TTF
- Title Transfer Facility - the European natural gas benchmark in the Netherlands.
- Associated Gas
- Natural gas produced alongside oil drilling (vs. dry gas from gas-only wells).
- Basis
- The price difference between Henry Hub and regional delivery points.