Natural Gas Commodities

Natural gas is world's second energy source after oil. In recent times Natural gas has occupied a very important place in the energy sector and in the international markets due to its many advantages and abundant supply.

Nature and Origin: Natural gas is a fossil fuel and is a source of energy. The natural gas originates from the remains of plants and animals (Humus) that were accumulated at the bottom of lakes and oceans over millions of years. It is a mixture of light hydro carbons including methane, ethane, propane, butanes and pentanes. It is colourless, tasteless, odorless, and shapeless and is lighter than air. So, chemical odor that smells like rotten eggs is added to the natural gas to detect gas leak as a measure of safety standard. It is a non renewable energy but found in plenty all over the world.

History: The Chinese drilled the first known natural gas well in 211 BC. Earlier people in Middle East built temples around 'the Eternal Flames' when lightening ignited natural gas seeps. William Hart is considered as the 'Father of Natural Gas' in America when he discovered a gas well in North America.

Commodities of Natural Gas:

When natural gas is cooled at a temperature of 2600 Fahrenheit at atmospheric pressure, it condenses to Liquefied Natural Gas (LNG). It weighs less than 45% of water.

Natural Gas in its condensed form (CNG) is filled in cylinders. Transportation in this form is easier.

Unleaded gas is another form of natural gas which is mostly used to run vehicles.

A commodity though not made out of natural gas but made for it is the natural gas filter. These are designed and manufactured to suit all kinds of natural gases. They can handle a flow of air, water, oil and gas at high temperatures and pressures.

Uses: Natural gas is used for residential, commercial, Industry, Power generation , vehicles and fuel cells.

Residential: Natural gas is used for cooking, heating and air conditioning of houses

Commercial: Natural gas is used in Hotels, Catering business, Health care, refrigeration, space conditioning etc.

Industry: Natural gas is used as input to manufacturing pulp and paper, metals, chemicals, stone, clay, glass etc. It is also used for treating waste material, drying and dehumidification.

Power generation: These days natural gas is used in electricity generation. According to Energy Information Administration, natural gas contributed 23% of world energy production in 1999.

Vehicles: CNG and LNG are used to run vehicles. Since CNG emissions are negligible, it is environment friendly and all countries world over are slowly shifting to run vehicles on natural gas.

Fuel Cells: Fuel Cells are electro chemical devices that combine Hydrogen and Oxygen to produce electricity.


Natural gas is economically more efficient than other fuels. It has only 10% wastage.

It is environment friendly. It is a clean fuel. Emissions of Sulphur dioxide are negligible and Nitrous Oxide and Carbon Di Oxide are much lower than others.

It helps to reduce dangers like acid rain depletion of Ozone Layer and increase of green house gases.

It is a safe gas because it has reduced flammable range.

It is of low cost when compared to other fuels.

Pricing: There is no world price for natural gas. Natural gas markets in many countries are regulated and hence there are different prices. The world market is fragmented in regional markets. In North America the prices are competitive and respond to demand and supply like any other commodity. The Russian Federation pegs the domestic price low and increases the price in foreign market to make good the loss in domestic consumption. In Europe the price of natural gas is based on competition with other fuels.

The price of natural gas involves different levels of costs-

Well head price- this is the cost immediately after extraction from the well. This price is highly volatile. Much depends on the weather and the market demand.

Long distance transportation cost- this is a major cost component. The extracted gas has to be transported to distant places through pipes. The pipe laying with all safety norms is a big exercise which is very expensive.

Local distribution Costs- This is the third element of cost. Pipes have to be laid to individual house hold from the major pipes and safety measures are very important in the whole process.

The largest share of the final cost is distribution cost only. The demand factors which influence the price of natural gas are weather, economic activity level, population, user trends, and finally Legislations. The natural gas prices are cyclical.

Natural Gas thus has become a key commodity which commands an influential status in the economy.