After dropping to an 18-year low in the first quarter of 2016, natural gas prices are on the rebound and are expected to trend upward in the coming years.
While the market is expected to remain in balance in 2017, the US Energy Information Administration (EIA) predicts that the Henry Hub natural gas spot price will rise to an average of $3.40 per MMBtu in 2018, up from $2.51 in 2016 and $3.10 in 2017.
Prices will rise on the back of growing demand for natural gas, which is used primarily for heating and power generation. In fact, natural gas is currently the most widely used fuel for space heating in the US, and has also started to beat out coal as the top fuel for power generation. Before jumping into the space, here are 10 more 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, or LNG, 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 vehicles only make up a small portion of vehicles on the road, but are known to create less emissions than traditional petroleum-based vehicles. Natural gas vehicles are a good choice for high-mileage fleets that are centrally fueled.
6. Natural gas fracking can cause earthquakes…
Scientists have long known that fracking operations can cause small earthquakes near drilling and extraction sites. In 2014, Scientific American reported on a study that suggests wastewater injection could be responsible for much farther-reaching and more potentially devastating quakes.
However, scientists are still unsure about how exactly larger fracking quakes are caused. “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, told The Canadian Press.
7. …and has been controversial for other reasons too
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.
Critics are also 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
While natural gas plays a large role in space heating, it is also growing in importance as a fuel for power generation — as mentioned, it has started to beat out coal as the top fuel for power generation in the US. 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 by 2018), The Smart Investor argues that there will be plenty of growing demand abroad as well.
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. Colder winters can drive up natural gas demand for heating purposes while unseasonably warm winters can have the opposite effect. Other factors such as the price of oil and competing energy sources will also affect natural gas prices.
This is an updated version of an article originally published by the Investing News Network in 2016.
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Securities Disclosure: I, Sivansh Padhy, hold no direct investment interest in any company mentioned in this article.