Natural Gas

Major Characteristics

  • Natural gas is a colourless, odourless, environment friendly energy source. It is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills. Natural gas is commercially produced mostly from oil fields and natural gas fields.
  • Before natural gas can be used as a fuel, it must undergo extensive processing to remove almost all materials other than methane. The by-products of that processing include ethane, propane, butanes, pentanes and higher molecular weight hydrocarbons, elemental sulfur, carbon dioxide, and sometimes helium and nitrogen.
  • The major difficulty in the use of natural gas is transportation and storage. While, pipelines are used for inland transport, it cannot be used under oceans, which is essential for global trade. Liquified Natural Gas (LNG) is a proven commercial technology for transporting natural gas across oceans. However, as special ships and separate LNG receiving terminals are required, LNG projects are highly capital intensive in nature.
  • The major applications of natural gas are
  • Fuel source for power generation
  • Domestic / Commercial utilization for cooking, warming as piped natural gas
  • Industrial uses: fuel source for boilers, ovens, air conditioners etc
  • Feed source for fertilizer manufacture
  • Compressed Natural Gas (CNG) is being widely used as an alternative automobile fuel
  • Production of petrochemicals like methanol etc.
  • The other fractions obtained in natural gas processing like butane and propane are used in manufacture of LPG (LIquified Petroleum Gas)

Global Scenario

  • The world's proven natural gas reserves as on January 1, 2009 are estimated at 185.2 trillion cubic metre, of which almost three-quarters are located in the Middle East and Eurasia. Russia, Iran, and Qatar together account for about 57% of the total reserves.
  • Natural gas consumption has increased strongly over the past decade. However, despite this rising consumption, reserves-to-production ratios for most regions are substantial. Worldwide, the reserves-to-production ratio is estimated at 63 years.
  • The total global production of natural gas in 2008 is estimated to be 3065.6 billion cubic metre with the main producing countries being Russia Federation (602 billion cubic metre), US (582 bcm), Canada (175 bcm) and Iran (116 bcm).
  • The total global consumption of natural gas in 2008 is estimated to be 3018.7 billion cubic metre with the main consuming countries being US (657 bcm), Russia Federation (420 billion cubic metre), Iran (117 bcm), Canada (100 bcm) are the major consumers
  • Globally, industries consume the largest portion of natural gas, followed by the power sector. Industrial consumption is expected to be around 40% of total global consumption by 2030 as projected by Energy Information Administration.
  • The total global trade in 2008 as piped natural gas and as LNG is reported to be 587.3 bcm and 226.5 bcm. While major exporters of piped natural gas are Russia (154 bcm), Canada (103 bcm) and Norway (93 bcm), the major importers are US (104 bcm), Germany (87 bcm) and Italy (75 bcm). The major exporters of CNG are Qatar (40 bcm), Malaysia (29 bcm), Indonesia (27 bcm) and the major importers are Japan (92 bcm), South Korea (36 bcm) and Spain (30 bcm).

World Natural Gas Markets

Chicago Mercantile Exchange (CME), which has acquired New York Mercantile Exchange (NYMEX), runs the world's most liquid natural gas derivative market.

Indian Scenario

  • Natural gas has gained prominence in India too as in the rest of the world over the last decade. India has consumed around 41.4 bcm of natural gas in 2008, of which domestic production is 30.6 bcm and imports as LNG has been 10.79 bcm.
  • The share of imports is expected to increase in the coming years and cross 30%, from current level of around 25%.
  • Fertilizer (41%) and power (37%) are the major users of natural gas in India. The fertilizer sector in India is highly subsidized by the Government and it fixes the rate at which natural gas is provided to the fertilizer manufacturing units.

Market Influencing Factors

  • Natural gas prices, too like that of any other commodity are a function of market supply and demand. As there are limited alternatives for changing consumption or production in the short run, changes in supply or demand over a short period often result in large price movements.
  • Strength of economy, weather and crude oil prices are the major demand-side factors influencing price. Severe winter in developed countries can increase demand for domestic and commercial heating and is a major influencing factor.
  • The supply side factors influencing prices are variations in natural gas production, imports and storage levels. Hurricanes and severe weather can disrupt supply.
  • Macro-economic factors like exchange rates, interest rates and other economical indicators do influence natural gas prices.


  • 1 mmBTU (million British Thermal Units) =25.2 SCM (Standard Cubic Metre)
  • 1 SCM = 1 cubic metre at 1 atmospheric pressure and 15°C
  • 1 TCF (Trillion Cubic Feet) = 4 MMSCMD (million metric standard cubic metre per day)
  • 1 MMTPA (Million tonne per Annum) of LNG = 4 MMSCMD
  • 1 MT of LNG = 1300 SCM
  • Power from 1 MMSCMD gas = 220 MW (Mega Watt)