Natural gas is a hydrocarbon, which means it is made up of compounds of hydrogen and carbon. It can be found by itself or in association with oil, and is one of the cleanest, safest and most useful forms of energy in our day-to-day lives.

According to the US Energy Information Administration (EIA), natural gas is the most widely used fuel for space heating in the US; it has also started to beat out coal as the top fuel for power generation. Even so, demand for natural gas in the US and around the world can be volatile, as it is very much dependent on the weather.

Prices for natural gas can also be volatile, in large part because demand can be unpredictable. However, for some investors natural gas remains an exciting frontier. Read on for a more in-depth look at why natural gas investing can be compelling, and for a brief overview of how to start investing.

Natural gas investing: Market outlook

As mentioned, volatile natural gas demand often leads to big spikes and declines in natural gas prices. However, at the end of 2016, analysts were predicting that natural gas supply and demand would reach equilibrium in the next few years.

Following Q1 2017, equilibrium was looking less likely. Natural gas is used extensively for heating homes, and an early end to winter had pressured prices. The EIA is calling for the Henry Hub spot natural gas price to average $3.43 per MMBtu in 2017 and $3.70 in 2018.

“Prices will likely stay under pressure, at least until 2018 as oil prices — which gas prices are now tied to — stay at low levels,” Simon Flowers, Wood Mackenzie chairman and chief analyst, told CNBC in April 2017.

Looking longer term, a natural gas market deficit may be in store. Experts predict that there may not be enough output to meet growing demand. “The industry needs extra supply by the middle of 2022, 2023,” Elizabeth Spomer, president of Jordan Cove LNG, said to the news outlet.

Of course, any number of factors could lead the natural gas market outlook to change. A key part of the picture that investors will want to be aware of is US President Donald Trump’s pledge to make energy a central part of his agenda.

All of that uncertainty may be daunting, but investors interested in the natural gas space should not necessarily be discouraged. After all, while prices for the fuel can reach incredible lows, they can also climb to incredible highs.

Natural gas investing: ETFs, futures and stocks

Investors who make the decision to invest in natural gas have plenty of ways to gain exposure to the fuel. Exchange-traded funds (ETFs) are one possibility, and buying futures contracts and investing in natural gas companies are others.

According to CommodityHQ, the most popular natural gas ETFs include: the United States Natural Gas Fund (ARCA:UNG), the Teucrium Natural Gas Fund (ARCA:NAGS) and the First Trust ISE Revere Natural Gas ETF (ARCA:FCG). It is worth noting that some ETFs offer exposure to both the oil and gas markets simultaneously.

Investors considering investing in natural gas futures contracts should be aware that these contracts are very liquid, and extremely active throughout the week. Trading in natural gas futures contracts is generally heaviest on Thursdays, when the US Department of Energy releases its weekly natural gas storage report.

Some of the top natural gas futures contracts include: NG Henry Hub Natural Gas Futures, QG E-mini Natural Gas Futures and Delivered Natural Gas Futures.

Lastly, investors can opt to invest in companies involved in the natural gas market. As with ETFs, many companies that are exploring for or producing natural gas are also focused on oil. It is difficult to find companies that are focused purely on natural gas.

That said, CommodityHQ has identified a few large companies that focus primarily on natural gas. They are: Stone Energy (NYSE:SGY), SandRidge Energy (NYSE:SD) and McMoran Exploration (NYSE:MMR).

In terms of other natural gas companies to follow, analysts at JPMorgan Chase (NYSE:JPM) have recently suggested watching Anadarko Petroleum (NYSE: APC), Devon Energy (NYSE:DVN), Range Resources (NYSE:RRC) and Pioneer Natural Resources (NYSE:PXD). Goldman Sachs (NYSE:GS) analysts have identified Southwestern Energy (NYSE:SWN) as a top stock to watch in the winter months.

This description was last updated on April 10, 2017.