Nuclear power and natural gas sector-related exchange traded funds could see brighter days ahead as the U.S. and China promise to cut emissions.
The Market Vectors Uranium+Nuclear Energy ETF (NYSEArca: NLR) has increased 11.1% year-to-date. NLR covers nuclear energy utility companies, along with a smaller position in uranium miners, mainly from the U.S., which makes up 63.5% of the ETF’s underlying portfolio. [Uranium ETF Recharges as Japan Opens Nuclear Plants]
Additionally, the First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG) has declined 21.7% year-to-date. FCG tracks an equal-weighted index of companies that engage in natural gas exploration and production. [Natural Gas ETFs Burn Hotter on Polar Vortex Hopes]
While U.S. and China aim to reduce harmful greenhouse-gas emissions, companies that rely on dirty fuel sources like coal and crude oil could face pressure, but cleaner sources such as nuclear and natural gas could power up.
Chinese President Xi Jinping set a target for the first time to cut fossil-fuel emissions by 2030 and President Barack Obama pledged to double the pace of reducing carbon dioxide starting in 2020, reports Alex Morales for Bloomberg.
Skip Aylesworth, a manager at Hennessy Advisors, argues that the natural gas sector could see an immediate improvement as utilities are forced to switch over from coal, Bloomberg reports.
“The bulk of it is going to be replaced by natural gas plants,” Aylesworth said in the article. “It’s good for wind and solar too, but percentage-wise, the new power generation that’s come online this year is running about 60 percent natural gas.”
The drive for lower greenhouse emissions could also push aging nuclear plant operators to pay for expensive upgrades. There won’t be enough natural gas to completely offset some of the coal plant closure in light of increasing emissions regulations. Consequently, nuclear plants could have to pick up the slack, allowing nuclear operators to ask for subsidies to keep their operations running.
“It could help provide a much needed lifeline to some of the country’s more economically troubled nuclear plants,” Paul Patterson, analyst for Glenrock Associates LLC, said in the article.
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Max Chen contributed to this article.