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Learn About Natural Gas

Natural gas is an abundant, environmentally-friendly, non-renewable fossil fuel that is safe, clean and economically transportable. It is used primarily for heating, and may also be used to power certain large appliances as an economical alternative to electricity.

Where Does Natural Gas Come From?

Natural gas is derived from a combustible mixture of hydrocarbon gases that are found in vast reserves thousands of feet below the earth’s surface. These gases are the effect of time, pressure, and heat from the center of the earth on millions of years’ worth of decaying plants, animals, and other organic matter.  The world's largest gas reserves are located in the Middle East; however, the United States is also an abundant source of natural gas, with the highest levels concentrated around Texas and the Gulf of Mexico.

How is Natural Gas Extracted and Transported?

Pipelines are drilled deep into the earth, allowing the gas to naturally rise to the surface where it is then contained, separated, refined and made useable for homes and businesses. Once processed, natural gas is then transported via 272,000 miles of pipeline to local distribution companies where it passes through a gate station. At the gate station, an odorant is added to the otherwise odorless natural gas so that fire-causing leaks can be detected once the gas is in use. From the gate station, natural gas is then moved into distribution lines or mains. From the main, natural gas is run into a home or business via a service line.

How is Natural Gas Measured?

The usage for which a customer is charged begins at the burner tip, which is where the natural gas enters the customer’s home or business. Actual usage is measured by a meter, which is usually connected to a wall of the customer’s home or business. Depending on the territory, natural gas usage is measured in therms, ccf (100 cubic feet) or mcf (1,000 cubic feet.).  The utility company obtains the customer’s usage from the meter and depending on the state, the customer is billed accordingly.

How is Natural Gas Priced?

Natural gas is traded in decatherms (dth) on the NYMEX (New York Mercantile Exchange), the world’s largest physical commodity futures exchange. NYMEX natural gas prices, which fluctuate by the minute, are impacted by supply and demand.

An increase in supply tends to pull prices down, while a decrease in supply tends to push prices up.

Factors that impact the price of natural gas supply include:

  • Severe weather
  • Variations in production
  • Net imports
  • Storage levels

Higher demand tends to lead to higher prices, while lower demand tends to lead to lower prices.  Factors that impact demand are:

  • Economic growth
  • Winter and summer weather
  • Oil prices

NAP’s Supply team makes every effort to purchase natural gas when prices are low, which facilitates the company’s ability to offer competitive natural gas prices to its customers.