Fundamental Analysis of Natural Gas

Introduction to Natural Gas:

Natural gas is a vital component of the world's supply of energy. It is one of the cleanest, safest,
and most useful of all energy sources. Natural gas is a combustible mixture of hydrocarbon gases.
While natural gas is formed primarily of methane, it can also include ethane, propane, butane and
pentane. Natural gas is used for heating, cooling and production of electricity besides for various
other industrial purposes.
Natural gas is likely to play a greater role in the world energy mix given its growing resource base
and its relatively low carbon emissions compared to other fossil fuels.
Natural gas, when compressed at a pressure of 250 bars, is termed as compressed natural gas
(CNG).
Natural gas is processed to remove unwanted water vapor, solids and/or other contaminants that
would interfere with pipeline transportation or marketing of the gas (LNG)

Application of Natural Gas:

Burning natural gas is relatively clean, as it produces about 30% to 40% of less carbon dioxide
than petroleum and coal. Natural gas is primarily used in homes, businesses, and factories for
heating, cooking, and cooling. It is increasingly being used as a source of energy for generating
electricity through gas turbines and steam turbines. CNG is commonly being used as a fuel for
public transport vehicles. In addition, natural gas is used as a base ingredient in the
manufacturing of ammonia, anti-freeze, fabrics, glass, steel, plastics, and paint.
LNG is clean fuel for use as is piped Gas in household. Economically cheaper as compared to
LPG. In fact most of the Western Countries use piped gas in houses. The household use of piped
gas is expected to increase in future.

Measurement of natural gas:

1 mmBtu (million British thermal units) = 25.2 SCM (standard cubic meter)
1 MMTPA (million metric tonnes per annum) of LNG = 4 MMSCMD (million metric standard cubic metre per
day)

1 SCM (standard cubic metre) = 1 cubic metre at 1 atmosphere pressure and 15.56 C
1 bcm (billion cubic metre) = 2.8 MMSCMD (million metric standard cubic metre per day)
1 tcf (trillion cubic feet) = 4 MMSCMD (million metric standard cubic metre per day)
1 MT (million tonnes) of LNG = 1300 SCM (standard cubic metre)

Price Moving factors:

Natural gas inventory data
US weather conditions and active hurricane season poses a threat to US Gulf Coasts
natural gas production
Price of crude oil
Industrial and residential demand in the U.S.

Indian Scenario:
The estimated reserves of natural gas in India as on March 31, 2014, stood at 1427.15 billion
cubic meters (bcm) compared with 1354.76 bcm as on March 31, 2013; the increase in the
estimated reserves was 5.34%. The maximum contribution to this increase was from Eastern
Offshore (12.26%), followed by Western Offshore (3.6%). Gross production of natural gas
decreased from 40.68 bcm in 201213 to 35.41 bcm in 201314 (provisional), registering a
negative growth of 12.95%
Natural gas usage pattern in India, 201314
Usage in
%
Power generation
31
Fertilizer Industry
33
Industrial Fuel
3
Captive Use/LPG
Shrinkage
14
Petrochemicals
4
Others
15

Usage in %

Power generation

Fertilizer Industry

Industrial Fuel

Captive Use/LPG Shrinkage

Petrochemicals

Others

GLOBAL TRADE:
Global natural gas trade grew by 1.8% in 2013, well below the historical average of 5.2%.
Pipeline shipments grew by 2.3%, driven by a 12% increase in net Russian exports, which offset
declines in Algeria (-17.9%), Norway (-4.5%) and Canada (-5.5%). Among importers, growth in
Germany (+14%) and China (+32.4%) more than offset a continuing decline in the U.S. (10.9%). Global LNG trade rebounded by 0.6% in 2013. Increased imports in South Korea
(+10.7%), China (+22.9%), and south and central American importers (+44.7%) were partially
offset by lower imports in Spain (-35.6%), the UK (-31.9%), and France (-19.4%). Qatar
remained the largest LNG exporter (32% of global exports), and accounted for the largest growth
increment (+2.7%). LNGs share of global gas trade declined slightly to 31.4% (international
natural gas trade accounted for 30.9% of global consumption)
Natural gas exporters, 2013*

Country
U.S
CANADA
NEITHERLA
ND
NORWAY
RUSSIA
QATAR
ALGERIA
INDONESIA
OTHERS

EXPOR
T in %
4.3
7.6
5.2
10.3
21.8
12.1
4.1
3
31.6

Import in %
7.9

11.5

3.8
2.6
2.7

9.2

4.9
4.3

5.5

U.S

FRANCE

GERMANY

ITALY

U.K

RUSSIA

UKRAINE

JAPAN

TURKEY

Natural gas importers, 2013*

Country
U.S
FRANCE
GERMAN
Y
ITALY
TURKEY
U.K
RUSSIA
UKRAINE
JAPAN
S.KOREA
OTHERS

Import in
%
7.9
3.8
9.2
5.5
4.3
4.9
2.7
2.6
11.5
5.2
42.4

Import in %

7.9

3.8
9.2
5.5

42.4

4.3
4.9

5.2 11.5

2.7
2.6

U.S

FRANCE

GERMANY

ITALY

TURKEY

RUSSIA

UKRAINE

JAPAN

S.KOREA

OTHERS

U.K

Global reserves
World proven natural gas reserves at end-2013 stood at 185.7 trillion cubic metres (tcm),
sufficient to meet 55.1 years of global production. Proven reserves grew by 0.2% relative to end2012 data. An increase in the US reserves (+7.1%) was the only addition to the global proven
reserves in 2013. Iran (33.8 tcm) and Russia (31.3 tcm) hold the largest proven reserves.

Global production
Global natural gas production grew by 1.1%, which was well below the 10-year average of 2.5%.
Growth was below average in all regions except Europe and Eurasia. The U.S. (+1.3%) remained
the worlds leading producer, but both Russia (+2.4%) and China (+9.5%) recorded larger
growth increments in 2013. Nigeria (-16.4%), India (-16.3%), and Norway (-5%) recorded the
largest volumetric declines.
Global consumption
World natural gas consumption grew by 1.4%, below the historical average of 2.6%. And, as was
the case for primary energy, consumption growth was above average in the OECD countries
(+1.8%) and below average outside the OECD (+1.1%). Growth was below average in every
region except North America. India (-12.2%) recorded the largest volumetric decline in the
world, while EU gas consumption fell to the lowest since 1999. Globally, natural gas accounted
for 23.7% of primary energy consumption.
Contract Specification of Natural Gas:

Symbol - NATURALGAS
Description - NATURALGASMMMYY
No. of contracts a year- 12
Contract duration- 3 months
Trading period- Monday through Friday
Trading session- Monday to Friday: 10:00 a.m. to 11:30 p.m / 11.55 p.m.
TRADING

Trading unit- 1250 mmBtu

Quotation/base value- Rs. per mmBtu
Price quotation- Ex-Hazira exclusive of all taxes, levies and other expenses
Maximum order size- 20,000 mmBtu
Tick size (minimum price movement) - 10 paise (0.10 rupees)
Daily price limits - The base price limit will be 4%. Whenever the base daily price limit
is breached, the relaxation will be allowed upto 6% without any cooling off period in the
trade. In case the daily price limit of 6% is also breached, then after a cooling off period
of 15 minutes, the daily price limit will be relaxed upto 9% In case price movement in
international markets is more than the maximum daily price limit (currently 9%), the
same may be further relaxed in steps of 3% and inform the Commission immediately.
Initial margin- Minimum 5% or based on SPAN whichever is higher.
Special margin- In case of additional volatility, an additional margin (on both buy and
sell side) and / or special margin (on either buy or sell side) at such percentage, as
deemed fit, will be imposed in respect of all outstanding positions.

 Maximum allowable open position- For individual client: 60, 00,000 mmBtu or 5% of
the market wide open position, whichever is
Last(Rs
higher For a member collectively for all
Symbol
Expiry Date
)
clients: 6, 00,00,000 mmBtu or 20% of the
Natural
market wide position, whichever is higher.
gas
25-09-2015
177.2
Natural
gas
Natural
Symbol
gas
Natural
gas
Natural
gas
Natural
gas

27-10-2015
24-11-2015
Expiry
Date

188.2
192.6
Last(Rs)

DELIVERY

Delivery unit - 10,000 mmBtu

Delivery center- Hazira Hub
25-09-2015
177.2
Quality specifications - It should be of the
standard pipeline quality. The quantity of natural
27-10-2015
188.2
gas bought or sold under any contract will be
delivered at the uniform hourly rate (with
24-11-2015
192.6
maximum of 10% variation) during the period
of eight hours covered under the contract.

Future Price:

Future Price: