Research Outline # 3
Title of Article: Natural Gas Investing – An Investor’s Guide
Author(s): Peter Bosworth
Publication Year: 2019
I. Thesis: Natural Gas is one of the cleanest safest fossil fuels, it’s lucrative and investing in it is a great way to diversify your portfolio
II. MAIN IDEA: Natural Gas has multiple uses.
A. People use natural gas in a variety of ways
1. Heats up about 50% of homes in the US and generates 33% of our countries electricity
2. Helps make propane, paints, medicine, plastic and antifreeze
B. Natural Gas Pipelines
1. Experts estimate that over the next 18 years, investors will spend 800 billion on pipeline infrastructure for oil and gas. Of that amount, $417 billion will go to natural gas pipelines. That’s an average of $23 billion spent each year. Investing in pipelines is a great entry point for natural gas investing.
2. Natural gas, in its gaseous state, can only travel by pipeline. There is already a massive pipeline infrastructure in place in the U.S.
C. Liquified Natural Gas (LNG)
- It can beshipped by boat or truck and is much denser than the gaseous state.
- By the end of 2019, U.S. LNG export capacity should reach 8.9 billion cubic feet per day. That will make the U.S. the world’s
III. MAIN IDEA: Natural Gas has Price Drivers
A. The Economy
1. When the economy is thriving, the demand for natural gas increases
2. A healthy economy promotes industrial output which requires more natural gas. When the economy slumps, the industrial output decreases, and the demand for natural gas decreases with it.
B. Fuel Switching
1. Industrial consumers and utility companies are very conscious of costs, so they will track the prices of fossil fuels and use the cheapest option.
2. Price affects demand instead of demand affecting price. For example, if the price of natural gas is too high, an electric company may switch to a cheaper alternative like coal. This decreases the demand for natural gas. Companies with the ability to switch fuel sources actually play a large role in the price of natural gas.
C. The Henry Hub
1. The Henry Hub is a natural gas distribution hub located in Erath, Louisiana. The hub connects the country’s largest pipelines
2. It is the best guage for supply and demand in the country and it’s the pricing point for natural gas futures on the New York Mercantile Exchange.
IV. Main Idea: There are many ways to Natural Gas Investing
A. ETF’s vs ETN’s
1. ETFs are securities designed to track a benchmark in any given industry. It is essentially a basket of assets. ETFs trade like stocks and their price can vary every day. When it comes to natural gas, there are two main types of ETFs: Natural gas ETFs that track the price of gas itself, and ETFs that track equity of exploration and production companies.
2. If ETFs function like stocks, ETNs function like bonds. ETNs or exchange traded notes, are securities that are issued as debt notes. ETFs and ETNs are a great way to begin investing in natural gas.
B. Futures
1. Futures are one of the most direct avenues for natural gas investing. Futures are contracts in which an asset is bought or sold at a fixed price at some point in the future.
2. Futures are a popular investment vehicle because the price of gas is very volatile. Behind crude oil, natural gas futures are the second most highly-traded contract on the Chicago Mercantile Exchange.
Capstone 2020 