How to Invest in Natural Gas Stocks
Natural gas is one of the most important energy sources on our planet, and its demand is set to grow in the coming years as the world transitions away from the more harmful alternatives. In this article, we will look at investing in natural gas stocks, highlighting two stocks to watch this year, before explaining how to buy natural gas stocks in 5 steps.
Table of Contents
Why Invest in Natural Gas?
Before we look at some of the top natural gas stocks in 2022, let’s first look briefly at why investors would want to invest in natural gas stocks in the first place.
Despite the much vocalised global transition away from fossil fuels to greener energy solutions, both crude oil and natural gas still account for the majority of the world’s energy consumption. In 2020, natural gas alone generated around 24% of total global energy1.
The Net Zero Emissions Scenario
In order to comply with the Paris Agreement, where 192 states and the EU agreed to limit global warming to no more than 1.5°C, the world must reach net zero emissions by 2050.
Although natural gas is a fossil fuel, and its use has a negative impact on the environment, it is actually the cleanest-burning fossil fuel, meaning that it has a key role to play on the road to net zero as a “bridge-fuel” whilst we wean ourselves of the more harmful alternatives.
According to the International Energy Agency (IEA), even in a net zero by 2050 scenario, power generation by natural gas will increase in the short-term, as it replaces coal, before falling in the late 2020s. They further project that, in this net zero scenario, by 2030, natural gas will still account for around 17% of total global energy production, falling to just 0.4% by 2050.
If all goes to plan, then natural gas will be more or less redundant by 2050. However, that is quite far in the future. Furthermore, even in this best case scenario, until the end of this decade at least, natural gas stocks still have the potential to benefit, and perhaps even thrive, as coal use is phased out.
Top Natural Gas Stocks to Watch
For those who think that natural gas stocks could have a place in their portfolio in the near future, we have taken a look at the industry and landed on 2 top natural gas stocks to watch in 2022. In the following sections, we will examine both of these natural gas shares in more detail.
- Cheniere Energy
- Kinder Morgan
Cheniere Energy
Cheniere Energy is the largest Liquified Natural Gas (LNG) producer in the US and the second largest LNG operator in the world.
The company buys natural gas from the US market, before processing it into LNG in order to be delivered to customers who cannot take delivery of the commodity in its gas form (overseas customers for instance).
As Europe takes steps to end their reliance on Russian gas, natural gas stocks from the US which produce and export LNG could benefit by filling the void. Given Cheniere’s pedigree and experience in this field, they are certainly worth considering for those looking to invest in natural gas stocks.
As with many companies operating in this industry, Cheniere has reported bumper revenue recently, with total revenue in the first quarter of 2022 reaching $7.5 billion, a year-on-year increase of 145%. However, despite revenue surging, the company posted a loss of $613 million for the quarter, down from $1 billion in Q1 20212.
This loss was mostly due to a $3.5 billion charge on LNG-related derivative losses on positions which were designed to hedge against price volatility. Cheniere were not unique in this, with several other natural gas stocks taking similar hits in Q1.
Despite the loss, Cheniere’s revenue growth is impressive, and they remain optimistic for the remainder of the year, revising their earnings guidance for 2022 to up to $8.7 billion, having previously been up to $7.5 billion. Furthermore, this natural gas stock currently has a dividend yield of just over 1%.
Kinder Morgan
Kinder Morgan is one of the largest energy infrastructure companies in North America, operating or owning an interest in around 70,000 miles of natural gas pipelines, which transport around 40% of the natural gas consumed in the US3.
As well as natural gas, Kinder Morgan also operates and owns an interest in pipelines which transport refined petroleum products, crude oil and carbon dioxide, to name a few.
Kinder Morgan mainly provides its essential service to clients under long-term fee-based contracts, meaning that the company generates a reliable and stable income. As well as steady revenue, this approach also means the company is fairly well insulated from volatility in the price of natural gas.
Whilst this means that, unlike some other natural gas stocks, Kinder Morgan has missed out on record breaking revenue amidst rising gas prices, it also means their downside is limited when prices are low.
In the economic uncertainty which we find ourselves currently, companies which can generate reliable income are a big plus for investors. Furthermore, in this case, that reliable income translates into a healthy dividend distribution, with Kinder Morgan’s dividend yield currently sitting at an attractive 6.3%.
How to Buy Natural Gas Stocks in 5 Steps
With an Invest.MT5 account from Admirals, you can buy shares in both the top natural gas stocks examined in this article! For those interested, simply follow our 5 steps for how to buy natural gas stocks below:
- Open an Invest.MT5 account with Admirals and log in to the Dashboard
- Next to your Invest.MT5 account details, click ‘Invest’ in order to open the WebTrader
- Scroll to the bottom of the Market Watch window on the left of the screen, search for natural gas stocks you want to buy and add it to the Market Watch
- Once added, click and drag the natural gas stock onto the chart to open its price chart
- Right-click on the chart, select ‘Trading’ and then ‘New Order’ to bring up an order screen. Here, you can select the amount of natural gas shares you want to buy or sell and send your order to the market!
Investing with Admirals
With an Invest.MT5 account from Admirals, you can buy both of the natural gas stocks examined in this article, as well as shares in over 2,500 other companies and over 300 Exchange-Traded Funds (ETFs). Click the banner below to open an account with a minimum deposit of just $1!
External Sources:
- International Energy Agency – Natural Gas
- Cheniere Energy Inc. – Form 10Q
- Kinder Morgan – Natural Gas
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