Natural Gas ETFs Soar Amid Nationwide Cold Snap

Surging prices push UNG higher, as gas fund outperforms oil’s gains this year.

Reviewed by: Sumit Roy
Edited by: Sumit Roy

While rising oil prices get the public’s attention, natural gas has been the star of the energy industry this year.  

The U.S. has benefited from being the largest natural-gas-producing country in the world, unlike Europe that has traditionally imported a large portion of its gas from Russia. 

Benchmark prices at Louisiana’s Henry Hub surged 87% this year through Dec. 15, crushing Brent crude oil’s 4% gain.  


Natural gas grabbed attention earlier this year when Russia cut off natural gas pipeline exports to Europe, putting the continent in its worst energy squeeze in decades. Natural gas prices at the Dutch Title Transfer Facility, a European trading hub, rose as high as $91/million British thermal units. 

Still, those prices were largely contained to Europe. Even after their heady gains this year, natural gas prices in the U.S. never topped $10, and stand at a just $7 as of Dec. 16. 

Separate Markets  

The U.S. natural gas has traditionally been exported via a pipeline with no direct access to Europe. A connection formed in recent years as the U.S. built capacity to ship liquefied natural gas, a super-cooled form of the fuel that can be transported on ships. 

With such a big price gap between Europe and the U.S., every molecule of natural gas that could be sent to Europe this year has been shipped. That’s pulled some gas out of the domestic market, but the amount that can be exported is limited by the capacity of the country’s export facilities.  

Those facilities are expensive and time-consuming to build, so even though the U.S. has become the world’s largest LNG exporter, it can’t fulfill all of Europe’s needs.    

For domestic consumers, that’s a relief. Unlike with oil, where a supply disruption in one part of the Middle East can ripple across the globe, the same isn’t true of natural gas. At least not yet. 

For the time being, U.S. consumers are mostly insulated from natural gas price movements elsewhere in the world, even though that protection is weakening. As U.S. export capacity grows, the connection between the U.S. domestic market and the global market will tighten.    

Demand-Driven Market  

Swings in U.S. natural gas prices are largely dictated by changes in demand. To date, U.S. natural gas supply has been robust as well as predictable. 

As the country’s No. 1 fuel for generating electricity and heating homes, gas demand depends on how much is needed to power air conditioners in the summer and to burn in furnaces in the winter. 

Last week, when the National Oceanic and Atmospheric Administration released forecasts that showed colder-than-normal temperatures for the eastern half of the country over the next few weeks, natural gas prices spiked, pushing the $530 million United States Natural Gas Fund (UNG) higher.  

UNG, which has gained 67% this year, will benefit from a sustained period of colder temperatures this winter. Yet prices could just as easily head the other way if milder temperatures hit the country during the key winter heating months of January and February. 

As a result, natural gas, and by extension, UNG, is currently much more of a short-term trading vehicle than a potential long-term investment. As U.S. natural gas exports increase, that could change.  

Longer term, prices in the U.S. could potentially reach much higher prices we’re seeing in Europe and Asia. And if supplies are scarce enough, the natural gas futures curve could flip more frequently into backwardation (when the spot price is higher than the futures price), relieving investors from the damaging impact of contango.  

But that scenario is still a way off.  

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2    




Sumit Roy is the senior ETF analyst for, where he's worked for 12 years. Before joining the company, Roy was the managing editor and commodities analyst for Hard Assets Investor. He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing pickleball and snowboarding.