Natural gas is a fossil fuel that is colorless, shapeless, and odorless in its pure form. It is a mixture of hydrocarbon gases formed primarily of methane, but it can also include ethane, propane, butane, and pentane. Natural gas is combustible, clean burning, and gives off a great deal of energy. Around 500 BC, the Chinese discovered that the energy in natural gas could be harnessed. They passed it through crude bamboo-shoot pipes and then burned it to boil sea water to create potable fresh water. Around 1785, Britain became the first country to commercially use natural gas produced from coal for streetlights and indoor lights. In 1821, William Hart dug the first well specifically intended to obtain natural gas and he is generally regarded as the “father of natural gas” in America. There is a vast amount of natural gas estimated to still be in the ground in the U.S. Natural gas as a source of energy is significantly less expensive than electricity per Btu.

Natural gas futures and options are traded on the New York Mercantile Exchange (NYMEX). The NYMEX natural gas futures contract calls for the delivery of natural gas representing 10,000 million British thermal units (mmBtu) at the Henry Hub in Louisiana, which is the nexus of 16 intra-state and inter-state pipelines. The contract is priced in terms of dollars per mmBtu. NYMEX also has basic swap futures contracts available for 30 different natural gas pricing locations versus the benchmark Henry Hub location. Natural gas futures are also listed on the ICE Futures Europe (ICE) exchange in London.

Prices – NYMEX natural gas futures on the nearest-futures chart during 2010 traded mildly lower in a relatively narrow range and finished the year at $4.405 per mmBtu, down 21% from the 2009.

Supply – U.S. recovery of natural gas in 2009 (latest data available) rose +2.2% to a record high of 26.320 billion cubic feet. The top U.S. producing states for natural gas were Texas with 31.4% of U.S. production in 2009, (latest data) Oklahoma with 8.5%, Wyoming with 10.7%, New Mexico with 6.4%, and Louisiana with 7.3%. In 2010 the world’s largest natural gas producers were Russia with 1,781,800 terajoules of production and the U.S. with 1,944,907 terajoules.

Demand – U.S.- delivered consumption of natural gas in 2009 (latest data available) fell -1.7% yr/yr to 22.841 billion cubic feet, of which about 30.2% was delivered to electrical utility plants, 26.9% to industrial establishments, 20.9% to residences, and 13.6% to commercial establishments.

Trade – U.S. imports of natural gas (consumed) in 2009 (latest data available) fell -6.8% yr/yr to 3.712 billion cubic feet, down from the 2007 record high of 4,607 billion cubic feet. U.S. exports of natural gas in 2009 rose +4.2% yr/yr to 1,048 billion cubic feet, which is a new record high.

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here