How to trade gas?

Discover the benefits of trading natural gas and how to get started.

Trading Gas – The basics

Without a doubt, oil is the most widely used commodity in the energy sector. However, it is by no means the only one that traders use to maintain their trading diversification.

Natural gas, the second most traded energy commodity, has a different flair than oil. Here, we examine the distinctive qualities of this fossil fuel, the main factors that influence traders’ decisions, and how you can benefit from the opportunities present in this actively traded market.

What is natural gas?

Contrary to popular belief, natural gas is not a by-product of crude oil like gasoline and heating oil are. Oil reserves coexist with natural gas reserves, but unlike gasoline or heating oil, natural gas is not refined from crude oil.

Due to its low carbon dioxide emissions when burned, natural gas is one of the most environmentally friendly energy sources. Natural gas is now a key resource for meeting future energy needs thanks to significant advancements in drilling technology in recent years.

Natural gas must also be mined from the ground because it is found close to oil reserves. Following extraction, natural gas is converted into gas and liquid forms to make it suitable for international transportation. The extracted natural gas is transported to specialized facilities to be inspected, treated, and stabilized in order to guarantee that it satisfies the necessary quality requirements before distribution. These extraction and treatment procedures are expensive, and any problems during their execution could significantly increase the cost.

Natural gas can be used for heating, producing electricity, and cooking on gas stoves. Despite the fact that the electricity market is the main consumer of gas, most of its applications are domestic in nature.

What affects gas prices?

As with any energy commodity, demand and supply are key in determining its price. Here are the factors that impact the supply and demand for natural gas:

1. Extraction and treatment
The extraction and treatment of natural gas are expensive processes. Natural gas occurs alongside oil reserves deep underground, so its extraction process involves a great amount of machine power and energy. Any disruption in the extraction process will impede or delay the production of natural gas and therefore result in decreased gas supply and increased price. The treatment process is an even more expensive operation and any setback in this process will greatly impact the gas supply and its price.
2. Seasonal patterns and weather
Demand for natural gas is also seasonal and weather-related. During cold weather or in the winter season, the demand for natural gas for heating purposes increases and therefore causes increase in prices. During hot weather or in the summer season, natural gas can experience a decrease in demand for heating purposes, but this comes with an increase in demand for electricity generation because of the increased use of air conditioners and coolers.

3. Accidents and disasters

Disastrous events that affect the extraction, treatment, distribution and consumption of natural gas will directly affect the levels of gas supply and demand. Operational disruptions will directly cause delays and reductions in gas supply, thus causing price hikes during the recovery period.

The leading gas consuming nation is the U.S., followed by Russia, China and Iran. These nations import and use the greatest amount of natural gas for heating and power generation. Their demand rates drive the gas pricing, so any sudden change in demand from any of these countries will cause the gas price to fluctuate significantly.

Key natural gas report to follow

The most important report that natural gas traders regularly refer to is the DOE (Department of Energy) Natural Gas Storage Report. It is released weekly on Thursdays and provides a detailed look at the net changes in natural gas storage levels in the Eastern/Mid-Western, South and West regions.

This information will give you insight on the demand and supply levels of natural gas in the market, which are crucial in determining the price.

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