Natural Gas ETNs Surge on Winter Heating, AI Power Demand and Nuclear Gap

Exchange-traded notes (ETNs) tracking natural gas prices are surging in Korea as domestic natural gas prices spike sharply. Analysts attribute the rally to a confluence of factors: rising winter heating demand, structurally expanding power consumption driven by artificial intelligence data center expansion, and a gap in new nuclear energy supply.

Over the past month through December 5, the NH Investment & Securities 2x Leveraged Natural Gas Futures ETN rose 34.15%, according to Korea Exchange data. The Shinhan Bloomberg 2X Natural Gas Futures ETN gained 33.95%, while the Korea Investment & Securities Leveraged Natural Gas Futures ETN B climbed 33.46%, ranking second among all ETNs in returns following silver futures ETNs.

Beyond seasonal heating demand, analysts point to structural changes in power consumption from AI data center expansion as a key driver. "With U.S. LNG exports increasing and power demand surging around AI data centers, while new nuclear plants are not expected to come online until the mid-2030s, a structural rally in natural gas prices is inevitable," said Lee Yu-jin, a researcher at iM Securities.

U.S. natural gas production rose only 3.0% year-on-year in the first nine months of 2024, while LNG exports jumped 19.4% over the same period. This pushed the Henry Hub benchmark price above $5 for the first time in three years since December 2022. Industry observers note that despite ongoing Russia-Ukraine ceasefire negotiations, previous talks have collapsed multiple times and Russia's commitment to ending the conflict appears limited, making it difficult to resolve global LNG supply uncertainty in the short term.

Korean companies exposed to natural gas have also seen their shares rally. Korea District Heating Corp. (071320.KS) and Korea Electric Power Corp. (015760.KS) surged 17.74% and 15.97% respectively over the past month, while Kyungdong City Gas rose 7.65%.

"While natural gas prices face short-term volatility from seasonal factors and contract rollovers, the long lead times for gas turbine deliveries that had been cited as a bottleneck for power-sector gas demand are now being resolved, which will structurally expand the demand base significantly," said Choi Jin-young, a researcher at Daishin Securities. "As gas turbines ordered between 2022 and 2024 begin shipping in earnest from the second half of next year, natural gas prices could rise to $7-8 over the medium to long term."