10-Q: United States Natural Gas Fund (UNG) Reports Q1 2025 Results: NAV Surges Amidst Market Volatility

The United States Natural Gas Fund (UNG) saw its net asset value (NAV) increase by 27.83% in the first quarter of 2025, driven by volatile natural gas futures prices.

Summary

• United States Natural Gas Fund, LP (UNG) reported its financial results for the quarter ended March 31, 2025.
• UNG's investment objective is to reflect the daily changes in percentage terms of its shares per share NAV to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana.
• The fund primarily invests in natural gas futures contracts and, to a lesser extent, other natural gas-related investments.
• UNG's net asset value (NAV) per share increased from $16.85 on December 31, 2024, to $21.54 on March 31, 2025, representing a 27.83% increase.
• The fund's total net assets were $420,926,877 as of March 31, 2025, compared to $743,835,423 at the beginning of the period.
• Net income for the quarter was $208,820,056, or $4.69 per limited partner share, compared to a net loss of $164,571,369 for the same period in 2024.
• The average daily change in the Benchmark Futures Contract was 0.368%, while the average daily change in the per share NAV of UNG over the same time period was 0.376%.
• UNG exceeded accountability levels of the NYMEX during the three months ended March 31, 2025, including when it held a maximum of 16,693 Natural Gas Futures NG contracts on the NYMEX, exceeding the any month limit.

Sentiment

Score: 7

Explanation: The document presents a positive outlook due to the significant increase in NAV and net income compared to the previous year. However, it also acknowledges various risks and challenges associated with investing in natural gas futures, which tempers the overall sentiment.

Positives

• UNG's NAV per share increased significantly, indicating strong performance during the quarter.
• The fund achieved a substantial net income, reversing a loss from the previous year.
• UNG's NAV closely tracked its benchmark, demonstrating effective portfolio management.
• The fund's holdings in cash and short-term investments provide liquidity and collateral for trading activities.
• UNG's actual total return outperformed its benchmark by 0.77%.

Negatives

• UNG's expenses exceeded income during the quarter, requiring the use of assets to cover expenses.
• The fund is subject to market risks associated with natural gas price volatility.
• UNG is exposed to credit risk from counterparties in OTC swap transactions.
• The fund's performance is subject to the impact of contango and backwardation in the natural gas futures market.
• UNG exceeded accountability levels of the NYMEX during the three months ended March 31, 2025, including when it held a maximum of 16,693 Natural Gas Futures NG contracts on the NYMEX, exceeding the any month limit.

Risks

• Natural gas prices are subject to volatility due to various factors, including weather, supply and demand dynamics, and geopolitical events.
• The fund's performance may be affected by contango and backwardation in the natural gas futures market.
• UNG is exposed to credit risk from counterparties in OTC swap transactions.
• Regulatory changes, such as position limits, could impact the fund's ability to invest in natural gas futures contracts.
• The fund's investments in money market funds are subject to the risk of loss.
• UNG may be subject to interest rate risk, which may prevent UNG from investing fully at prevailing rates until any current investments in Treasuries mature in order to avoid selling those investments at a loss.
• As inflation increases, the present value of UNG's assets may decline.

Future Outlook

The report discusses the potential impact of various factors on natural gas prices, including domestic supply and demand, international demand, geopolitical events, and weather patterns. It also mentions the potential for increased demand for natural gas to power AI data centers.

Management Comments

• USCF believes that market arbitrage opportunities will cause daily changes in UNGs share price on the NYSE Arca on a percentage basis to closely track daily changes in UNGs per share NAV on a percentage basis.
• USCF further believes that daily changes in prices of the Benchmark Futures Contract have historically closely tracked the daily changes in spot prices of natural gas.
• USCF believes that the net effect of these relationships will be that the daily changes in the price of UNGs shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of natural gas on a percentage basis, plus interest earned on UNGs collateral holdings, less UNGs expenses.

Industry Context

The report provides context on the natural gas market, including factors influencing prices, supply and demand dynamics, and the impact of geopolitical events such as the Russia-Ukraine war. It also compares natural gas price movements to other energy commodities and investment categories.

Comparison to Industry Standards

• The report compares UNG's performance to its benchmark, the daily changes in the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the daily changes in the price of a specified short-term futures contract.
• The report also provides correlation data comparing natural gas price movements to other energy commodities (crude oil, heating oil, gasoline) and major asset classes (large cap U.S. equities, U.S. government bonds, global equities).
• The report notes that UNG's investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot price of natural gas or any particular futures contract based on natural gas, nor is UNGs investment objective for the percentage change in its NAV to reflect the percentage change of the price of any particular futures contract as measured over a time period greater than one day.

Legal Proceedings

• UNG may be involved in legal proceedings arising primarily from the ordinary course of its business.
• USCF, as the general partner of UNG and the Related Public Funds may, from time to time, be involved in litigation arising out of its operations in the ordinary course of business.
• Optimum Strategies Fund I, LP filed an action against USO and USCF, which was dismissed by the court.
• USCF and USO reached a resolution with the SEC and CFTC regarding matters set forth in certain Wells Notices.
• A putative class action, In re: United States Oil Fund, LP Securities Litigation, was filed against USCF, USO, and others, challenging statements in registration statements and public statements.
• A derivative action, Mehan Action, was filed against USCF and others, alleging breach of fiduciary duties to USO.
• Two separate derivative actions, Cantrell Action and AML Action, were filed against USCF and others, alleging violations of the Exchange Act and common law claims.

Related Party Transactions

• USCF is paid a management fee calculated as a percentage of UNG's NAV.
• USCF pays the fees of the Marketing Agent and BNY Mellon for various services.
• UNG and the Related Public Funds pay a licensing fee to the NYMEX.

Stakeholder Impact

• Shareholders are impacted by the fund's performance, which is influenced by natural gas prices and market conditions.
• Authorized Participants are affected by the creation and redemption fees associated with Creation and Redemption Baskets.
• The fund's counterparties in OTC swap transactions are exposed to credit risk.
• The fund's service providers, such as the Marketing Agent and BNY Mellon, are compensated for their services.

Key Dates

Keywords

natural gas, futures contracts, UNG, United States Natural Gas Fund, NAV, Henry Hub, NYMEX, ICE Futures, contango, backwardation, OTC swaps, commodity pool