Both natural gas and crude oil are important energy commodities. However, many people don’t realize their differences or get one confused with the other. Although they are two different substances and commodities, they have a close relationship. They are often found and produced together. In addition, they have a price relationship.
Crude Oil and Natural Gas
Crude oil and natural gas are combinations of hydrocarbons-chemical molecules. At their smallest units, hydrocarbons are molecules that contain only hydrogen and carbon. The substance’s physical form are determined by how many atoms are in each molecule and how the are configured.
Crude oil is a liquid when it is found underground. The substance is also normally liquid at the surface level. Natural gas, however, comes in a vapor at the earth’s surface. When underground, it exists in either vapor form or a substance similar to a carbonated soda. In this form, the vapor may be in a mixed solution with crude oil. Once the pressure is released, the vapor can escape.
The Relationship Between the Two
Natural gas and crude oil production is normally related. When people drill for oil, the process often releases natural gas that can be captured and used. Most of the time, oil or hydrocarbon reserves are buried deep in the earth’s crust. Natural gas may be trapped in cracks in this crust. Because of this, drilling into the earth’s crust will often release natural gas reserves.
Because of this, many companies responsible for crude oil production also yield natural gas. These energy commodities aren’t only related through their production. They also historically had a price relationship. The two commodities are often competing for the same uses. If one becomes more expensive than the other option, users are often able to switch to the other commodity.
This relationship has changed in recent years with the discovery of additional natural gas reserves in the United States. When these gas reserves were found in the Marcellus and Utica shale regions, the US saw a significant drop in the price of crude oil in 2014 and 2015. Since then, prices have returned closer to the established historical average.
Although they are two different commodities that often compete with each other, crude oil and natural gas are inherently related. After all, they’re often found in the same locations. They also have a relationship between their pricing.