Natural gas
Fundamentals
Referring to the 2018 edition of BP Statistical Review of World Energy 
, in 2017 Europe consumed 457.2 M TOE of natural gas and produced regionally 208.0 M TOE. Production is mainly achieved by the North Sea countries (Norway, UK, Netherlands), of which half of it by the sole Norway. The balance is made possible by imports, of which near half of the volume by pipes from Russia, trans-Mediterranean pipe connections with Algeria, and the remaining through LNG.
Products
Natural gas is a fossil fuel, formed over thousands of years by intense heat and pressure on layers of buried plants and gases. It is a hydrocarbon gas mixture consisting primarily of methane, but commonly includes varying amounts of heavier gaseous hydrocarbons and sometimes (sour gas) a usually lesser percentage of carbon dioxide, nitrogen, and hydrogen sulfide. Natural gas is found in deep underground rock formations, isolated in gas fields (non-associated) or with other hydrocarbon reservoirs, such as coal beds or oil fields (associated). As for oil, recovery of gas trapped in shale formations has dramatically increased in volume.
Natural gas exiting the production field is usually referred to as "wet" natural gas if it still contain significant amounts of hydrocarbon liquids and contaminants. Gas plants remove impurities such as water or sulfides and produces the alkanes mentioned below. For the chemical industry, there are obviously varying molecules, each better fit for a specific purpose. As a commodity however, the composition of the products are standardized to marketable "dry" gas, dominantly methane, without much further quality distinctions.
A distinction is made between high and low pressure gas. The pressure in gathering lines at the entry of the system and in distribution networks at exit is indeed much lower than in the transmission system itself, where gas is regularly pressurized in compressor stations, to increase transport efficiency. Compression/decompression facilities transform one into the other.
Methane obtained by anaerobic decay of non-fossil organic matter (biomass: swamps, landfill, agricultural or forestry waste) is referred to as biogas.
Natural gas is an energy source often used for heating, cooking, and electricity generation.
Next to methane which is the main component of natural gas, there are also more complex molecules, produced as by-products of oil refinery or on purpose. Their state at normal temperature and atmospheric pressure oscilate between gazeous and liquid depending of the number of Carbon atoms in the molecule. Methane can also be pressurized and cooled to form LNG. This liquefaction process, albeit expensive, achieves a drastic volume reduction which enables to transport gas overseas in specialized tankers.
Geography
Infrastructure
Transporting natural gas from the wellhead to the final consumer involves multiple processing steps and several transfers of custody.
- Gathering lines: through those small diameter pipelines, gas streaming out the multiple wellheads scattered across the field is moved to a processing plant or an interconnection with a mainline pipe.
- Gas plant: this installation produces pipeline quality gas, chemically and physically. Transmission systems are designed to operate within certain tolerances, in terms of impurities, gravity, energy content, pressure, etc. Non compliance may cause operational problems and pipeline deterioration.
- LNG plant: industrial facility which allows to depressurize liquefied gas (from import) back to its gazeous form, or opposite, to pressurize gas (to export) to become liquid. LNG is transported around the globe by specialized vessels.
- Mainline transmission: these wide-diameter, long-distance pipelines transport natural gas from the receipt points in producing areas to delivery points in market areas. It often has a mainline (also called trunkline) and several laterals or branches. The system may be 'looped' whereby several pipes run in parallel along the same right-of-way. Looping offers obviously an increased transport capacity, but also permits useful operations such as compression, line-packed storage and shaving of peak demand.
- Compressor station: to increase transport efficiency over long distances, gas is pressurized at regular interval (around every 100 miles) in compressor stations.
- Meters: wherever required, meters are installed along the line. Those measure injection and withdrawal volumes at entry and exit points, monitor the system integrity or even stop the flow if an incident is detected.
- Hubs: points in the grid where pipelines intersect and flows can be transferred from one system to the other. They often also provide short-term receipt or delivery balancing services. Those can become active market centers which provide title transfer services between parties buying or selling gas and transport capacity.
- Storage: large tanks or if geology is suitable, underground reservoirs such as depleted gas or oil fields, aquifers or salt caverns. They play an essential role for inventory management, supply backup and to maintain the balance of the system. Important is its deliverability rate, the rate at which gas can be injected into and withdrawn from the reservoir.
- Consumers: the system delivers to a variety of end-users such as large industrial sites or networks of local distribution companies (LDC) or municipalities.
Europe
The distribution network is managed by grid operators, which all have national roots and are often still fully or partially state-owned. The EU gradually inforces a pan-European gas market, whereby supply, distribution and marketing are unbundled. To ease trading and increase liquidity, trading of wholesale gas happens at virtual balancing points, independent of the physical entry or exit point on the grid. There is usually one trading point per country, some having two such points.
| Site | Purpose |
|---|---|
| European Union |
Quarterly statistics on production and consumption, market outlook and price evolutions. |
| Entsog |
European Network of Transmission System Operators for Gas. |
| Prisma |
Capacity booking platform for European TSO. |
North America
North America has gas fields scattered over the continent which as often, do no coincide geographically with the major consumption areas. This resulted in the construction of an extensive transmission and distribution network, cross-border, and in the US, interstate and intrastate. Those are usually owned and managed by private companies.
North America has an active gas market, where the commodity is priced gas-to-gas, as opposed to oil-linked which is often seen elsewhere. Market places are hooked on versatile hubs, where pipelines interconnect, and gas flows can be redirected, depending on market conditions. Hubs allow shippers and marketers to acquire natural gas from several independent sources and ship it to several different markets. Hub operators offer various services, such as gas processing, transport, storage and trading. The market thus services with great flexibility consumers with ever fluctuating demand patterns.
The major hubs became active market places for spot trading.
- North American gas geography 🌐
LNG
Markets
Gas contracts can be profiled, with agreed upon delivery flows on given hours for a given time span. The most common profile remains baseload, with delivery of a contractual agreed upon volume on a daily basis, for a given period. Due the unpredictability of demand, gas contracts are traded in following forms:
- Firm: guaranteed delivery of the entire negotiated volume over the agreed upon time period.
- Interruptible: delivery of the entire negotiated volume but subject to potential interruptions by the supplier, who is entitled to curtail delivery on certains days or hours, contractually agreed upon.
- Swing: delivery of the entire negotiated volume but subject to interruptions by both supplier and receiver. The inability to make or take delivery is allowed as long as the parties advise in time their intent to swing on the supply, leading to physical or financial compensation for the shortfall.
Europe
Gas delivery within Europe is mostly still guaranteed by large regional or national system operators. The push towards a wholesale european market has led each country to publish gas prices for delivery within its area on virtual trading points (VTP). Those are non-physical hubs, representing all entry and exit points in that market area.
North America
The North American gas markets are globally benchmarked against the Nymex Henry Hub Natural Gas future contract (NG ). Henry Hub is located in Sabine Pass, Louisiana, and is by far the most dominant trading hub in North America. It is strategically situated in a major onshore production region, it is also close to offshore production and has also excellent connectivity to storage facilities and to interstate and intrastate pipeline systems. This allows natural gas to be moved from supply basins and exported to major consumption markets.
Trading on the Henry Hub future terminates on the 3rd last business day of the month prior to the contract (delivery) month. This is middle in the bidweek, generally the 3 to 5 last business days of each calendar month. During that week multiple contracts are negotiated for suppply or offtake of gas in the following month (prompt) at the numerous hubs or market centers located along pipelines or at city gates.
Pricing of those contracts typically feature following observation patterns: