Natural gas exchange-traded funds (ETFs) are listed investment vehicles that either own commodity futures or producers and pipeline stocks. They offer investors a way to gain exposure to the natural gas market without directly trading futures or stocks.
As a key fuel in the global energy transition, natural gas plays a critical role in reducing reliance on coal and supporting the shift toward lower-emission energy sources.
With rising global demand -- driven by increased industrial use, liquefied natural gas (LNG) exports, and the need for stable energy supplies -- natural gas remains vital.
Investors use natural gas ETFs for various purposes, including hedging against energy price fluctuations or speculating on short-term price movements.
However, these are complex financial products, and beginners should always do their own research before investing.
Five natural gas ETFs
With multiple natural gas ETFs available, choosing the right one can be tricky. To help, we’ve selected five natural gas ETFs based on liquidity, total assets under management (AUM), fees, and investment methodology.
While all of these ETFs provide exposure to the natural gas market, each one operates differently, whether through futures contracts, energy stocks, or leveraged strategies. Some are designed for long-term investment, while others are better suited for short-term speculation.
Before investing, make sure to read into the details, as each fund has its own quirks that could surprise unsuspecting investors.
1. United States Natural Gas Fund
NYSEMKT: UNG
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2. United States 12 Month Natural Gas Fund
The United States 12 Month Natural Gas Fund (UNL -0.18%) also aims to track the price of natural gas delivered at Henry Hub, Louisiana, but it follows a different futures contract strategy than the previous ETF.
Instead of holding only the nearest-month contract, this ETF spreads its exposure across 12 consecutive months, meaning it holds the front-month contract plus contracts for the following 11 months.
This laddered approach reduces the impact of contango since the fund isn't constantly rolling over just the near-month contract at higher prices. However, this comes at a trade-off -- it has less direct correlation to spot natural gas prices than the ETF, making it a less volatile but also less reactive investment.
As a result, while the previous ETF has suffered a -23.32% 10-year annualized return, this ETF's 10-year return is less severe at -3.77%. Still, this fund is better suited for medium-term holds rather than long-term investments.
The downside? It is even more expensive than the first, with a 1.57% expense ratio, making it a costly option for natural gas exposure.
3. ProShares Ultra Bloomberg Natural Gas
NYSEMKT: BOIL
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4. ProShares UltraShort Bloomberg Natural Gas
NYSEMKT: KOLD
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ProShares UltraShort Bloomberg Natural Gas (KOLD +3.50%) is the inverse counterpart to BOIL, designed for short-term traders who are bearish on natural gas prices.
It aims to deliver twice the inverse (-2x) of the daily return of the Bloomberg Natural Gas Subindex, making it a tool for those looking to profit from falling natural gas prices.
Like the previous ETF described, this one uses natural gas futures contracts, with cash equivalents held as collateral to maintain margin requirements.
However, it is not suitable for long-term holding. It suffers from the same contango effects that can erode value. Like all leveraged ETFs, it experiences volatility drag, where daily resets lead to compounding losses over time, especially in choppy markets.
The result is a 10-year annualized return of -19.35%, proving how destructive holding an inverse ETF for extended periods can be.
This ETF also carries a 0.95% expense ratio, making it a costly but effective short-term trading tool for those looking to bet against natural gas.
5. First Trust Natural Gas ETF
The First Trust Natural Gas ETF (FCG -1.82%) takes a different approach than the previous options by tracking the ISE-Revere Natural Gas™ Index, which holds natural gas stocks rather than natural gas futures.
Instead of directly tracking natural gas prices, FCG invests in companies that generate a substantial portion of their revenue from natural gas exploration and production.
This includes a mix of traditional energy stocks and master limited partnerships (MLPs), which are known for their tax-advantaged income structures.
One advantage of FCG is its lower 0.57% expense ratio, making it more affordable than futures-based funds. It also offers a 3.06% 30-day SEC yield, giving investors a small income component in addition to price exposure.
However, because FCG holds stocks rather than futures, it is less correlated to spot natural gas prices. While it will generally move in the same direction as natural gas, it is still influenced by broader stock market trends, company-specific risks, and overall energy sector performance.
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How to invest in natural gas ETFs
To invest in natural gas ETFs, open a brokerage account and search for the fund's ticker. Enter the number of shares you want to buy and whether you're placing a market or limit order.
Do your homework first by taking the following steps:
- Define your investment goals: Are you seeking to bet against prices, speculate on short-term moves, or get long-term industry exposure?
- Understand how futures ETFs work: Futures ETFs track the price of natural gas or another commodity. Risks like contango can erode returns when longer-dated contracts cost more than near-term ones.
- Choose the type of ETF: Make sure you understand the type of ETF you're buying. Inverse ETFs profit from falling prices, while leveraged ETFs magnify gains and losses. Leveraged and inverse ETFs may require special trading permission. Equity-based ETFs hold natural gas companies and will also be influenced by broader stock market conditions. Leveraged and futures ETFs need active oversight, while equities-based ETFs can be longer-term holds.
- Review tax implications: Some ETFs are structured as limited partnerships or commodity pools, which get different tax treatment.
