What to Know Before Natural Gas Investing
Most people pay attention to the price of crude oil – whether they’re consumers filling up at the tank or oil investors looking at potential returns.
But what about the price of natural gas? While crude’s price is largely the same across the US (or globally), the natural gas price varies in different regions based on demand.
In south Texas, where EnergyFunders’ headquarters is, the price for natural gas frequently rises because of nearby demand and distribution facilities in the Gulf of Mexico. That’s one reason we often drill in Texas and Louisiana – higher natural gas prices there provide us, and our investors, increased profit margins.
What Is Natural Gas?
Natural gas is a blend of hydrocarbon gases. It’s plentiful in the US and energy-rich when burned. While it’s a fossil fuel, like oil, it burns cleaner than oil.
The Natural Gas Market
The natural gas price is cited in dollars per one million British thermal units (MMBTU). Natural gas is sold in MMBTU (amount of energy), but we report it in volumes (millions of cubic feet or MCF). So, an important measure of the gas is “richness” or how much energy (MMBTUs) are in one MCF of your produced natural gas.
Like crude prices, the natural gas price can fluctuate. See Bloomberg’s energy section for the current natural gas price.
How Can You Determine the Value of a Natural Gas?
The price of natural gas from a well depends on the well’s location and the energy value, or richness, of the gas.
Certain locations have higher demand for natural gas, raising the price. Plus, natural gas is tough to transport. You can liquefy it and ship it as liquefied natural gas (LNG), but that’s expensive. Unlike oil, natural gas requires a pipeline network to reach its final destination for sales or burning in a gaseous state. Thousands of miles of natural gas pipelines crisscross the US.
Also, the composition of the gas determines its value. Natural gas is mostly methane. However, it can include many gases – butane, propane, ethane and pentane. Natural gas is “dry” when it’s nearly pure methane and “wet” when it contains other hydrocarbons, which are heavier. Wet natural gas has more energy (and therefore more value).
In the case of EnergyFunders’ Cook Mountain project (EF VC25 = Merta #1), the gas is rich with heavier compounds (ethane, propane and butane). This isn’t a rare situation. We have a producing gas well in Lavaca County, Texas, where we earn $5 per 1,000 cubic feet of gas because it’s so rich and the location is favorable.
What This Means When Natural Gas Investing
We work to account for potential fluctuations and create the best deal for investors that makes sense in any market.
Before putting a natural gas investing deal on our platform, we review reams of data about the nearby well performance, geology, legal aspects and financial structure. We carefully vet all deals and present only the best deals with proven operators on our platform. This allows investors to access elite oil and gas deals and invest in projects at amounts that meet their goals.
Sign up to view our natural gas investing opportunities and start building a diverse oil and gas portfolio today.