Natural gas is a widely used energy source throughout the world. Thousands of people employed in their supply chainassistance in drilling and production of natural gas, its purification and transportation to commercial and industrial consumers.
In this article, we will discuss what natural gas is, take a closer look at its supply chain, and take a look at some of the current developments and recent discussions related to it. We will also offer advice for people interested in investing in this sector.
- Natural gas is produced over millions of years by the slow breakdown of organic matter as it is pressed and heated under sand and sediment.
- Natural gas is primarily methane, although it often needs to be processed when first extracted from underground due to the presence of non-hydrocarbon compounds such as sulfur and helium.
- The future performance of natural gas companies will be affected by socio-political events such as war, government sanctions and green energy initiatives.
What is natural gas and how to get it?
Natural gas is a non-renewable resource that consumers can burn. generate heat, electricity or cook food. Formed from the anaerobic decomposition of organic matter, methane is the main component of natural gas, but it also contains small amounts of carbon dioxide, nitrogen, and various other gases.
Imagine marine plants and animals dying millions of years ago and buried at the bottom of the ocean. Over time, the accumulation of sand and silt pushes their remains deeper into the ground, exposing them to higher temperatures and increased pressure. This combination eventually breaks the carbon bonds in the organic matter, producing thermogenic methane (natural gas).
Natural gas is found underground in sandstone and coal seams. Like oil, natural gas can flow freely into wells due to natural underground pressure pushing the gas through the rocks. Oil reservoirs often also contain natural gas, and drillers often find the gas (because it is lighter) on top of the oil.
The natural gas production process involves injection into a well to bring oil and gas to the surface. The drillers intentionally try to break up the rock to facilitate the flow of gas through the reservoir.
Studies over the past ten years have shown that 75% of the world’s natural gas reserves are located in the Middle East, Europe and the former USSR. There is a relatively small amount of natural gas left in the United States, but it is still an important industry and employs thousands of Americans every year.
Natural gas companies typically transport their products through pipelines. These pipelines transport natural gas to processing plants, where water vapor and non-hydrocarbon elements are separated from methane. It does not always need to be processed unless the natural gas produced is particularly “wet” (contaminated with elements other than methane).
Processed natural gas (which usually contains trace amounts of other elements) is referred to as “dry natural gas” and can be pipelined to underground storage facilities or distribution companies before being sent to consumers. Natural gas is inherently odorless, so chemicals called odorants are added to natural gas so that consumers and workers can detect leaks.
Liquefied natural gas (LNG) is natural gas that has been cooled down to -260 degrees Fahrenheit to become a liquid. Since liquids are more compact than gases, LNG only occupies 1/600 of the volume of a gas. This makes it easy to transport around the world to places where there is no access to natural gas pipelines.
Once the LNG arrives at its destination, regasification units will heat the gas until it returns to a gaseous state. The company can then deliver the gas to consumer homes via local pipelines.
Unlike other fossil fuels, natural gas burns cleanly and produces less toxic air pollutants and carbon dioxide. Carbon dioxide emissions from natural gas (per unit of energy produced) are about 40% lower than coal and 20% lower than oil. This gives natural gas its reputation as a relatively safe and efficient energy source.
However, there is controversy over the benefits of using natural gas and whether these are outweighed by the methane released into the atmosphere during processing and transportation.
Flaring is the process of burning natural gas, which is a common by-product of oil production. Many oil and gas value chain workers advocate flaring as necessary for safety and economic reasons. Drilling creates pressure and gas buildup that helps offset the flaring. It is also unprofitable for companies to supply as much natural gas to the market as possible.
However, many others criticize the flaring process as polluting and wasteful. Viable markets are essential for companies to invest in capturing and processing excess natural gas. Until then, flaring remains a controversial step in many oil and gas operations.
While flaring involves burning natural gas in a production well, venting is another process used by drillers to remove excess natural gas. Ventilation involves the direct release of natural gas into the atmosphere, and although it is generally in small amounts, it is still considered harmful to the environment.
American natural gas market
Natural gas currently accounts for about a quarter of the world’s electricity production. In 2023, analysts estimated the size of the U.S. gas industry market (by revenue) at more than $200 billion. Natural gas is a potential investment for many people. Because it is slightly more environmentally friendly than other heat sources such as coal, climate change legislation passed in the coming years may have less of an impact on natural gas.
Because natural gas is an energy source used by so many people, regardless of the state of the economy, this is a relatively stable sector during a recession. While higher interest rates and reduced purchasing power can significantly cut entertainment company revenues, an energy company usually doesn’t see profits drop too much in an inflationary environment.
If you are interested in presenting your portfolio to natural gas companies, you can be invested in an exchange-traded fund (ETF), buy a futures contract or invest in individual gas companies on the exchange. Large oil and gas stocks usually offer high dividends to investors, which makes these stocks even more attractive to potential investors.
Socio-Political Developments Affecting Natural Gas
As in all other energy sectors, current social and political developments can significantly affect the activities of companies. It is not just climate change legislation that is affecting the outlook for energy companies.
Nord Stream incident
In September 2022, a series of explosions and subsequent gas leaks occurred on the Nord Stream 1 and Nord Stream 2 gas pipelines. The pipelines are designed to transport natural gas from Russ*a to Germany across the Baltic Sea.
Before the explosions, the Nord Stream gas pipelines were filled with natural gas, but did not work due to disagreements between Russ*a and the European Union. In 2021, Europe depended on supplies from Russ*a for more than 40% of its gas, and a sudden disruption in the supply chain led to a sharp increase in energy prices.
Against the background of this event was the Russ*an invasion of Ukra*ne and the US threat of sanctions against any country that helped Russ*a complete the construction of the Nord Stream gas pipeline. While it is still unknown who is responsible for the attacks on the pipelines, this event shows the impact current events can have on natural gas prices.
The US tied Qatar in 2022 as the world’s largest LNG exporter. The incident benefited companies specializing in solar, hydroelectric, wind and biomass energy sources.
US investment in natural gas
Another consequence of the war in Ukra*ne and rising LNG prices has been additional investment in home energy sources. The US plans to build several liquefied natural gas terminals along the Gulf Coast; this would increase the amount of exports the US could make.
While the news isn’t necessarily good news for those concerned that the US is meeting certain fossil fuel emission thresholds, it does suggest that the situation in the US gas industry could change significantly in the coming years.
The future of the industry
It is difficult to know which direction the natural gas sector will take. People may consider switching energy sources in the event of a prolonged energy crisis. As climate change legislation targets heat energy sources with a larger carbon footprint, the demand for natural gas may continue to rise in the coming years as people continue to need reliable sources of energy to heat their homes and cook their meals.
The Inflation Reduction Act, signed into law by President Biden in August 2022, provided $369 billion to fight climate change by creating and green energy development. We’ll have to wait to see how the green energy companies react to increased funding and good press. If demand continues to grow, there is a chance that their market share will decrease to that of natural gas companies. Time will show.
When you talk about natural gas, most people immediately think of little blue lights on gas burners in the kitchen. Natural gas is a non-renewable energy source created over millions of years by the decomposition of organic material. The process of its collection and processing is complex and associated with certain harm to the environment due to the release of methane.
As the energy world around us changes—from energy crises abroad to green energy initiatives here in the US—the demand for natural gas is likely to continue to rise in the coming decades. As an investor, you may be interested in companies that either process LNG or ship it around the world.
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