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As fossil fuels become more scarce and global warming fears increase, the stage may very well be set for natural gas ETFs. Get acquainted with the options to play this increasingly popular fuel now.

Natural gas has a lot going for it – it’s not only useful across a variety of industries, but it’s one of the cleanest energy sources. It produces less carbon dioxide than coal and oil and also produces far less sulphur dioxide, nitrogen oxides, mercury and particulates.

ETF Daily News reports that the United States is in a strong position with regards to natural gas; we’re the second-largest producer after Russia, and it’s believed that we have the largest reserves in the world. This puts the United States in a strong position to control the supply.

Other facts about natural gas include:

  • In Asia, natural gas is used to power taxis, and in Canada, they use it for city buses.
  • In America, we mainly use gas for heating our homes, generating electricity, and for running our factories and other industrial processes like pulp and paper manufacturing.
  • In total, natural gas accounts for about 23% of the total energy used in America.
  • Natural gas prices are around 2002 levels while oil prices have tripled since then. This puts natural gas in a far more appealing position.

However you want to play natural gas, there are several options, including those listed below. Funds come in two varieties – those that hold futures contracts and those that hold the stocks of companies involved in natural gas exploration and production.

  • United States Natural Gas Fund (NYSEARCA:UNG): This is an exchange traded security that is designed to track in percentage terms the movements of natural gas prices. The investment objective of UNG is for the changes in percentage terms of the units’ net asset value to reflect the changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the New York Mercantile Exchange.
  • United States 12-Month Natural Gas (NYSEARCA:UNL): This fund differs from UNG in that it holds futures contracts for the entire year, not just the front month. When natural gas prices are in contango, this fund can help mitigate the impact when contracts are rolled.
  • First Trust ISE Revere Natural Gas Index (NYSEARCA:FCG): The fund invests at least 90% of assets in common stocks that comprise the index. The index is an equal-weighted index that consists of exchange-listed companies that derive a substantial portion of their revenue from the exploration and production of natural gas.
  • Jefferies|TR/J CRB Wildcatters Exploration and Production Equity ETF (WCAT): This fund invests in small- and mid-cap companies in both Canada and the United States that derive most of their revenue from exploring and producing natural gas.

Full Disclosure: Some of Tom Lydon’s clients own shares of UNG.

Source: Four Natural Gas ETFs to Ponder