6 Mistakes to Avoid When Investing in Natural Gas

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It does not necessarily reflect the views of Rigzone.

Americans have increasingly relied on natural gas for a variety of uses over the years, and that trend is sure to continue. According to the U.S. Energy Information Association, natural gas use in this country stood at roughly 26 trillion cubic feet in 2012 and is expected to reach almost 32 trillion cubic feet by the year 2040.

So, investing in natural gas is a sure bet, right? Unfortunately, there's no way to know what the future will bring, but there is a way to maximize your chances of investing success. Check out these six mistakes to avoid when you invest in natural gas.

1. Failing to Understand the Decline of Coal
Because of recent government legislation that has negatively affected the coal industry, natural gas is becoming more attractive. The EIA projects that 60 gigawatts of coal-fired power plant capacity will be retired by the end of this decade. To give you some perspective, in 2012 the total capacity from all coal-fired power plants in this country stood at 310 gigawatts. If that trend continues, it could make gas a great bet. So, be sure to watch the coal market carefully.

2. Hidden Reserves
There are plenty of natural gas reserves in this country. Whether or not these reserves are eventually tapped into depends a great deal on the political environment - but if they are, natural gas becomes a very attractive investment option.

3. Weather Can Have a Short-Term Effect
Mild winters have a great effect on the price of natural gas. Setting global warming aside (another topic entirely), if there's a particularly moderate winter, your short-term gains could be affected. Factor that into your decision-making process, as well.

4. Not Considering Your Risk Tolerance
Just like any commodity - whether gold, oil, or silver - volatility is a built-in reality when it comes to gas. Be sure you understand this before taking the leap and confirm that any investments you make match up with your risk tolerance.


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