Natural Gas ETFs: Waves of Volatility

BOIL and KOLD may be for those investors who don’t get cold feet.

Reviewed by: Ron Day
Edited by: Lou Carlozo

Natural gas prices are on a wild ride, and a pair of exchange-traded funds may help investors with ice in their veins take advantage of those swings. 

As we head into 2023, the odds favor a continuation of explosive and implosive price action, and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) and the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) offer traders the opportunity to participate in a market that is not for the faint of heart. 

The funds are short-term, leveraged instruments that magnify the price action in nearby NYMEX natural gas futures contracts. BOIL and KOLD seek to deliver twice the daily price exchange in the active month NYMEX futures. BOIL moves higher with the price, and KOLD rises when the natural gas price declines. 

Volatility in markets creates a paradise of opportunities for nimble traders. However, wide price variance is a nightmare for passive investors.  

Natural gas prices are as volatile as the fuel is combustible when extracted. In June 2020, the nearby U.S. futures price fell to a quarter-of-a-century low of $1.44 per MMBtu (1 million British Thermal Units). In 2022, the low-to-high price range has been $6.39, over 4.4 times higher than the June 2020 low.  

In 2021, nearby NYMEX natural gas futures broke out of a bearish trend of lower highs and lower lows that lasted from 2005 through 2020. In 2022, the price action followed through on the upside, pushing the price to over $10 per MMBtu in August before correcting.  

Market Changes 

Since U.S. natural gas futures began trading in 1990, the energy commodity’s market has matured and changed. For many years, natural gas was U.S. domestic market, limited to the North American pipeline system.  

Massive discoveries in the Marcellus and Utica shares increased the market’s supplies. Technological advances in extracting gas from the earth’s crust via hydraulic fracking decreased production costs, making it cheaper and easier to produce the energy commodity. 

Since necessity is the mother of invention, technology focused on natural gas’s demand side, replacing coal with cleaner fossil fuel for power production. 

Moreover, liquefication made LNG an exportable energy commodity, expanding its addressable market far beyond the North American pipeline network. Natural gas now travels the world by ocean vessels to regions with much higher prices. Natural gas’s maturation has changed it from a domestic to an international market.  

Russian War Alters Landscape 

In 2020, the United States and Russia were the world’s leading natural gas producers.  

The chart highlights that the top-producing countries dominate the supply side of natural gas’s fundamental equation.  

Meanwhile, geographical proximity has made Europe dependent on the Russian pipeline system. Russia’s early 2022 invasion of Ukraine, sanctions on Moscow, and Russian retaliation against “unfriendly” countries supporting Ukraine have impeded the flow of natural gas to Western Europe.  

Natural gas has become a Russian economic weapon in the war in Ukraine. Shortages in Europe caused U.K. and Dutch natural gas futures prices to soar to all-time highs earlier this year. In late December 2022, European prices remained above the pre-2021 record peaks.  

High European prices and supply concerns during the winter months have caused rising demand for U.S. LNG, adding to the price variance of U.S. natural gas futures trading on the CME’s NYMEX division.  

Continued Volatility 

The Biden administration pledged to address climate change by supporting alternative and renewable fuels and inhibiting fossil fuel output. Fracking’s environmental impact has been in the administration’s crosshairs.  

While Europe seeks to replace Russian natural gas with LNG and other sources, U.S. inventories are at a level that limits shipments.  

The chart shows that at 3.412 trillion cubic feet in storage across the U.S. on December 9, U.S. supplies were 0.5% below the previous year’s level and 0.4% under the five-year average. However, natural gas didn’t face the surging European demand in 2021 or over the past five years. With stocks at lower levels, the potential for continued price volatility through the 2022/2023 winter and beyond remains high.  

ETFs Embrace Volatility 

Nearby NYMEX natural gas futures traded in the widest range since 2008 in 2022 and traded to the highest price in fourteen years when it probed over the $10 per MMBtu level in August. With NYMEX futures at nearly $6 per MMBtu for January delivery on December 19, the futures market continues to experience boom and bust price action.  

Natural gas is not a market for investing, but it can be a trader’s paradise as volatility translates to opportunities. The most direct route for a long or short risk position is via the futures and futures options on the CME’s NYMEX division.  

BOIL and KOLD reflect the implosive and explosive price action in the futures arena. BOIL and KOLD are liquid trading products: 

  • At $29.73 per share on December 19, the bullish BOIL ETF had $566.55 million in assets under management. BOIL trades an average of over 6.5 million shares daily and charges a 1.33% management fee.  

  • At $17.65 per share on December 19, the bearish KOLD ETF had $184.32 million in assets. KOLD trades an average of over 10.3 million shares daily and charges a 0.95% expense ratio.  

BOIL provides 2X the daily return of an index that measures the price performance of natural gas as reflected through publicly traded natural gas futures contracts. KOLD provides -2X exposure to an index that tracks U.S. natural gas prices by holding one second-month futures contract at a time. 

Boom and Bust 

The ongoing war in Ukraine, all-time pre-2021 European natural gas prices, the U.S. energy policy, and U.S. stockpiles below last year’s level and the five-year average will likely cause a continuation of boom-and-bust price action in the U.S. natural gas futures. Moreover, we’re in the peak season for natural gas volatility during the winter, as inventories will decline until March.  

BOIL and KOLD are leveraged short-term trading tools for those seeking exposure to natural gas on the long and short side of the market without venturing into the highly leveraged and margin futures arena.  

The leverage and risk of rolling from one contract to the next make these products only appropriate for short-term long or short positions in natural gas. Natural gas’s price variance and leverage make price and time stops the optimal approach to risk management when using BOIL and KOLD.  

Natural gas is an exciting and volatile market, not for the faint of heart. The volatility can be head-spinning, so careful attention to risk-reward dynamics and discipline are critical for success.  


Andrew Hecht is a Nevada-based writer and analyst covering stocks, bonds, foreign exchange, cryptocurrency and raw material markets. He has over four decades of experience in markets across all asset classes, concentrating on commodity markets. Hecht was a senior trader at Salomon Brothers in the 1980s and 1990s, running sales and trading businesses. In 2013, McGraw Hill published his book, “How to Make Money in Commodities."