There are three ways in which natural gas is sourced, resulting in three different varieties: fossil gas, town gas and biogas. Fossil gas is generally produced as a by-product from the production of oil, and consequently is sourced from oil fields or coal beds. This is also known as ‘associated gas’. Town gas is produced by treating coal chemically, while biogas is produced by the gradual decay of non-fossil organic matter. This tends to occur in moisture rich areas such as swamps and marshes. Natural gas often contains ‘impurities’ when it is sourced, such as propane, butane and carbon dioxide. If these are removed, the product is called ‘dry natural gas’, and if they are left in then it is called ‘wet natural gas’. Natural gas is traded on the commodity market under the commodity code of NG.
Natural gas is often considered to be a clean and mostly environmentally friendly source of energy, which makes it one of the most appealing globally traded commodities. It is considered to be much less polluting than coal and oil. Another special feature of natural gas as a commodity is that it has a wide variety of practical applications. It can be utilised as a source of home energy, to generate electricity and can also be used to cook food. It also has applications in the preparation of organic compounds.
The main business markets for natural gas are the energy and fuel industries. The electrical sector is considered to be one of the leading consumers with regard to natural gas, and gas/electrical utilities companies take up a large proportion of the consumer market for natural gas. The use of natural gas is expected to increase to 182 trillion cubic feet in 2030.
The main producer of natural gas is the United States, with Russia a close second. It is believed that almost three quarters of the natural gas reserves in the world are located in the Western Asia and Eurasian regions. Iran and Qatar are also prolific producers of natural gas, and together with Russia account for approximately 60% of the global natural gas reserves.
Natural gas futures are traded on a number of commodity exchanges. It is possible to engage in natural gas trading on the Australian Securities Exchange (ASX), the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE), the European Energy Exchange (EEX) and the Multi Commodity Exchange of India (MCX), among others.
As with any commodity, there are a wide variety of factors that affect the natural gas spot price, and the price of natural gas futures contracts. Natural gas pricing is closely tied to that of oil, as both are generally found in the same geographic locales. Also, natural gas and oil act as substitutes for many industrial level users, so as the balance tips in favour of one, the spot price of the other decreases. The availability of supply is also a factor to consider. As natural gas is produced from the decay of fossils, there is a finite supply globally. As reserves dry up, the supply will decrease and the natural gas price price will increase until a new reserve is discovered. The price of natural gas options also tends to change seasonally as consumers typically require more heating in the winter months. Any unexpected change in the weather patterns can act as a considerable boon or benefit to those who are involved in natural gas hedging, as the natural gas futures price may no longer accurately reflect the supply and demand paradigm of the market. It can be seen, then, that there are many factors which can affect natural gas prices, and they must all be considered if a company or individual wishes to be effective in natural gas trading.
Ready to Start Trading Natural Gas Commodities?
We recommend Plus500, who offer…
- Up to 1:50 leverage
- £20 free credit
- Smooth web-based, Windows, iPad & iPhone trading