Natural Gas Scams
Natural gas is a clear, odorless fossil fuel used in approximately 61 percent of U.S. homes, according to the U.S. Energy Information Administration (EIA). The United States is one of the largest producers of natural gas in the world Ė up to 84 percent of the fuel used in the country is produced domestically. As a result, it is extremely popular among those concerned about energy independence.
Natural gas is a potentially lucrative investment for anyone willing to do the research. However, as the popularity of investing in natural gas continues to grow, scams are becoming increasingly common. In this article, we present tips for investors in natural gas drilling to make smart choices and avoid natural gas drilling investment scams.
Natural Gas Investment Opportunities
If youíre considering investing in natural gas, there are three main ways to do so:
- Exchange-traded funds (ETFs): An ETF is a type of investment that is similar to a mutual fund but is publically traded on the stock market. As a result, they are driven by the market and experience valuation changes over the course of a day. ETFs can be comprised of any type of asset, such as a commodity or bond, though several popular and well-performing funds track the price changes of natural gas.
- Futures: Investing in futures gives you direct exposure to the natural gas market. A futures contract is an agreement to buy an asset at a later date, at a price specified today. As the value of that asset rises, the value of the future rises. Natural gas futures are traded on the New York Mercantile Exchange Ė prices can be extremely volatile over the course of the week.
- Stocks: Another popular way to invest in natural gas is to buy stocks in one of the many companies producing it. There are a wide range of both established and up-and-coming natural gas drillers, refiners, wholesalers, suppliers and other businesses that are currently publically traded.
Any natural gas investment can be risky, and thereís no one type of product thatís best suited for every investor. Before making any decision, itís important that you educate yourself about some of the basics of how natural gas is produced, measured and used. Keep reading to learn more.
Measuring Natural Gas
In order to evaluate natural gas investments, it is important to understand how natural gas is measured. Production or how productive a particular well is a numbers game. A point to note when natural gas investing, natural gas is measured in cubic feet, and the three most common units are:
- Mcf (thousands of cubic feet)
- MMcf (millions of cubic feet)
- Bcf (billions of cubic feet)
Sometimes there is an "e" at the end of the unit, which simply stands for "equivalent" and is typically used to quantify reserves.
While the previous units measure quantity, another unit is used to measure the amount of energy generated from the natural gas: British Thermal Unit or Btu. One cubic foot of natural gas is roughly equivalent to 1,027 Btus. Btus is an important unit because that is the unit in which natural gas trades.
Remember for natural gas investments, A well's ability to produce natural gas will depend on its location. Having a good understanding of well production is the first step in choosing natural gas investments wisely.
Avoiding Natural Gas Investment Scams
Natural gas can be a great investment, but for every legitimate opportunity there are several scams that will do nothing but take your money. Here are some things to look out for that will help you avoid some of the most common natural gas drilling investment scams:
- ďRipped from the headlinesĒ pitches: Itís not uncommon for scam artists to latch on to something currently making the rounds in the news and incorporate it into their sales pitch. This adds a veneer of legitimacy and appeals to our natural desire to be in the know. However, when evaluating an investment, itís important to look beyond the hype at the hard facts and true potential for long-term returns.
- Guarantees and promises: No investment deal, whether in natural gas drilling or anything else, is completely safe. Anyone who promises you reward without risk is, at best, misrepresenting whatís at stake, and at worst just out to take your money. Do your research and be highly skeptical of promises that seem to good to be true.
- Insider knowledge: Selling investment advice based on information that isnít publically available is insider trading, and itís against the law. If someone comes to you claiming that a friend or relative gave them a hot tip about a natural gas investment opportunity, walk away immediately.
- Limited-time opportunities: Claiming that an opportunity will only be valid for a short period of time is a common pressure tactic used by scam artists trying to prevent you from doing your due diligence about an investment. Before purchasing anything, step back, scrutinize the terms and discuss the opportunity with a natural gas investment consultant you can trust.
- Cold calling: One of the best ways to avoid falling victim to a natural gas drilling investment scam is simply to avoid doing business with anyone who contacts you out of the blue. Work only with professionals youíve reached out to personally, whose reputation you can trust.
While most of the above tips are basic common sense, itís easy for our judgment to be clouded by the promise of a big return and the fear of missing a potentially life-changing opportunity. Fortunately, there are many honest independent consultants experienced with investing in natural gas whose judgment you can trust.
Contact Our Team for Answers to Your Natural Gas Investing Questions
Invest smart with a free consultation. We provide useful tips for potential investors in natural gas drilling, as well as background information about the risks and rewards of the energy market in general.
Got a specific question you canít find the answer for? Do not hesitate to give our natural gas investment consultants a call or send us a message today! Our team is ready to assist you with any questions about natural gas that you may have. Page last updated on 2/27/2014.