Natural Gas Price

What is natural gas?

Natural gas as raw material is a fossil fuel. Other important fossil fuels are crude oil and coal. Al these fossil fuels have been created from the leftovers of plants and animals a long time ago. When these leftovers break up, other gases are eleases. Most of these gases are methane. Natural gas mostly consists of methane and can fully burn up to water (H2O) and carbon dioxide (CO2).

The burning of natural gas is one of the most environmental friendly, when compared to the other fossil fuels. This form of energy is used a lot all over the world.

What are fossil fuels?

Coal, crude oil, petroleum and natural gas are all considered fossil fuels. They are created from stoned and buried remains of plants and animals that lived millions of years ago. Because of the way they are created, they have a high carbon percentage.

Over 100 years now we have been using these fossil fuels to drive your cars, supply companies with energy and let the lights in our houses burn. About 80% of our energy needs are supplied through fossil fuels to this day.

But this does come at a cost: The environment. The water and air polution leads to global warming. That is why there are a lot of initiatives that look to the future and want to use more clean energy instead of fossil fuels.

Natural gas, the cleanest fossil fuel in the world

The composition of natural gas consists of four hydrogen atoms and one carbon atom (methane). Natural gas has no color, but has also no smell. In its natural form it is the cleanest fossil fuel. When natural gas burns, it produces mostly carbon dioxide, water vapor and small amounts of nitrogen. It makes it the cleanes of the family of fossil fuels.

Applications of natural gas

The applications of natural gas has a long history. In 1816 in the Unites States, the first use of gas energy was being done. The streets of Baltimore, Maryland were lit for the first time using gas lights. Around 1900 natural gas was found in 17 states in the United States. After the second World War, this was hugely expanded by the founding of a pipe network. This way the natural gas could be supplied to the whole country.

Nowadays we see more use of natural gas in large scale commercial and industrial level.  It is the most important source of heating for houses. Natural gas is also used more to create electricity.

Industrial use of natural gas

Natural gas burns at a constant temperature. As mentioned before, natural gas is the cleanest version of the fossil fuels. In the industrial world there is a lot of demand for natural gas, to for example supply blast furances, melt metal or heat up black industrial boilers. The list of applications on industrial level is huge. From fertilizers to waste burning to food processing, the demand for natural gas keeps growing.

Analysts predict that the demand for natural gas will exist until at least mid 2030. Investors will have a solid cashflow coming from this investment, making it very attractive.

Commercial use of natural gas

A lot of people use gas to cook at  home. Slowly it changes, but most kitchen default to gas worldwide. As an investor you can therefore be sure that there will be a large demand for natural gas, as long as there is gas cooking. We also see that the use of gas skyrockets when winter comes. This yearly recurring fact is known for investors that can take benefits from it.

What countries export natural gas?

At this point in time there is a surplus of natural gas and so it is only produced in a couple regions. The United States being the biggest producer of natural gas in the world. Natural gas can be transported by train, truck but usually follows a network of pipes to get to where it needs to be. International transport of natural gas is very sensitive to geopolitical tensions.

Investing in natural gas, what possibilities are there?

There are a couple of ways to invest in natural gas. We have listed a couple of these possibilities for you:

• Natural gas futures
• Natural gas ETFs
• Natural gas CFDs
• Companies on the stock exchange with natural gas supplies

Cost price natural gas, what drives it?

There are different things that make the price of natural gas go up. These aspects can be divided into three different categories: The economy, cyclic factors and fuels. We will zoom in a bit more per category.

Natural gas price driver economy

The economy plays an important role in every investment decision. When the economy thrives, the demand for natural gas usually also increases. This has mostly to do with a higher demand for industrial production of products. But when the economy slumps and the demand for new products decreases, there will be less demand for natural gas as well.

Natural gas price driver cyclic factors

The demand for natural gas is cyclic and seasonal. Think about the cold winter months; usually there is a lot more heating going on than during the summer. Natural gas remains a popular heat source (fuel wise) to heat up offices, houses and other buildings. The demand for natural gas is generally highest in january and february to heat houses.l

Natural gas price driver fuels

Industrial consumers and utility companies are cost efficient and will adjust their fuels when there are cheaper prices available. They will follow the prices of fossil fuels and mostly pick the cheapest option. Changing fuels comes from the price that influences the demand instead of the demand influencing the price. When the price of natural gas is high, an electricity company can switch over to a cheaper alternative like coal. This will make the demand for natural gas diminish. The changing of fuels can therefore influence the demand of nat ural gas and automatically the price (supply and demand).

Want to know more about the cost price for other raw materials? For example gold, silver of platina? Or do you want to know more about investing in gold? Then keep reading.

This is how the price of natural gas developed in 2021

In the summer of 2021 we saw the price for natural gas skyrocket. This has massive consequences to the consumers, but also for companies. Especially companies that use a lot of power like bakers, growers and the industry in general. During the year, the price for people with variable contracts has  double and sometimes even quadroupled. We also saw a lot of energy companeis fall, which had them being taken over by different suppliers of energy. Often you did not even had a choice, even if you had a contract with a lower price for a longer period. The expectation is that mid 2022 this will stabilize and perhaps even lower.

A rising line in 2022

In 2022 we also see the price of natural gas rise. In the beginning of the year we saw that the price was a bit more stable and sometimes even lower. But the war in Ukraine with Russia change all this. Russia is one of the biggest suppliers of natural gas for Europe and the natural gas stocks rose. For companies that have set tariffs it didn’t change a lot immediately, but for variable contracts it was a different story.

Since the beginning of the war the price as been rising, but in april was the biggest rise yet. The market is  derailed and we have to switch to different energy sources or suppliers. For eaxmple Qatar is one option, or changing to LNG. A very volatile market indeed.