Russia’s invasion of Ukraine has caused severe supply issues for the global natural gas market. The upheaval of worldwide supply has made natural gas stocks a hot topic for investors.

Many countries have sanctioned Russia for its actions against Ukraine. Those countries have either cut off or are transitioning away from Russia’s natural gas. Since Russia is one of the world’s largest natural gas exporters, the decrease in Russia’s massive supply has caused natural gas to become scarce. The scarce supply has caused natural gas prices to soar.

As whispers of Russia’s invasion began at the beginning of the year turned into reality. Investors in the United States Natural Gas Fund (NYSE: UNG) have enjoyed a year-to-date return of over 131%. Natural gas prices have nearly tripled.

Over the years, Russia’s biggest buyer of natural gas has European countries. These countries are looking for new sources of natural gas. Like many other countries around the globe, European countries have slowly been moving to renewable energy sources.

A full transition to renewable energy could take several years. Until then, European counties could source their natural gas needs from countries outside of Russia. Filling the gap could benefit natural gas stocks for years.

Best Natural Gas Stocks

Kinder Morgan (NYSE: KMI) and EQT Corporation (NYSE: EQT) are two natural gas stocks that could be leading candidates to fill the void of natural gas for Europe. In addition to being in the natural gas business, these companies are also in the oil industry. There is also an oil gap for countries transitioning away from Russian oil.

• Kinder Morgan: According to Kinder Morgan’s latest annual report, it is one of the largest energy infrastructure companies in North America. Based in Houston, it operates or owns an interest in 83,000 miles of pipelines and 143 terminals. Its pipelines move natural gas, renewable fuels, petroleum, and oil. Kinder Morgan’s natural gas segment transports, stores, processes, and treats natural gas. Year-to-date, the Kinder Morgan stock is up about 22%. In addition, the stock trades at a P/E ratio of 44x and has a dividend yield of roughly 5.5%.
• EQT Corporation: EQT operates in the Appalachian region of the U.S. It recently put out its presentation about its first-quarter results. The presentation noted that EQT is the U.S.’s No. 1 producer of natural gas. To put its market share in perspective, if EQT were a country, it would be the 12th largest natural gas producer in the world. During the first quarter, the company paid down $570 million of its debt and bought back over $200 million of its stock. In addition, the stock pays a modest dividend yield of about 1%.

Two Natural Gas Stocks to Buy

Range Resources (NYSE: RRC) and Chesapeake Energy (Nasdaq: CHK) could be two natural gas stocks to buy. Both have also taken advantage of the rise in natural gas prices. The stocks have performed well this year and stand to benefit further if prices continue their ascent.

• Range Resources: The company recently put out an investor presentation that noted it is a top ten producer of natural gas and natural gas liquids (NGL) in the U.S. On top of that, it is a top exporter of NGLs among independent explorers and producers. Range Resources also has the longest natural gas core inventory life in the U.S. In the presentation, the company forecasted $1.4 billion in cash flow in 2022. It also said that Range Resources stock would begin paying a quarterly dividend of $.08 per share in the second half of the year.
• Chesapeake Energy: The company recently put out a positive presentation about its first-quarter results. The presentation noted Chesapeake reported $532 million in adjusted free cash flow. In addition, it forecasted that it would make $2.6 billion to $2.8 billion in adjusted free cash flow in 2022. Chesapeake Energy pays a variable dividend in addition to a fixed dividend. The company said that its June dividend would be $.50 per share in fixed dividends and $1.84 in variable dividends. This natural gas stock plans to have a dividend yield of about 10% for the full year.

Risks Involved

Natural gas stocks have done very well this year. Part of the returns is due to the conflict between Russia and Ukraine. If there is a resolution between the two countries, natural gas prices may move down quickly. If that happens, natural gas stocks may suffer.

Even if there is no resolution, there is no guarantee that natural gas prices or natural gas stocks will keep moving higher. For instance, natural gas stocks have already moved up. Investors should ask themselves what could push prices higher from here.