10 Basic Natural Gas Facts for Investors to Know

Here's a look at 10 basic natural gas facts investors should know.

natural gas facts

After dropping to an 18-year low in the first quarter of 2016, natural gas prices are on the rebound and expected to trend upwards in 2017. The Energy Information Administration predicts that Henry Hub gas spot prices will rise from an average of $2.49 in 2016 to $3.27 in 2017.

Most analysts believe that the market will be balanced this year, as demand for the fuel continues to grow. According to the US Energy Information Administration (EIA), natural gas is the most widely used fuel for space heating in the US. It has also started to beat out coal as the top fuel for power generation.

For investors interested in learning more about the space, here are 10 basic natural gas facts to know.

1. It is lighter than air

Natural gas, a mixture of methane and other naturally occurring gases, is lighter than air, and needs to be cooled to -260 degrees Fahrenheit before becoming liquid. Liquefied natural gas takes up significantly less volume, which is useful when transporting the fuel.

2. It has no smell

Natural gas is completely odorless. In order to allow for the detection of natural gas leaks, companies add the chemical mercaptan, which gives the gas the smell of rotten eggs.

3. Natural gas and oil occur together

Both oil and natural gas are, of course, fossil fuels, and are formed via the same geological process. It isn’t surprising, then, that the two materials are often found together. Deposits that are more rich in natural gas are referred to as natural gas fields, while those more rich in oil are known as oil fields.

4. It’s used in manufacturing as well as fuel

In addition to being used as a fuel for power generation and for heating homes, natural gas is used to manufacture various products. According to the Interstate Natural Gas Association of America, natural gas is a key component in the production of ammonia. It’s also used to make various other products, from vinyl flooring and carpeting, to Aspirin and artificial limbs.

5. It can be used to power vehicles

Natural gas is growing in popularity as an alternative fuel for running vehicles. As Environmental Leader states, total sales of vehicles that run on natural gas are expected to top 35 million by 2025.

Natural gas is especially attractive as an alternative to diesel fuel for medium and heavy duty vehicles.

6. Natural gas fracking can cause earthquakes…

Scientists have long known that fracking operations can cause small earthquakes near drilling and extraction sites, and in 2014, Scientific American reported on a study that suggests wastewater injection could be responsible for much farther-reaching and more potentially devastating quakes.

That said, scientists are still unsure about how exactly larger fracking quakes are caused, and about how to predict them. “There’s urgent scientific research right now which is focused on trying to find better ways to identify these features in advance,” David Eaton, a University of Calgary geophysicist, recently told The Canadian Press.

7. …and has been controversial for other reasons too

Of course, the potential for earthquakes caused by natural gas fracking is not the only reason that the process draws controversy. The process uses a number of industrial chemicals, and opponents fear the contamination of drinking water from these substances.

Furthermore, critics are against the amount of water used in fracking operations. The US Department of Energy notes that drilling and fracturing a horizontal shale gas well, for instance, usually requires anywhere from 2 to 4 million gallons of water. On the other hand, the department points out that this amount is small compared to what is used in other industries, such as agriculture.

8. However, it’s also known as a “clean” fuel

Despite being a fossil fuel, natural gas is often pegged as a “cleaner” fuel option than coal or oil. According to the EIA, the burning of natural gas for power emits fewer greenhouse gases and pollutants, since it burns more easily and contains fewer impurities than other fossil fuels. The EIA also notes that natural gas produces less carbon dioxide per equivalent amount of heat production.

9. And demand is growing, both in the US and globally

As mentioned above, natural gas is currently the most-used fuel for space heating in the US. It’s also growing in importance as a fuel for power generation, beating out coal as the top fuel for power generation in the US last April and July. Even with production growing at a rapid rate in the country (the US is expected to shift from being a net importer to a net exporter of natural gas in 2017), The Smart Investor argues that there will be plenty of growing demand abroad as well, which could eventually drop the pressure on the so-far oversupplied industry.

Certainly, that’s key to note for investors taking a look at natural gas companies.

10. Natural gas prices are tied to the weather

Finally, since natural gas is used extensively for heating homes, it’s worth noting that natural gas prices can rise or fall depending on the weather. For example, colder winters drive up natural gas demand for heating purposes, while unseasonably warm winters can have the opposite effect.

Of course, other factors, such as the price of oil and other competing fuel prices, can also affect natural gas prices.

 

Securities Disclosure: I, Teresa Matich, hold no investment interest in any of the securities mentioned in this article.

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