The energy recovery remains on track, but don’t put away the Dramamine just yet. Oil and gas prices continue to subject investors to dizzying ups and downs.

If you’re looking for a safer way to invest in energy, consider exchange-traded funds (ETFs).

ETFs are traded on stock exchanges, akin to actual stocks. They passively reflect the performance of a certain sector or index, so they’re well suited for individual investors who want to profit from the markets but don’t envision themselves as stock-picking wizards.

Which brings us to United States Natural Gas Fund LP (UNG), a natural gas industry ETF. Despite current volatility in the energy patch, long-term data point to rising natural gas prices. Is UNG an appealing way to profit from this bullish trend?

In this edition of Investing Daily we will discover:

• Is UNG the profitable answer to energy volatility?
• Should you buy UNG?
• Should you sell UNG?
• Our overall forecast and outlook for UNG.

Let’s see what’s fueling United States Natural Gas.

What Is United States Natural Gas?

United States Natural Gas is designed to track in percentage terms the movements of natural gas prices.

UNG is essentially an ETF that’s set up as a master limited partnership (MLP). To get exposure to gas, the fund invests in natural gas futures contracts that are one-month out.

Because of market liquidity and the absence of carrying costs, using futures can be a better way to invest in natural gas than owning the commodity directly.

With net assets of $334 million, UNG dominates the natural gas space, holding several times more assets than all other ETF competitors combined. The fund’s expense ratio is 0.70%, reasonable compared to its peers as well as the overall ETF industry.

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How Has United States Natural Gas Fund Performed?

Over the past year, UNG has gained 41.9% versus a gain of 5.9% for the S&P 500. Over the past two years, UNG has gained 9.6% vs. a gain of 23.6% for the S&P 500. Over the past five years, UNG has lost 53.7% vs. a gain of 51.5% for the S&P 500.

How Has United States Natural Gas Performed In 2017/2018?

In 2017, UNG lost 30.1% vs. a gain of 19.4% for the S&P 500. Year to date in 2018, UNG has gained 47.3% vs. a gain of 1.5% for the S&P 500.

Who Are United States Natural Gas Rivals?

The top rivals to UNG are the following individual equities with major exposure to natural gas:

Cabot Oil and Gas (NYSE: COG)

Cabot is a leading natural gas driller in the Marcellus Shale, the energy-rich shale rock formation covering 60% of Pennsylvania and stretching into New York, Ohio, West Virginia and Maryland.

This Houston-based independent is setting production records, courtesy of the Marcellus, which is now yielding a quarter of the U.S. output of natural gas. Cabot’s slice of this gas-rich area amounts to a net of 200,000 leased acres concentrated largely in the Susquehanna County of northeast Pennsylvania.

EQT (NYSE: EQT)

EQT is a primary player in the prolific gas fields of the Marcellus. The company operates through two primary business divisions: EQT Production, which extracts natural gas from the ground, and EQT Midstream, which gathers and transports it.

With almost 15,000 gas wells covering more than a half-million acres in the Marcellus, EQT Production is the fastest growing business unit within EQT. The company has grown proved reserves to more than 8 trillion cubic feet equivalent, making it one of the leading players in one of the biggest gas fields in the world.

Southwestern Energy (NYSE: SWN)

Houston-based Southwestern Energy is nearly a pure play on natural gas, which makes up 91% of its proven reserves.

The company’s primary focus is on the Fayetteville Shale in Arkansas and the Marcellus Shale. By volume of gas produced, Southwestern is the fourth-largest natural gas producer in the U.S.

Will United States Natural Gas Go Up In 2019 (Should You Buy)?

ETFs such as UNG involve less stress, but remember, they don’t protect you from the market’s inevitable ups and downs. But therein lies the point. These vehicles equal the average, so you never have to worry about trying to beat or fall behind the average. You’re just along for the ride — and natural gas is positioned for quite a profitable ride.

However, the natural gas industry is complex and often misunderstood. The following video explains the basics of this vital commodity:

Over the past decade, new techniques to efficiently extract shale gas have turned the U.S. into the world’s leading natural gas superpower. Natural gas production has risen sharply because of advances in hydraulic fracturing and horizontal drilling.

Here’s a snapshot of natural gas production in the U.S. from 2010 to 2017:

In 2017, production amounted to 734.5 billion cubic meters. Production rebounded in 2017 after a slight slowdown in 2016. Production has generally enjoyed an upward trajectory since the beginning of the economic recovery in 2010. This trend should continue in 2019.

But energy markets aren’t acting logically right now. Temporary supply disruptions due to geopolitical events and severe weather are creating disconnects between the perceived and intrinsic value of natural gas investments. That’s good news for investors seeking value in an overvalued broader stock market.

Will United States Natural Gas Go Down In 2019 (Should You Sell)?

As with any investment, there are some risks to UNG.

When each month draws to a close, UNG must sell its soon-to-expire position and purchase a new contract further out. The problem is that the new contracts sometimes cost more than the ones sold (and vice versa). This disparity can cause the fund to post losses that have nothing to do with natural gas prices.

Overall United States Natural Gas Forecast And Prediction For 2019

We’re bullish on UNG. Population and economic growth, as well as spreading urbanization, will continue to boost demand for natural gas.

At the same time, companies and governments are increasingly switching to cleaner fuels such as natural gas, to lessen the carbon emissions that contribute to climate change.

Prices for natural gas have soared in recent months, touching their highest level in more than four years. Further gains lie ahead for natural gas and its ETF proxy, United States Natural Gas Fund.

John Persinos is the managing editor of Investing Daily.