Natural gas is a fossil fuel that is colorless, shapeless, and odorless in its pure form. It is a mixture of hydrocarbon gases formed primarily of methane, but it can also include ethane, propane, butane, and pentane. Natural gas is combustible, clean burning, and gives off a great deal of energy. Around 500 BC, the Chinese discovered that the energy in natural gas could be harnessed. They passed it through crude bamboo-shoot pipes and then burned it to boil sea water to create potable fresh water. Around 1785, Britain became the first country to commercially use natural gas produced from coal for streetlights and indoor lights. In 1821, William Hart dug the first well specifically intended to obtain natural gas and he is generally regarded as the "father of natural gas" in America. There is a vast amount of natural gas estimated to still be in the ground in the U.S. Natural gas as a source of energy is significantly less expensive than electricity per Btu.
Natural gas futures and options are traded on the New York Mercantile Exchange (NYMEX). The NYMEX natural gas futures contract calls for the delivery of natural gas representing 10,000 million British thermal units (mmBtu) at the Henry Hub in Louisiana, which is the nexus of 16 intra-state and inter-state pipelines. The contract is priced in terms of dollars per mmBtu. NYMEX also has basic swap futures contracts available for 30 different natural gas pricing locations versus the benchmark Henry Hub location. Natural gas futures are also listed in London on the International Petroleum Exchange (IPE).
Prices - NYMEX natural gas futures on the nearest-futures chart in 2007 started the year at about $6.39 per mmBtu and traded in a range of about $5.43-$8.71 per mmBtu the rest of the year. The futures price posted the year's low of $5.43 in August, rallied to the high of $8.71 in late October but then moved lower to end the year at $7.84 per mmBtu.
Supply - U.S. recovery of natural gas in 2005 (latest data available) fell -2.0% to 23,488 billion cubic feet, which was farther below the record high of 24,501 billion cubic feet recovered in 2001. The top U.S. producing states for natural gas were Texas with 29% of U.S. production in 2006, Oklahoma with 9%, Wyoming with 9%, New Mexico with 8%, and Louisiana with 7%. In 2006 the world's largest natural gas producers were Russia with 2,134,095 terajoules of production and the U.S. with 1,672,057 terajoules.
Demand - U.S.- delivered consumption of natural gas in 2005 (latest data available) fell -0.7% yr/yr to 22,241 billion cubic feet, of which about 30% was delivered to industrial establishments, 26% to electrical utility plants, 22% was delivered to residences, and 14% to commercial establishments.
Trade - U.S. imports of natural gas (consumed) in 2005 (latest data available) rose +1.9% yr/yr to a record high of 4,341 billion cubic feet. U.S. exports of natural gas in 2005 fell -14.7% yr/yr to 729 billion cubic feet from the 2004 record high of 854 billion cubic feet.