With the global transition to cleaner energy and volatile fossil fuel prices, natural gas exchange-traded funds (ETFs) have become a hot topic for Australian investors. As 2025 ushers in new climate policies and market opportunities, many are asking: could natural gas ETFs offer a smart way to diversify, hedge, or capture gains in the evolving energy sector?
Why Natural Gas ETFs Are in the Spotlight in 2025
Natural gas remains a crucial bridge fuel in the global move away from coal, especially as renewables ramp up but aren’t yet fully reliable for baseload power. In 2025, several forces are shaping the demand and price action for natural gas:
- Australia’s LNG Exports: Australia continues as a top global LNG exporter, with Asian demand (particularly from Japan and South Korea) supporting the industry even as Europe seeks new suppliers post-Ukraine crisis.
- Government Policy: The Federal Government’s 2025 National Gas Infrastructure Plan is driving new pipeline investments and encouraging domestic supply security, which can impact local gas prices and related equities.
- Energy Price Volatility: Ongoing global tensions and weather events mean natural gas prices remain susceptible to rapid swings — a dynamic that ETFs can help investors harness or hedge against.
Against this backdrop, natural gas ETFs offer a liquid, accessible way to gain exposure to the sector without the risks and complexity of direct commodity trading or picking individual stocks.
How Natural Gas ETFs Work — and What’s on Offer for Australians
Natural gas ETFs typically track either the price of natural gas itself (using futures contracts) or the performance of companies involved in the natural gas value chain. Here’s how they’re structured:
- Commodity-based ETFs: These funds mirror natural gas price movements through futures. Popular global options include the United States Natural Gas Fund (UNG) and the WisdomTree Natural Gas (LON: NGAS). Australian investors can access some of these via global ETF platforms or local brokers offering international trading.
- Equity-based ETFs: These invest in portfolios of gas producers, pipeline operators, or integrated energy firms. Examples include VanEck Vectors Oil & Gas ETF (which holds global gas and oil majors) and BetaShares Global Energy Companies ETF (FUEL), listed on the ASX.
Australian Example: While there’s currently no pure-play ASX-listed natural gas ETF, local investors use global ETFs or broad energy ETFs with significant gas exposure. For instance, FUEL’s top holdings in 2025 include Shell, ExxonMobil, and Woodside Energy.
Risks, Rewards, and 2025 Performance Drivers
Like any sector-specific investment, natural gas ETFs come with a unique risk/reward profile. Here’s what’s shaping the outlook this year:
- Volatility: Natural gas prices are notoriously volatile — influenced by geopolitics, weather, and storage levels. Futures-based ETFs can be especially sensitive, with potential for sharp price swings.
- Contango and Roll Costs: Commodity ETFs that use futures contracts face ‘roll costs’ when contracts expire and are replaced, which can erode returns during periods of contango (when future prices are higher than spot prices).
- Energy Transition Policies: The Albanese government’s 2025 emissions targets and ongoing state-level bans on new gas projects can affect local supply/demand, impacting gas companies’ share prices.
- Global Demand Shifts: With Europe accelerating its pivot away from Russian gas and Asia’s appetite holding steady, Australian LNG exporters — and their equity ETFs — may benefit.
Performance Snapshot: In the first quarter of 2025, the BetaShares FUEL ETF delivered a 9% total return, outpacing the ASX200 Energy Index. Meanwhile, global gas price ETFs saw high volatility, with spot prices up 15% year-on-year but futures-based funds lagging due to roll costs.
Should You Consider Natural Gas ETFs in Your Portfolio?
Natural gas ETFs can be a tactical play for Australians seeking exposure to a vital — if transitional — energy source. Consider them if you:
- Want to diversify away from Australian equities and banking-heavy portfolios
- See short-to-medium term opportunity in global energy market volatility
- Are comfortable with higher risk and understand the mechanics of commodity investing
Always check whether you’re investing in a commodity-tracking or equity-based ETF, and be aware of the costs, tax implications, and global factors influencing returns. Monitor ongoing developments in Australian gas policy and international trade, as these will shape the sector’s fortunes in 2025 and beyond.
