As the U.S. Energy Information Administration (EIA) releases its updated 2026 Short-Term Energy Outlook in January, forecasting a potential price decline for natural gas this year, the current spotlight is on the natural gas market. Notably, EIA expects U.S. Henry Hub prices to average just under $3.50/MMBtu, representing a 2% decline from 2025, with oversupply and comfortable storage keeping a lid on price surge.
Despite this near-term headwind, the same report projects a powerful rebound, with prices expected to surge more than 30% to nearly $4.60/MMBtu in 2027.
For investors, this “valley before the peak” dynamic presents a compelling entry opportunity into energy exchange-traded funds (ETFs) this year.
These funds, which hold natural gas-focused companies, allow portfolios to be positioned ahead of a potentially significant upswing expected next year.
The EIA’s projection of lower prices in 2026 is primarily driven by the convergence of three key factors in the U.S. market:
1. Unseasonably Warm Weather: The primary and most immediate pressure is a historically warm start to 2026 in the United States, which has drastically reduced residential and commercial heating demand. This has led to a rapidly growing surplus in gas storage, with analysts speculating inventories could finish the winter withdrawal season above 2 trillion cubic feet — a level that signals ample supply and weighs heavily on prices.
2. Supply Keeping Pace With Demand: On an annual basis, the EIA expects natural gas production growth in 2026 to outweigh the pace of domestic demand growth. This balance is likely to prevent the tight market conditions that typically drive prices higher.
3. Temporary Export Slowdown: While U.S. LNG export capacity remains a long-term bullish driver, temporary operational disruptions at major Gulf Coast export terminals have recently curtailed overseas shipments, leaving more natural gas supply in the domestic market.
Despite dismal price expectations for this year, potential profitability for natural gas companies is far from lost. Beyond 2026, the outlook seems bright, as the EIA also projects a price surge in 2027.
As natural gas continues to serve as a cornerstone for electricity generation, with demand set to rise (particularly from power-hungry data centers), the 2026 price dip presents investors with a potential accumulation phase. The most effective way to capitalize on this trend is through ETFs that hold companies with integrated or global natural gas operations.
By holding companies with strong export capabilities, investors can create a “buffer” against low U.S. domestic prices. A more strategic approach than relying on pure-play U.S. natural gas futures is to invest in diversified energy ETFs.
Considering the aforementioned discussion, here are 3 energy ETFs that hold major U.S. natural gas companies with significant export capabilities like ExxonMobil XOM, Chevron CVX, and ConocoPhillips COP, that you may want to keep in your watchlist:
State Street Energy Select Sector SPDR ETF XLE
This fund, with assets under management (AUM) worth $29.12 billion, is the largest energy ETF, offering exposure to 22 companies from the oil, gas and consumable fuel, energy equipment and services industries. Its top three holdings include XOM (23.89%), CVX (18.02%) and COP (7.01%).
XLE has gained 5.5% over the past year. The fund charges 8 basis points (bps) as fees. It traded at a good volume of 49.32 million shares in the last trading session.
Vanguard Energy ETF VDE
This fund, with assets worth $7 billion, provides exposure to 107 companies whose businesses are dominated by either of the following activities — the construction or provision of oil rigs, drilling equipment, and other energy-related service and equipment; or the exploration, production, marketing, refining, and/or transportation of oil and gas products. Its top three holdings include XOM (22.87%), CVX (15.02%) and COP (5.88%).
VDE has risen 5% over the past year. The fund charges 9 bps as fees. It traded at a volume of 0.82 million shares in the last trading session.
Fidelity MSCI Energy Index ETF FENY
This fund, with assets worth $1.28 billion, provides exposure to 101 energy companies from the U.S. equity market. Its top three holdings include XOM (22.98%), CVX (15.24%) and COP (6.08%).
FENY has gained 5% over the past year. The fund charges 8 bps as fees. It traded at a volume of 8.31 million shares in the last trading session.
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Chevron Corporation (CVX) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
State Street Energy Select Sector SPDR ETF (XLE): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).