what's the relationship between natural gas and crude oil?
Is there a relationship between natural gas and crude oil?
For me, it seems like they are two different product. Does price changes in one of them influence the price of the other?
Is there a relationship between natural gas and crude oil?
For me, it seems like they are two different product. Does price changes in one of them influence the price of the other?
March 2nd, 2010 at 12:16 pm
Natural Gas and Oil are often but not necessarily produced together (This is called associated Gas). From a demand perspective oil and natural gas are competitors, they are two different sources of energy and in theory if one becomes to expensive people will switch to the other one. In reality it is very hard to switch in the short term as the infrastructure to turn either in to energy is very different. A natural gas fired power plant can not just start pumping in crude oil if oil becomes cheap. Also, refining capacity for crude oil is tight. One of the biggest problems with natural gas is the difficulty of storing and transporting it. If there is no existing pipeline infrastructure, new infrastructure must be built or very new and expensive LNG (Liquefied Natural Gas) technology must be installed. For this reason in the short to medium term the price of gas relative to liquids can diverge greatly from the logical relationship based on the amount of energy derived from each source (The price of a barrel of oil (WTI) should be about 6 times the price of 1 billion British thermal units of gas). If you look at the current situation this is obviously not true, oil is trading way over 6 times the gas price. While this may persist in the short term, in the long term with LNG and the switchover of users to gas, prices should begin to converge to this point.
March 2nd, 2010 at 12:16 pm
Natural gas is a gaseous fossil fuel consisting primarily of methane but including significant quantities of ethane, butane, propane, carbon dioxide, nitrogen, helium and hydrogen sulfide.[1] It is found in oil fields and natural gas fields, and in coal beds (as coalbed methane). When methane-rich gases are produced by the anaerobic decay of non-fossil organic material, these are referred to as biogas. Sources of biogas include swamps, marshes, and landfills (see landfill gas), as well as sewage sludge and manure by way of anaerobic digesters, in addition to enteric fermentation particularly in cattle. Natural gas is often informally referred to as simply gas, especially when compared to other energy sources such as electricity. 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, and sometimes helium and nitrogen.
Petroleum (Latin Petroleum derived from Greek πέτρα (Latin petra) – rock + έλαιον (Latin oleum) – oil) or crude oil is a naturally occurring liquid found in formations in the Earth consisting of a complex mixture of hydrocarbons (mostly alkanes) of various lengths. The approximate length range is C5H12 to C18H38. Any shorter hydrocarbons are considered natural gas or natural gas liquids, while long-chain hydrocarbons are more viscous, and the longest chains are paraffin wax. In its naturally occurring form, it may contain other nonmetallic elements such as sulfur, oxygen, and nitrogen.[1] It is usually black or dark brown (although it may be yellowish or even greenish) but varies greatly in appearance, depending on its composition. Crude oil may also be found in semi-solid form mixed with sand, as in the Athabasca oil sands in Canada, where it may be referred to as crude bitumen.
March 2nd, 2010 at 12:16 pm
Economically, both are in the energy sector, and the components of a sector tend to move together. So when one energy product is in short supply — such as crude — it’s likely that the prices of other products in the energy sector — such as natural gas, gasoline and even coal — will also rise. However, natural gas has a seasonality component that differs from oil and gas. Its price tends to rise in the winter when it needed to heat many buildings and to fall in the summer. Oil and gas prices (except for heating oil) often rise in the summer (peak travel season) and fall in the winter.
March 2nd, 2010 at 12:16 pm
OIl and natural gas are often found in the same well. Explorations companies act as middlemen and drill for both oil and gas. They sell the oil to refineries and the gas to gas companies. The same machine, a drilling rig, is used to drill for natural gas and oil. There is no certainty of what they might find, if anything, or how much, when they drill a well. And to some degree the price of one subsidizes the drilling for the other. The higher oil prices go the higher the supply of natural gas, because high oil prices will encourage drilling for oil and more natural gas will be found as a result. The uses are somewhat interchangeable, but not that closely. So there is a relationship between the two.
March 2nd, 2010 at 12:16 pm
There is a relationship between natural gas and crude oil. Natural gas is similar in chemical composition to crude oil, crude oil is a long chain of carbon atoms and hydrogens (with some other elements mixed in), natural gas is a much shorter chain of carbon atoms and hydrogens. Processing crude oil often gives a small amount of natural gas as well.
And while a price change in one will sometimes influence the other, there is not a direct correlation. When crude oil prices where climbing these past few years, there was not the expected rise in natural gas prices. Of course, some feel that natural gas prices will rise now as sort of a delayed effect of higher crude prices.
Crude oil is not exactly a product as much as a raw material that can be refined into many different products (gasoline, diesel, fuel oil, asphalt, wax, etc.).