United States Natural Gas Fund, LP (UNG) Annual Report: Your Essential Guide to This Year's Performance

Curious about how natural gas investments performed this year? This guide cuts through the financial jargon to give you a clear, straightforward picture of the United States Natural Gas Fund, LP (UNG) and its performance for the fiscal year ending December 31, 2025. We'll cover how UNG operates, its financial health, and what you, as an investor, need to know.

Business Overview: What is UNG and How Does It Work?

UNG is a "commodity pool," an investment vehicle that offers investors exposure to natural gas prices without the complexities of directly buying and storing the physical commodity. Its shares trade on the NYSE Arca under the ticker UNG and have been available since April 18, 2007.

Core Objective: UNG's main goal is to track the daily percentage changes in natural gas prices. Specifically, it aims to mirror the daily movements of the front-month (or near-month) natural gas futures contract traded on the New York Mercantile Exchange (NYMEX) at the Henry Hub delivery point in Louisiana. The "front-month" contract is the one closest to expiration.

Investment Strategy: To achieve its objective, UNG primarily invests in:

• Natural Gas Futures Contracts: These are agreements to buy or sell natural gas at a predetermined price on a future date. UNG typically invests in the front-month contract and "rolls" these positions each month. This means it sells the expiring contract and buys the next month's contract.
• Other Natural Gas-Related Instruments: Under specific market conditions, to manage risk, or to comply with regulations, UNG may also invest in options on futures, forward contracts, or over-the-counter (OTC) natural gas derivatives.
• Limited Diversification: In rare instances, if beneficial for its strategy and consistent with its objectives, UNG may hold futures contracts for other energy commodities like crude oil, though this is not its primary focus.
• Cash & Equivalents: UNG holds a portion of its assets in short-term U.S. Treasury Bills or other high-quality, short-term debt instruments. The interest income from these holdings helps offset some operating costs.

Risk Factors

Investing in UNG involves specific risks that investors must understand:

1. Tracking Error (Contango & Backwardation): This is arguably the most significant risk. UNG tracks futures contracts, not the immediate "spot" price of natural gas.

   • Contango: When futures contracts for later months cost more than the current month's contract, UNG "rolls" its positions by selling cheaper expiring contracts and buying more expensive future contracts. This can significantly erode returns over time, causing UNG to underperform the spot price of natural gas, even if the spot price rises.
   • Backwardation: The opposite scenario, where future contracts are cheaper, can benefit UNG's performance. However, contango has historically been more prevalent in natural gas markets.
   • Long-Term Performance: Because of this "roll yield" effect, UNG is not designed to perfectly track the long-term price movements of natural gas. It may significantly underperform the spot price over extended periods and is primarily suited for investors with a short-term outlook.

2. Futures Market Volatility & Leverage: Natural gas futures markets are highly volatile. Small price movements can have a magnified impact on UNG's value due to the inherent leverage in futures contracts.

3. Counterparty Risk: While exchanges generally clear futures contracts, UNG may use OTC derivatives. These carry counterparty risk, meaning the other party to the contract might default on its obligations.

4. Liquidity Risk: Although UNG's shares trade on a major exchange, extreme market conditions could affect the liquidity of its underlying futures contracts, making efficient trade execution difficult.

5. Regulatory & Tax Risks: UNG's structure as a commodity pool means investors receive a Schedule K-1 for tax purposes, which can complicate tax preparation. Changes in commodity regulations could also impact the fund.

6. Concentration Risk: UNG focuses solely on natural gas. This makes it highly susceptible to factors affecting natural gas supply, demand, and pricing, such as weather, geopolitical events, and economic conditions.

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A Highlights)

For the fiscal year ended December 31, 2025, the natural gas futures market dynamics primarily shaped UNG's financial performance. The fund reported a net loss, largely due to adverse movements in the value of its natural gas futures contracts. The market experienced significant volatility, influenced by fluctuating supply and demand, weather patterns, and broader economic conditions.

A key factor impacting UNG's performance relative to the spot price of natural gas was the persistent contango in the futures market. As discussed in the Risk Factors, this market structure created a negative roll yield. The fund incurred losses when rolling expiring front-month contracts into higher-priced subsequent month contracts, significantly contributing to its underperformance against the spot price of natural gas.

The fund's total assets under management (AUM) decreased. This reflects both the decline in the value of its underlying investments and net share redemptions. Operating expenses, including management fees and brokerage commissions, also impacted overall returns.

Regarding critical accounting policies, the valuation of futures contracts and other derivatives is paramount. UNG marks these instruments to market daily, recognizing changes in fair value in the statement of operations. The General Partner continuously monitors these valuations to ensure accuracy and compliance with accounting standards.

A significant event during the period was the reverse stock split UNG executed on January 23, 2024. This action increased UNG's per-share trading price, aiming to maintain compliance with exchange listing requirements and enhance marketability. The reverse split proportionally reduced the number of outstanding shares and increased the NAV per share, without altering the total value of shareholders' investments.

Financial Health and Liquidity

UNG maintains a strong financial position, characterized by its asset-backed structure and absence of traditional debt. The fund's primary assets include its holdings in natural gas futures contracts, cash, and highly liquid U.S. Treasury Bills. These assets support the fund's investment objectives, satisfy margin requirements for its futures positions, and cover operational expenses.

As of December 31, 2025, the fund held substantial cash and cash equivalents, primarily in U.S. Treasury Bills. These holdings also generated interest income, contributing to total revenues. This liquidity is crucial for managing daily margin calls on its futures positions and ensuring the fund can meet its obligations. The General Partner actively manages the fund's cash and collateral to ensure sufficient liquidity at all times, minimizing the risk of forced liquidation of futures positions.

The fund's capital resources directly link to its assets under management. While AUM decreased during the fiscal year, the fund maintained a robust financial position, capable of supporting its investment strategy and operational needs. UNG does not borrow for investment purposes, further reinforcing its conservative financial structure.

Future Outlook and Strategy

The General Partner, USCF, anticipates that the natural gas market will continue to experience significant volatility. Factors such as weather patterns, global energy demand, geopolitical developments, and domestic production levels will drive this volatility. The phenomenon of contango, which has historically impacted UNG's performance, will likely remain a factor in the natural gas futures market, and investors should continue to understand its implications for long-term returns.

UNG's core investment strategy remains unchanged: to track the daily percentage changes in the price of the front-month natural gas futures contract. The General Partner will continue to execute its monthly roll strategy, selling expiring contracts and purchasing the next month's contracts, in accordance with the fund's prospectus. We do not currently anticipate any material changes to this fundamental strategy.

The fund will continue to hold a significant portion of its assets in highly liquid U.S. Treasury Bills. These holdings provide collateral for its futures positions and generate interest income. The General Partner remains committed to managing the fund consistent with its stated objective and regulatory requirements, while continuously monitoring market conditions for any necessary operational adjustments.

Competitive Position

UNG operates within a competitive landscape of investment products offering exposure to natural gas prices. Its primary competitors include other exchange-traded products (ETPs) that track natural gas futures, direct investments in natural gas futures contracts, and equities of natural gas exploration and production companies.

UNG's competitive advantages include its liquidity on the NYSE Arca, offering investors an accessible and regulated way to gain exposure to natural gas price movements without the complexities of direct futures trading. Its structure as a commodity pool, while presenting certain tax implications (K-1s), also provides a specific regulatory framework that differentiates it from other investment vehicles.

However, UNG's specific methodology of tracking the front-month futures contract and its susceptibility to contango can be a competitive disadvantage for investors seeking long-term exposure that closely mirrors spot natural gas prices. Other ETPs may employ different roll strategies (e.g., tracking longer-dated futures or a blend of futures) to mitigate contango's impact, potentially offering different risk/return profiles. The fund's expense ratio is also a factor investors consider when comparing it to alternative investment options.

Ultimately, UNG's competitive position stems from its transparent, rules-based approach to tracking daily natural gas futures prices. It caters to investors who understand and accept the implications of its specific investment strategy and the inherent characteristics of the natural gas futures market.

Who's in Charge? (The General Partner - USCF)

United States Commodity Funds LLC (USCF) manages the fund and acts as its "general partner." USCF is responsible for all investment decisions, operations, and compliance.

• Ownership Structure: USCF is a subsidiary of USCF Investments, Inc., which The Marygold Companies, Inc. (MGLD), a publicly traded company, owns. Nicholas Gerber, along with his family and other shareholders, holds a significant ownership stake in Marygold.
• Experience: USCF manages several other commodity-focused funds, bringing extensive experience in this specialized investment area.
• Investor Role: As a "limited partner" in UNG, you do not have a say in the fund's day-to-day management or investment decisions.

Important Structural Changes

• Reverse Stock Split: On January 23, 2024, UNG executed a reverse stock split. This action reduced the number of outstanding shares and proportionally increased the share price, typically done to maintain a certain trading price range.
• Shares Outstanding: As of February 23, 2026 (post-fiscal year end), approximately 35.5 million shares of UNG were outstanding. The total market value of UNG shares held by non-affiliates was approximately $360.5 million as of June 30, 2025.

In Conclusion

UNG offers a way to participate in the daily price movements of natural gas futures. However, its unique structure, particularly the impact of contango, means it is generally not suitable for long-term buy-and-hold investors seeking to replicate the performance of natural gas spot prices. Investors should carefully consider its investment strategy, expense ratio, and the significant risks, especially tracking error, before investing. Always consult the full 10-K filing and a financial advisor to determine if UNG aligns with your investment goals and risk tolerance.