Over millions of years, the remains of plants and animals (such as diatoms) built up in thick layers on the earth’s surface and ocean floors. Through time, these layers were buried under sand, silt, and rock. Pressure and heat changed some of this carbon and hydrogen-rich material into coal, some into oil, and others into natural gas.

Focusing specifically on natural gas (the cleanest fossil fuel), its largest component gas is methane, a compound with one carbon atom and four hydrogen atoms (CH4). Natural gas also contains smaller amounts of natural gas liquids (NGLs) and non-hydrocarbon gasses, such as carbon dioxide and water vapor.

Natural gas systems include wells, gas gathering, and processing facilities, storage, as well as transmission and distribution pipelines. These components are all important aspects of getting natural gas out of the ground and to the end user.

Natural gas systems encompass the following industry segments:

: Getting raw natural gas from underground formations.

: This involves stripping out impurities and other hydrocarbons and fluids to produce pipeline grade natural gas that meets specified targets. Pipeline quality natural gas is 95% to 98% methane).

: This encompasses delivering natural gas from the wellhead and processing plants to city gate gas stations and/or industrial end users. Transmission occurs through a vast network of high pressure pipelines. Natural gas storage falls within this sector. Natural gas is typically stored in depleted underground reservoirs, aquifers, and salt caverns.

: Delivery of natural gas from the major pipelines to the end users.

The reason for investing in the natural gas industry is very basic – increasing demand and limited supplies.

In its Short-Term Energy Outlook 2021, the U.S. Energy Information Administration (EIA) predicts that natural gas consumed to generate electricity in the United States during the summer of 2023 will average 38 billion cubic feet, the second most on record behind the 39 billion recorded last year. (1)

Global natural gas demand is forecast to grow by 50% to 5.92 trillion cubic meters by 2050 from 2019 levels (2), the Gas Exporting Countries Forum said about a year ago in its Global Gas Outlook.

Its forecast for gas demand growth is broadly in line with forecasts from other organizations on an annualized basis. The International Energy Agency (IEA) sees global gas consumption reaching 5.22 trillion cubic meters by 2040 (3). S&P Global Platts Analytics forecast global gas demand at 5.29 trillion cubic meters in the same time frame.

LNG (liquified natural gas) is set for strong growth, as domestic supply in key gas markets will not keep up with demand growth. According to McKinsey, LNG demand is expected to grow 3.4% a year to 2035 (4), with some 100 million metric tons of additional capacity required to meet both demand growth and decline from existing projects. 

LNG demand growth will slow, but will still grow by 0.5% from 2035 to 2050, with more than 200 million metric tons of new capacity required by 2050.

All this demand has run smack into a lack of investment in the industry.

Moody’s recently released research in which it found the energy industry will need to increase its capital investments by as much as 54% to avoid a major supply crunch in the coming years. The firm estimated that the $352 billion of industry capital investment during 2021 would need to rise to $542 billion in order to keep pace with new demand.

Moody’s report is consistent with earlier reports by Rystad Energy and Wood MacKenzie estimating the industry has been under-investing since 2015 in the finding and development of new reserves that will be needed to meet rising demand.

So, how can you invest in the natural gas industry amid all these growth predictions? Exchange-Traded Funds (ETFs) are one possibility, as is buying a futures contract, or even investing directly into natural gas stocks, such as EQT (

There are five natural gas ETFs to choose from currently. Please note that some ETF investments offer exposure to both the oil and gas markets simultaneously as these commodities are sometimes lumped together.

If you decide to invest in natural gas futures, keep your eyes peeled on Thursdays, when the U.S. Department of Energy releases its weekly natural gas storage report.

Lastly, investors can opt to invest in companies involved in the natural gas market. As with ETFs, many companies that are exploring for or producing natural gas are also focused on oil. It is difficult to find companies that are aimed purely at natural gas.

For help in finding natural gas-related investments, make sure you check out your 

“Short-Term Energy Outlook, May 09, 2023, EIA.gov, 

https://www.eia.gov/outlooks/steo/report/natgas.php

“Global gas demand to rise 50% by 2050, gas export group says”, February 24, 2021, S&P Global, 

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/global-gas-demand-to-rise-50-by-2050-gas-export-group-says-62844254

“Global natural gas demand set for slow growth in coming years as turmoil strains an already tight market”, July 05, 2022, IEA.org, 

https://www.iea.org/news/global-natural-gas-demand-set-for-slow-growth-in-coming-years-as-turmoil-strains-an-already-tight-market

"Global Gas Outlook to 2050”, McKinsey.com/, 

https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-gas-outlook-to-2050

The information and data are as of May 12, 2023 unless otherwise noted and subject to change. This blog is sponsored by Magnifi.

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