, , , , , , , , , , , , , , ,


What is natural gas?

Natural gas is nothing more than gas mixture, consisting primarily of methane (70-90%) and other gases, such as propane and butane. As a fossil fuel, it results from the decay of organic matter from high temperatures and pressures within the Earth. It is often found in conjunction with oil deposits as the processes for forming each are similar. However, natural gas tends to form at higher pressures and temperatures and, therefore, is found in deeper deposits. Most natural gas is formed in this manner, though microorganisms can also generate it by chemically breaking down organic matter.

Conventional natural gas is the gas that is cheapest to extract given current technology. Historically, this has been gas found alongside oil deposits. Presently, unconventional natural gas can take several forms, though some are quickly becoming cheaper to extract. These are several forms:

  • Deep Gas Deposits – Usually more than 15,000 feet underground. Most conventional gas is found only a few thousand feet underground.
  • Tight Sand Gas – Gas trapped in impermeable rock
  • Shale Gas – Gas trapped in porous shale rock
  • Coal Bed Methane – Gas found alongside coal beds
  • Methane Hydrates – Gas trapped in crystalline ice structures. This is the least researched form of unconventional natural gas, though there may be more methane hydrates than all of the world’s coal, oil, and gas resources combined. Some research suggests that exploiting these hydrates could affect the world’s carbon cycle.

Distribution of Conventional Natural Gas

Present proven reserves are primarily found in Russia and the Middle East. The following list displays the countries with the largest conventional proven reserves.

Note: Present proven reserves is not an absolute figure showing all the gas reserves known to exist. Proven reserves refers to reserves that have been discovered AND are economical to extract. As a result, even with zero new discoveries and zero gas extraction, proven reserves can fluctuate based on the price of natural gas and the advancement of extraction technology.

The world’s total proven gas reserves equate to 7360.9 Trillion cubic feet (tcf) or 208.4 trillion cubic meters (tcm).

  • Russian Federation – 1575 tcf or 44.6 tcm – 21.4% of world’s total conventional gas.
  • Iran – 1168.6 tcf – 15.9% of world total
  • Qatar – 884.5  tcf – 12% of world total
  • Turkmenistan – 858.8 tcf – 11.7% of world total
  • Saudi Arabia – 287.8 tcf – 8.2% of world total
  • United States – 299.8 tcf – 4.1% of world total
  • United Arab Emirates – 215.1 tcf – 2.9% of world total
  • Venezuela – 195.2 tcf – 2.7% of world total
  • Nigeria -180.5 tcf – 2.5% of world total
  • Algeria -159.1 tcf – 2.2% of world total

All other countries contain less than 2% of the world’s total conventional proven gas reserves.

It is interesting to note that the US actually produces more natural gas than the Russian federation, mostly because of its unconventional gas resources.

Source: British Petroleum Statistical Review of World Energy – June 2012

Natural Gas Production Figures

Total natural gas production figures for 2011, including both conventional and unconventional gas, are as follows:

  1. United States – 22 tcf – 20% of world total production
  2. Russian Federation – 21.42 tcf – 18.5% of world total
  3. Canada – 5.64 tcf – 4.9% of world total
  4. Iran – 5.35 tcf – 4.6% of world total
  5. Qatar – 5.18 tcf – 4.5% of world total
  6. China – 3.62 tcf – 3.1% of world total
  7. Norway – 3.58 tcf – 3.1% of world total
  8. Saudi Arabia – 3.5 tcf – 3% of world total

The US experienced 7.7% production increases over 2010. Peru experienced 56.9% growth, Turkmenistan 40.6%, Iraq 42%, while Libyan production sank by 75.6% due to the civil war, and UK production decreased by 20.8%.

Source: BP Statistical Review of World Energy

Natural Gas Consumption

In 2010, natural gas consumption in the US broke down as follows:

24.13 tcf consumed in total

  • Residential – 4.94 tcf – 20.47%
  • Commercial – 3.20 tcf – 13.26%
  • Industrial – 6.60 tcf – 26.35%
  • Electricity Generators – 7.38 tcf – 30.58%
  • Other – 2.01 tcf – 8.32%

Projections for 2035: 

26.63 tcf consumed in total

  • Residential – 4.64 tcf – 17.42% of total (-3.05 percentage points from 2010)
  • Commercial – 3.60 tcf – 13.51% of total (+.25 percentage points from 2010)
  • Industrial – 7.00 tcf – 26.28% of total (-.07 percentage points from 2010)
  • Electricity Generators – 8.96 tcf – 33.64% of total (+3.06 percentage points from 2010)
  • Other – 2.43 tcf – 9.12% of total (+.80 percentage points from 2010)

Source: Department of Energy/Energy Information Administration Data

Natural gas has  relatively even distribution of uses, with electricity generation taking the highest plurality of gas consumption, a figure which is expected to rise.

The rise in this figure has several likely causes. Natural gas is relatively clean in its emissions as previously mentioned. Newly exploited American unconventional gas deposits are plentiful and likely to provide a cheap, at least for the present, domestic source of energy. Natural gas power plants are also relatively efficient in their production of electricity when compared to other energy sources. Combined cycle plants are able to convert generated heat to electricity, achieving efficiencies of up to 60%. This compares to the thermal efficiency of gasoline engines of 25% and that of coal-fired plants at about 35%.

Moreover, natural gas power plants are not baseload plants and can increase and decrease their electricity outputs to meet demand as necessary. (A baseload plant is one that provides a constant level of electricity production. Such plants are coal, nuclear, and hydroelectric plants.)

Much of the residential use goes towards heating. Industrial usage, although there are chemical applications of natural gas, also goes towards electricity generation onsite.


Natural gas is often reported as the cleanest of the fossil fuels. For each British Thermal Unit (btu) produced from natural gas, it emits fewer greenhouses gases and other pollutants.  As an environmental solution, natural gas remains the best option amongst the fossil fuels. The following chart portrays the discrepancies between gas, oil, and coal.

Fossil Fuel Emission Levels
– Pounds per Billion Btu of Energy Input
Pollutant Natural Gas Oil Coal
Carbon Dioxide 117,000 164,000 208,000
Carbon Monoxide 40 33 208
Nitrogen Oxides 92 448 457
Sulfur Dioxide 1 1,122 2,591
Particulates 7 84 2,744
Mercury 0.000 0.007 0.016
Source: EIA – Natural Gas Issues and Trends 1998

Natural Gas Distribution

Most natural gas is distributed through pipelines. This is the most economical way to distribute gas in most cases. Natural gas can also be shipped by liquefying it and shipping it by sea. Pipelines are more economical up to a distance of 3,500 km while shipping it by sea is more economical at further distances. Most island nations  find the expenses associated with building pipelines prohibitive and must rely on shipments of liquefied natural gas (LNG), regardless of distance.

As one may imagine, constructing pipelines is a long-term commitment with large capital costs and political and geopolitical implications and concerns.  As a result, natural gas is not as fungible a commodity as oil simply because pipelines deliver most gas, and these pipelines are governed by long term contracts.


Natural gas prices are generally set by 20 year contracts on pipelines. These 20 year contracts are necessary to ensure that building a pipeline is economical and the capital costs involved in construction are recuperated. As a result, natural gas prices can vary widely from one region to another. For example, European gas prices are much higher than US gas prices, though other factors are at play in determining European prices.

LNG is presently indexed to the price of oil and thus fluctuates in accordance to oil prices. However, a spot market is emerging for natural gas that will likely replace oil price indexation and the present system of long term contracts. Gas will likely become as fungible and liquid a commodity as oil as new LNG facilities and technologies are developed.

Liquefied Natural Gas


Liquefied natural gas (LNG) has only recently come to prominence in the public eye. However, LNG has existed since 1912 as a method of storage and the first transnational shipment of LNG occurred in 1959. The US presently mostly uses LNG technology for gas storage at peak-shaving facilities. These facilities store gas in liquefied form and make it available for peak energy consumption times, typically about 6 PM in the US.

The US, previously a world leader in LNG technology, has historically been able to meet its needs for gas domestically, disincentivizing research into and development of LNG. In more recent times, interest in LNG increased as it appeared the US would be unable to meet its gas needs domestically in the face of growing demand. However, as hydraulic fracturing and horizontal drilling made the extraction of shale gas economical in 2009, the US has experienced a boom in natural gas production, revitalizing the industry for the export of LNG while minimizing the need for imported LNG. Presently, Qatar leads the world in LNG technology and exports.

What exactly is LNG? 

Liquefied natural gas is nothing more than gaseous natural gas cooled to -260 F and stored in this form. This makes it convenient for transport as LNG takes up 1/600th of the space of the same quantity of gaseous natural gas. LNG is regassified at special terminal and then shipped by pipeline to customers. LNG terminals are capital intensive and the technology is still somewhat expensive, though new developments and construction of LNG terminals are driving down costs.

Great Economist article on LNG and the markets


Gas-to-liquids is a process that essentially turns natural gas into a synthetic crude oil products. The process essentially removes the impurities from natural gas, leaving only methane. The methane is then combined with oxygen at high temperatures to create a mixture of hydrogen and carbon monoxide. This mixture is then processed and transformed into long-chained waxy hydrocarbons. These long-chained hydrocarbon are able to interact with hydrogen and cut into smaller molecules. This process can create many of the products created from crude oil, such as kerosene, for mixture with jet fuel, diesel, and base oils for industrial lubricants.

Qatar is currently considered the leader in this technology and several international  energy companies are examining the technology and working to commercialize and make it a viable addition to world energy solutions.

Unconventional Gas

As usually discussed in US media, unconventional gas usually refers to shale gas exploited through hydraulic fracturing (fracking). The recent boom in US natural gas production, allowing it to overtake Russia as the world’s largest producer despite having only 19% of Russia’s conventional gas reserves. In 2009, extracting this unconventional shale gas became economical because of the refinement of two technologies: hydraulic fracturing and horizontal drilling.

Hydraulic fracturing involving drilling a well bore, perforating the sides of the well, and then pumping fluids at high pressure into the perforations to induce fractures in the shale rock. The fluid mixture is 99% water, .5% sand, and .5% proppants. These proppants prop up the rock in these fractures to allow the gas to flow through these seams once the water has been removed. These fluids are removed from the site once they are used. An operation may use about 3.8 million gallons of water. This technology has been around for several decades, but has not been able to fulfill its potential until the advent of horizontal drilling ,

Horizontal drilling, as the name implies, is the drilling done horizontally. Previously hydraulic fracturing was limited to vertical drilling which could only yield limited gas and required many wells to cover a large territory. With horizontal drilling, much larger areas can be exploited, making extraction economical.

The Energy Information Administration estimates there are 862 tcf of technically recoverable shale gas in the US. For comparison, the EIA estimates that China has 1,275 tcf, Argentina has 774 tcf, and Mexico has 681 tcf of shale gas. Total world technically recoverable shale gas resources are estimated at 6,622 tcf, though this figure will undoubtedly increase as new gas plays are found. The full figures are found in the link below.

Source: Energy Information Administration Data

As far as a total of shale, coalbed, and tight sand gas the US National Petroleum Council estimates world reserves at 33,000 tcf by the US National Petroleum Council. Methane hydrates have the potential to add much more to this figure.

As far as pollution and the controversy surrounding news reports and films such as GasLand, the drilling occurs well below the water table and the recycling and removal of fluids involved is regulated by the federal and state governments. Regardless, exploiting these deposits continues in the US.


Flaring is the burning of natural gas emissions that are not captured during commercial extraction. This releases many CO2 emissions with no commercial benefits, although it does prevent methane from entering the atmosphere. Countries have moved to prevent such frivolous waste, although much gas is still wasted in this manner.

In 2010, about 133 billion cubic meters (4.69 tcf) of gas were wasted in this manner. Russia contributed about 35 bcm, or about 26% of the total. Nigeria contributed 15 bcm. Iran contributed 11 bcm.

Estimates from National Geophysical Data Center

Future Consumption Trends

In 2011, world energy consumption grew by 2.5%. As energy demand grows, natural gas can be expected to arise as a convenient solution to demand due to the low cost of natural gas powerplants, the lower environmental impact of gas, its ability to meet demand, its thermal efficiency, and its relative abundance.