From deep wells in the earth’s surface, companies extract hydrocarbons comprising predominantly of methane mixtures, which is then processed and refined into pure methane and transported as pipeline quality gas to be distributed in households, commercial establishments, and industry as a fuel. These reserves come from reservoirs comprising crude oils, water carbon dioxide and other non-commercial substances. Pure methane is extracted from the materials and is transferred through local and long-distance pipelines for delivery to various customers.
Natural gas marketing can be defined as selling of natural gas. In simple terms, it is referred as the process of coordinating at numerous levels, the business of extracting natural gas from the wellhead to the end users. The role of marketers is very crucial and is not confined at a single place in the entire natural gas chain. Marketers can be affiliates of production companies and local utility players in the natural gas industry. It is the duty of natural gas marketers to ensure that an unbiased market prevails for natural gas. Marketing of natural gas comprises of all the intermediate steps that a particular purchase requires comprising accounting, transportation arrangement, storage and sale of natural gas.
Natural gas prices are set through market forces, the buying and selling of the commodity by market players is based on the demand and supply that helps in determining the average price of natural gas. There are two separate markets for natural gas, the spot market and the future market. Spot market is the daily market, where natural gas is traded and is bought and sold. To know the exact price of natural gas on a particular day the spot market price is the most informative. The future market comprises of trading of natural gas under contract of atleast one month and can go up to 36 months.
Natural gas futures are traded on the New York Mercantile Exchange. Futures contracts are one of an increasing number of derivative contracts used in commodities markets and can be quite complex and difficult to understand.
Natural gas is traded and priced at various locations throughout the country. These locations are called as market hubs and exist across the country. There are more than 20 major market hubs present in the U.S., the major one is called as the Henry Hub, in Louisiana. The futures contracts are traded on the NYMEX are Henry Hub contracts.
Primarily types of natural gas trading exist: financial trading and physical trading. Physical trading is the basic type, which includes buying and selling of the physical commodity. Financial trading includes derivatives and sophisticated financial instruments in which no one ie the buyer and seller never takes the delivery of the commodity.
Emerging economies, increasing investments and growing populations are some of the key drivers of the natural gas market. However, ongoing geopolitical activities in various countries can hamper the growth of natural gas market. Ample opportunities are there for natural gas market as demand for energy in increasing at a healthy rate in Asia Pacific countries especially in India and China.
Some of the key companies in the business of natural gas are Piedmont Natural Gas, Gas South, LLC., CenterPoint Energy, Georgia Natural Gas, Oklahoma Natural Gas, Atmos Energy Corporation and GAIL(India) Ltd. among others.
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