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 . Each fund has its own quirks that could surprise unsuspecting investors.
1. United States Natural Gas Fund
The United States Natural Gas Fund (UNG +3.73%) aims to reflect the daily price movement of natural gas as delivered at Henry Hub, Louisiana, a key pricing point for U.S. natural gas. However, this ETF does not hold physical natural gas. Instead, it gains exposure through futures contracts, specifically the nearest-month contract traded on the New York Mercantile Exchange (NYMEX).
NYSEMKT: UNG
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This means the fund is constantly rolling contracts forward as they expire. In addition to futures returns, it also earns interest from collateral investments in government bonds, minus fund expenses.
One major drawback is contango, which occurs when later-dated futures contracts are more expensive than near-term ones, leading to losses over time as the fund rolls into higher-priced contracts. With a steep 1.24% expense ratio, this makes it a costly option.
As a result of these structural issues, the ETF has delivered a brutal 10-year annualized return of -23.36%, showing how futures-based ETFs can struggle over long periods. This ETF is best suited for short-term trading.
2. United States 12 Month Natural Gas Fund
The United States 12 Month Natural Gas Fund (UNL +2.30%) also aims to track the price of natural gas delivered at Henry Hub, but it follows a different futures contract strategy from 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.
NYSEMKT: UNL
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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 United States Natural Gas Fund suffered a -23.36% 10-year annualized return, this ETF's 10-year return is less severe at -3.70%. 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
ProShares Ultra Bloomberg Natural Gas ETF (BOIL +7.84%) is designed as a short-term trading tool, offering leveraged exposure to natural gas prices. It aims to deliver twice the daily return of the Bloomberg Natural Gas Subindex, making it a high-risk, high-reward play on short-term price movements.
NYSEMKT: BOIL
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This ETF achieves this leverage by holding natural gas futures contracts, with cash equivalents as collateral to maintain the required margin. However, it is not meant to be held long term. In addition to suffering from contango, it experiences volatility drag, where daily rebalancing causes compounded losses over time in choppy markets due to the fund resetting its leverage each day.
The result? A staggering 10-year annualized return of -59.62% highlights the dangers of long-term holding for the fund. Like most leveraged ETFs, ProShares Ultra Bloomberg Natural Gas ETF is expensive, with a 0.95% expense ratio, making it best suited for short-term speculation, not buy-and-hold investing.
4. ProShares UltraShort Bloomberg Natural Gas
ProShares UltraShort Bloomberg Natural Gas (KOLD -8.20%) is the inverse counterpart to ProShares Ultra Bloomberg Natural Gas ETF, designed for short-term traders who are bearish on natural gas prices. It aims to deliver twice the inverse (-2 times) of the daily return of the Bloomberg Natural Gas Subindex, making it a tool for those looking to profit from falling natural gas prices.
NYSEMKT: KOLD
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Like the previous ETF, this one uses natural gas futures contracts, with cash equivalents held as collateral to maintain margin requirements. However, it is unsuitable 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 -22.62%, proving the destructiveness of holding an inverse ETF for extended periods. 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 +1.86%) takes a different approach from 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, the First Trust Natural Gas ETF invests in companies that generate a substantial portion of their revenue from natural gas exploration and production.
NYSEMKT: FCG
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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 this ETF is its lower 0.57% expense ratio, making it more affordable than futures-based funds. It also offers a 2.95% 30-day Securities and Exchange Commission (SEC) yield, giving investors a small income component in addition to price exposure.
However, because First Trust Natural Gas ETF 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.
Why invest in natural gas ETFs?
Natural gas ETFs allow investors to express a view on natural gas prices without trading futures contracts directly. This can be useful for short-term positioning, whether bullish or bearish, based on factors such as weather patterns, storage levels, production cuts, or export demand.
They can also play a role in a longer-term, top-down thesis. Common catalysts include growing liquefied natural gas (LNG) export capacity, energy security concerns, the transition away from coal, and infrastructure investment tied to power generation and industrial use.
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 order 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: Be 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.
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Limitations of natural gas ETFs
Natural gas ETFs come with meaningful limitations that investors need to understand before buying. One of the biggest is contango. Futures-based ETFs often roll contracts forward as they near expiration. When future contracts are priced higher than near-term contracts, the ETF must sell low and buy high, creating a persistent drag on returns over time.
Fees are another issue. Commodity ETFs tend to be more expensive than equity ETFs due to futures management, rolling costs, and operational complexity. These fees compound over time and can materially reduce long-term performance.
Finally, commodity risk itself is significant. Natural gas prices are highly volatile and sensitive to weather, geopolitics, storage data, and supply disruptions. Commodities also do not generate cash flow, which means returns depend entirely on price movement.