Natural Gas (NG) functions very similar to the crude oil, yet making some room for its differentials from oil. Compared to the oil, NG is cleaner and more abundant in the nature.  It is also a combustion mixture of hydrocarbon gases- colorless, odorless, and shapeless in its purest form. Because of the highest concentration of methane, it is almost methane in its purest form. Mercaptan is added to NG as a preventive measure so that it can be smelled in case of leaks. The combustion of per unit of NG produces 30% less carbon dioxide than oil and about 45% less carbon dioxide than coal. With regards to the present level of NG production, supply seems to last for 65 years, still higher than that of oil which is 41 years.

Price Drivers for Natural Gas

•           Gas Exporting Countries Forum (GECF):

The GECF is a group of 15 countries which control 75% of the world’s natural gas reserves.   Russia is the world’s largest producer and leading member, while Iran and Qatar are also important members of the forum. If GECF functions well, the whole global energy markets seem to be influenced.

•           Natural Gas Supply and Demand 

Natural Gas demand in international market determines its price and if the demand is high, price rises and vice versa. International Energy Agency (IEA) stated that demand for natural gas was 3 Trillion Cubic Meters (TCM) in 2007 and it will increase to 4.3 TCM in 2030. Current reserves of 180 TCM are expected to be sufficient for 65 years.

Expanding Liquefied Natural Gas (LNG) Demand means higher natural gas prices. To overcome LNG demand in 2009 &2010, natural gas plants were set to expand the natural gas supply by 30 %.

•           Drilling & Storage 

Another influential factor for the NG price is the drilling for new gas discoveries and storage of existing reserve.  During winter, NG is not drilled instead earlier storages are used. High prices of the NG drive the rate of drilling too. Since the production of NG takes 6-18 months to extract from mines, drilling has long term impact in the prices of natural gas.

•           Oil Supply, Demand, and Pricing 

Talking about the significance, one can discover the positive correlation between Oil and NG. Firstly, Consumer in industrial and transport either use NG else Oil for energy purpose. Secondly, both are often found in the same geologic formation, so as the oil price raises it encourage more exploration and production for oil as well as of NG.

•           Ethanol Effect 

Corn based fuel have been demanded by Ethanol mandates around the world. Refiners use Gas Boilers to get distilled Ethanol, that take 30,000 BTU of NG to produce a single gallon of green fuel.  The estimations show that Corn based ethanol in US will increase to 15 billion gallon per year by 2022, which is one of the major drivers to increase the demand for natural gas.

•           Weather & Seasonal Fluctuations

The demand for the NG increases during winter for heat and decreases during summer. This seasonal demand directly impacts prices, revenue and profits. The Industries purchasing summer when the price is low in huge quantity and keep the inventory for usage in winter also.