Where Does Natural Gas Come From?

Natural gas has existed for millions of years underneath the Earth’s core. Before civilization understood what natural gas was, it posed a mystery. The gas would seep from below the Earth’s surface and create fire when mixed with lightning strikes on the ground. In 500 BC, Chinese civilizations created crude pipelines made from bamboo shoots to transport the gas. The gas was used as a fuel source to create drinking water, by boiling sea water to separate the salt.

Natural gas was found in America in 1626 by French explorers who noticed that the Native Americans were igniting gases that seeped from Lake Erie. More than 100 years later in 1785, Britain became the first country to commercialize the use of natural gas, using it to fuel lighthouses and streetlights.

In 1821, the first intended mission to obtain natural gas in America was a dig in Fredonia, New York by William Hart. Hart is known as the “father of natural gas” as he pioneered the first American natural gas company known as the Fredonia Gas Light Company.

Post-World War II started the boom of the natural gas pipeline industry. By the 1960’s, thousands of miles of natural gas pipelines had been constructed in America, and the industry has continued to grow through modern day.

Natural Gas Sources

• Most natural gas in America is retrieved though a “horse head” pump, which moves up and down to lift a rod in and out of a well bore, bringing the gas to the surface.
• Another technique, commonly known as fracking, creates tiny cracks in the rocks located by natural gas reservoirs. Fracking opens a pathway for the gas to flow to the surface.
• The least common extraction method uses the natural pressure of the underground reservoir to force the gas though the rocks. A “Christmas tree”, or a series of pipes and valves on the surface controls the flow of the gas.

Where is Natural Gas Found?

Natural gas deposits in the Earth’s surface are usually found near oil deposits. The deeper the deposit, the higher percentage of natural gas than oil. The deepest deposits are pure natural gas. Natural gas is also found in the intestines of animals – including humans – and in low-oxygen areas near the surface of the earth.

Natural gas can be found below the Earth’s surface all over the world. The countries located above the most natural gas are:

1. Russia
2. Iran
3. Qatar
4. Turkmenistan
5. United States of America
6. Saudi Arabia
7. Iraq

In America, the top five states with most natural gas reserves are:

1. Texas (26%)
2. Pennsylvania (18%)
3. Oklahoma (9%)
4. Wyoming (6%)
5. Louisiana (6%)

There are number off actors that play into the differences in pricing at different hubs around the world, including:

Natural Gas Contracts

Contract Types

• Short-Term Trade Contract: Volumes traded on a spot basis or under contracts of less than 2 years
• Medium-Term Trade Contract: Volumes traded under a 2 to < 5 year contract
• Long-Term Trade Contract: Volumes traded under a 5+ year contract

Recent Trends

There is a gradual shift from long-term, fixed destination contracts to short-term and medium-term ones, due to an increase in the number of contracts that have the flexible destination option and also due to the emergence of new producers and consumers.

 

• There is a notable reduction in the average length of contracts
• Contracts with the flexible destination option and with shorter terms are on the rise
• There is an increase in the number of longer-term contracts with the flexible destination option