EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Natural Gas

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Extracted natural gas is mainly composed of methane with small amounts of hydrocarbon gas liquids (HGL) and nonhydrocarbon gases. After natural gas is produced, it has to be processed and impurities have to be removed to meet the pipeline standards and become marketable. The infrastructure of natural gas delivery (before distribution) can be divided into three main categories:

  1. Processing: removing and separating other hydrocarbons, contaminant, and impurities.
  2. Transportation: transporting the processed natural gas with the pipeline.
  3. Storage: storing natural gas in underground storage sites (depleted natural gas or oil fields, salt caverns, and aquifers) for high demand periods.

In 2016, U.S. dry natural gas production was equal to about 97% of U.S. natural gas consumption. In this year five states produced about 65% of total U.S. dry natural gas:

  • Texas: 24%
  • Pennsylvania: 20%
  • Oklahoma: 9%
  • Louisiana: 6%
  • Wyoming: 5%

Natural gas is used in more than 50% of US homes for space heating and hot water. In addition, it is the largest source of energy for electrical generation at the moment (2016), see figure 4, and is widely used in commercial and industrial sectors. Figure 5 illustrates the break-down by consuming sector.

Pie chart: 34% natural gas, 31% coal, 20% Nulcear, 15% renewables.
Figure 4: U.S. electricity generation at utility-scale facilities in 2016
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US electricity generation by source and share of total in 2016
Energy source Share of total
Natural gas 34%
Coal 31%
Nuclear 20%
Renewables (total) 15%
Hydropower 6.6%
  Wind   5.7%
Biomass 1.5%
Solar 0.9%
Geothermal 0.4%

As shown in figure 5, power generation and industrial sectors have the largest natural gas consumption.

Break-out of natural gas use by consuming sector; pie chart. Industrial: 32%; Electric Generation: 24%; Residential: 22%; Commercial: 14%; Other: 8%
Figure 5: U.S. Natural Gas Consumption by Sector, 2016
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U.S. electricity generation at utility-scale facilities in 2016
Total = 27.5 trillion cubic feet
Note: Transportation includes pipeline and distribution use and vehicle fuel.
Energy Sector Share of total
Electric Power 36%
Industrial 34%
Residential 16%
Commercial 11%
Transportation 3%
Source: EIA

Domestic production in the US (see figure 6) has grown dramatically in recent years due to the same advanced technologies that have allowed crude oil production to increase: “3-D” seismology, horizontal drilling and new “fracking” methods. All contribute to successful recoveries from hard formations such as the new “shales.”

Text above states domestic production of natural gas has increased in recent years. From about 2005-2020 it increases by almost 10,000,000 million cubic feet.
Figure 6: U.S. annual natural gas marketed production 1900-2016
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U.S. Natural Gas Marketed Production (Million Cubic Feet)
1900 - 2017
Decade Natural Gas Production
1900 1028,000
1910 509,000
1920 812,000
1930 1,978,911
1940 2,733,819
1950 6,282,060
1960 12,771,038
1970 21,920,642
1980 20,179,724
1990 18,593,792
2000 20,197,511
2010 22,381,873
2017 28,814,028
Source: EIA

Figure 7 illustrates the growth in production of the currently active shale basins in the US. As you can see in the graph, natural gas production from Marcellus Shale formations, located mostly in Pennsylvania, West Virginia, Ohio and New York, has been increasing during the past decade and has the largest portion of gas production among the Shale formations.

Marcellus produces the largest amount of dry shale gas, almost 45 billions cubic feet per day. Utica and Permian follow with ranges of 20-30.

Figure 7: Monthly dry shale gas production (billion cubic feet per day).
Production Growth of Active U.S. Shale Basins
Source: EIA

Canada represents the largest source of imported natural gas, with Mexico contributing a minor amount, see figure 8. Additionally, there are export points into Canada and Mexico. Figure 9, below, indicates the major import/export and, LNG import points in the US. As displayed in the figure 9, more than 97% of U.S. natural gas import comes from Canada by pipeline. Also, Pipeline exports account for 92% of U.S. natural gas exports. Natural gas export through pipeline to Mexico has been increasing.

The graph shows that imports and net imports drastically increase from 1985-2005. Exoprts remain steady until about 2000, where an increase occurs through 2015.
Figure 8: U.S. Natural gas imports, exports, and net imports, 1950 - 2016
Source: EIA
In the graph, pipeline imports from Canada are in the negative, and at the lowest from 2000-2005 - nearing -4000 billion cubic feet. Pipeline exports to Canada and Mexico are positive in gas trade, staying mainly under 1000 billion cubic feet.
Figure 9: Natural gas trade by country (1985 - 2016)
Source: EIA