Natural Gas Prices Explained: How Foes Natural Gas Business Work?

Natural Gas Prices Explained

The natural gas industry is growing quickly. Thanks to its many benefits, natural gas is in high demand all over the world. The low impact on the environment coupled with high efficiency makes it more in demand than oil and coal.

Natural gas is highly flexible. Thanks to the latest technologies, it’s easy to capture, process, and transport. Besides heating homes and fueling vehicles, natural gas can be used as raw materials for such products as plastics.

How does the natural gas business work and what affects its prices?  Let’s take a closer look.

Natural Gas: The Basics

Natural gas is actually a mix of gases, the main ingredient of which is methane. The gas starts forming when decomposing animal matter and plants meet high heat and pressure under the Earth’s surface. The process has to go on for millions of years to produce natural gas.


People discover natural gas in rock formations. Sometimes, it’s found on its own, but sometimes the gas is discovered together with oil. While in some cases, it’s easy to remove natural gas, in others companies need to dig well into the Earth’s surface to get it.

Natural gas companies work to discover natural gas sources. They use specialized equipment to gain access to the gas through holes and wells. Once the gas is released, it needs to be captured, processed, and contained.

Besides capturing and containing natural gas, natural gas companies have to solve the problem of transporting it. In many cases, transportation can be more complicated than discovery and capture.


In most cases, natural gas is transported by a pipeline. The gathering system transports the raw natural gas from the source to the processing plant. Sometimes, the natural gas has components that need to be removed (i.e. sulfur, CO2). In this case, there is a need for a special non-corrosive gathering pipe.

However, when pipeline transportation isn’t possible, the gas needs to be transported in the liquefied state. Thanks to the latest technologies such liquefaction is simplified, which allows natural gas to be moved to areas, which aren’t connected by the pipeline.


Natural gas, which people use to heat their homes, is drastically different from what natural gas companies discover at the sites. According to experts from the oil and gas software company, Trellis Energy, natural gas processing requires complex equipment and software.

Natural gas, which is found in wells isn’t pure. It comes from three types of wells: oil, gas, and condensate. All of them produce gas with additives, such as crude oil, water vapor, carbon dioxide, helium, and other compounds.

The processing involves removing the compounds that make natural gas impure. In many cases, the gas must be purified before it can enter the transportation pipeline.

It’s worth noting that not all impurities removed from natural gas go to waste. Ethane, propane, and butane have many different uses, including being an energy source.

Natural Gas Prices

Natural gas prices tend to fluctuate. They depend on several factors:

1. Economic Growth

When the economy becomes stronger, natural gas markets feel the effect. Due to the economic growth, the demand for goods and services increase natural gas consumption. Eventually, the natural gas prices change in response to the growing demand.

2. Weather Conditions

Severe weather conditions can disrupt the drilling and capture of natural gas arranged by natural gas companies. For example, severe hurricanes tend to interrupt natural gas capture from the Gulf of Mexico. Meanwhile, extremely cold weather can also be disruptive. When issues with natural gas supply occur, the price goes up.

3. Demand Spikes

Both residential and commercial buildings use natural gas for heating purposes. So when the weather is cold during the winter, the demand for natural gas heating increases.

That’s why prices can go up. If this demand is combined with capturing issues due to the cold weather, the prices can increase dramatically.

However, natural gas companies tend to have some gas in storage in order to prevent shortages and price spikes during the winter.

4. Competition

Natural gas is always competing against other fuels. Large fuel consumers like power plants may switch from one power source to another, lowering or increasing the demand for natural has.

When the cost of other fuels goes down, the demand for natural gas does as well. When prices for oil and coal rise, natural gas becomes more popular, thus affecting the market.

The Takeaway

The popularity of natural gas as a power source is growing all over the world due to its flexibility, efficiency, and environmental friendliness. Natural gas prices depend on many factors, including weather conditions, demand spikes, economic growth, and competition.

Natural gas companies are working hard to meet demands, keep prices low, and supply natural gas to power plants, manufacturers, and residential and commercial buildings.  

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