Natural Gas Basics


What is natural gas? Natural gas is a naturally occurring fossil fuel that can be found in various underground rock formations worldwide, formed millions of years ago from the decaying remains of plants and animals. When it is extracted, natural gas is odorless, colorless and tasteless, and is composed mainly of methane.

Methane is clean burning and chemically simple. It has four hydrogen atoms and only one carbon atom, unlike most carbon-rich fuels such as coal, wood and oil. Natural gas is also the only fossil fuel that does not leave a residue when burned and, given its chemical composition, releases far less carbon dioxide compared to other fossil fuels.

Natural gas can be used to generate electricity, as a transportation fuel, and as an essential raw material or feedstock for many common products. They include: paints, fertilizer, plastics, antifreeze, dyes, photographic film and medicines.

About 60 percent of U.S. homes use natural gas as their main heating fuel. Natural gas is also used for cooking stoves, water heaters, clothes dryers, and other household appliances. Prior to distribution for residential and commercial use, natural gas is odorized with the addition of mercaptan, a non-toxic, harmless chemical that smells like sulfur or rotten eggs. This odorant serves as a safety device, allowing it to be easily detected in case of a leak.

In 2008, the U.S. consumed 23.2 trillion cubic feet (Tcf) of natural gas – about 24% of the country’s total energy. One trillion cubic feet (Tcf) of natural gas is enough to: heat 15 million homes for one year, or generate 100 billion kilowatt-hours of electricity, or fuel 12 million natural-gas-fired vehicles for one year.


The major U.S. consumers of natural gas in 2008 included:

  • Electric power sector — 6.7 trillion cubic feet (Tcf)
  • Industrial sector — 7.9 Tcf
  • Residential sector — 4.9 Tcf
  • Commercial sector — 3.1 Tcf

Natural gas is bought and sold by utility companies, large industrial users and distribution companies at different locations throughout the country. These locations, referred to as ‘market hubs’, are located at the intersection of major pipeline systems. There are more than 30 major market hubs in the U.S. The main price indicator in the natural gas markets is the Henry Hub, located in Erath, Louisiana. In addition to trading physical natural gas, there is a significant market for natural gas future contracts and related financial instruments.


Natural gas has a positive impact on the environment. It is by far the cleanest fossil fuel. According to the EPA, in the U.S. power generation sector:

Average Emissions Rates in U.S. from: Carbon Dioxide Sulfur Dioxide Nitrogen Dioxide
Natural Gas-fired generation 1,135 lbs/MWh 0.1 lbs/MWh 1.7 lbs/MWh
Coal-fired generation 2,249 lbs/MWh 13 lbs/MWh 6 lbs/MWh
Oil-fired generation 1,672 lbs/MWh 12 lbs/MWh 4 lbs/MWh