Handbook of Multi-Commodity Markets and Products: Structuring, Trading and Risk Management

CHAPTER 3 Natural Gas Markets and Products

Mark Cummins and Bernard Murphy

3.1 PHYSICAL NATURAL GAS MARKETS

This first section is designed to give an introduction to natural gas as a fossil fuel and overview current levels of global reserves, production and consumption. It then goes on to discuss the physical structure and operation of the natural markets, presents the primary natural gas trading hubs and overviews the main market participants and then finishes with a discussion on the liquefied natural gas markets and recent shale gas developments.

Natural gas is a fossil fuel that when unprocessed is primarily composed of methane (CH₄), found in the typical range of 70–95%, but may also comprise other hydrocarbons such as ethane (C₂H₆), propane (C₃H₈) and butane (C₄H₁₀); often collectively referred to as the natural gas liquids that are used in the production of liquefied petroleum gases (LPGs) and which are found in the typical range of 0–8%. Additional components found in unprocessed natural gas may include nitrogen, carbon dioxide and hydrogen sulphide. Traces of mercury and rare gases such as helium, argon, neon and xenon may also be found. Natural gas may also include other impurities, such as water and sand, which contaminate deposits; such impurities are commonly referred to as bottoms, sediment and water (BS&W). Natural gas found with crude oil is referred to as associated gas, whereas in contrast natural gas found in a separate reservoir is referred to as non-associated ...