Natural gas is an inexpensive and clean burning fuel. Natural gas has a lot going for it since itâs cheaper than oil and it is a low carbon fuel making it more environmentally friendly. In addition natural gas is available in abundance in North America.
What is natural gas?
The main ingredient in natural gas is methane which is composed of carbon and hydrogen. Natural gas, much like crude oil comes from remains of ancient plants and animals that have decayed and over millions of years built up in thick layers under the seabed and underground. Over time, the sand and silt changed to rock, covered the organic material, and trapped it beneath the rock. Pressure and heat changed some of this organic material into coal, crude oil, and natural gas.
Today however pipelines are constructed to transport natural gas to the end consumer. Natural gas is also stored for later use in large underground storage systems such as old oil and gas wells or caverns formed in old salt beds. The gas remains in the underground reservoirs until it is needed and routed back into pipelines and into peopleâs houses.
Today however pipelines are constructed to transport natural gas to the end consumer. Larger underground storage systems such as old oil and gas wells or caverns formed in old salt bed are used to store natural gas. The gas remains in the underground reservoirs until it is needed and routed back into pipelines and into peopleâs houses.
Liquefied natural
Natural gas can also be transported by turning it in to a liquid form through a Gas-to-liquid (GTL) process. Liquefied natural gas (LNG) is chilled to about -260F and takes a liquid form around at that temperature. Liquefied natural gas only takes 1/600th the space it does in gaseous form at makes it easy to load onto tankers (larger ships) and move it to other countries. The gas is also shipped via trucks with chilled tanks to end users domestically.
Where is natural gas used?
Natural gas is major source of energy in the United States and more than 20% of power plants in the US burns natural gas. Natural gas fired power plants are a great alternative to coal power plants since it burns just half of the carbon dioxide.
Natural gas also has industrial applications; it is used to produce steel, glass, paper, clothing, bricks, and electricity. Natural gas is also used to produce paints, fertilizer, plastics, antifreeze, dyes, photographic film, medicines, and explosives. More than half of all homes in the United States use natural gas as their main heating fuel.
Natural gas exploration
Geologists have long known about the massive natural gas formation in North America but cost of exploration has until recently prohibited many large scale production projects. This all changed in the early 2000s when geologist and scientists in Texas developed new exploration methods. With the advent horizontal drilling and hydraulic fracturing they were able to open up new vast reservoirs in addition to finding previously unknown reserves. As result of new exploration technology, proved natural gas reserves grew from 177 trillion cubic feet in 2000 to 237 trillion feet in 2008.
Total recoverable reserves with current technologies are estimated to be more than 2586 trillion cubic feet. At the current rate of consumption (22 trillion cubic feet per year) natural gas will be able to supply America with energy for over 100 years.
Natural gas Investing
The price of natural is low compared to other energy sources. The price is also very volatile and seasonal. Natural gas is mainly used for heating and cooling so the weather determines the price to a good degree. Investors in the industry watch the weather closely and make weather bets. However, natural gas prices tend to be higher in the winter since itâs mainly used as a heating fuel. Savvy natural gas traders frequently make bets that the price of natural gas prices will be higher in the winter and cash in huge profits.
Looking at a seasonal adjusted graph of data compiled over the last 13 years one can see that the price of natural gas tends to be higher during the second half of the year.
The price of natural gas becomes extremely volatile when hurricanes wash ashore. In 2005 the price more than doubled when the Gulf was struck by a spree of hurricanes. Some traders go as far as studying volcanic ash in the atmosphere to the water temperature in the Gulf to be able to predict weather behaviors and speculate on natural gas prices. Other traders subscribe to a wide variety of subscriptions newsletters claiming to accurately predict the weather.
I donât know if they actually can predict the weather but in my opinion a far better source of information is the Weekly Natural Gas Storage Report. It is made available by the Energy Information Administration and it reports how much natural is available in storage and how it compares to historical levels. Should inventory levels be close to empty it is a fairly safe bet to make that prices will head higher until inventories levels have recovered.
The chart shows natural gas prices over the last 8 years. It shows the volatile nature of natural gas prices. There are plenty of profit opportunities for savvy investors. The industry has made a lot of people rich but it has also sent less fortunate investors and hedge funds to the poor house.