TriStone Talks: A Comparison Between Crude Oil And Natural Gas

Two of the most common energy commodities, globally, are crude oil and natural gas. In fact, according to the International Energy Agency’s (IEA) 2020 report, in 2018, oil accounted for 31.5% of global primary energy supply, with natural gas making up 22.8%. This means that, respectively, oil and natural gas make up the largest and third largest fuels across the world. However, they’re different fuels extracted in different ways; serving separate purposes and commanding varied prices on the world market. With that in mind, the team here at TriStone Holdings wanted to look at the two fuels in more detail.

The Main Difference (The Clue’s In The Name…)

Now, there’s a bit of a clue in the names of the two fuels as to their main difference. Crude oil is a viscous liquid, whilst natural gas is (obviously) a gas. Whilst both may be hydrocarbons (chemicals comprising the elements hydrogen and carbon), these fuels have a different molecular makeup and this affects their properties as fuels.

Extraction & Storage

Typically, crude oil and natural gas are extracted in a similar fashion; a vertical well is drilled, through which the oil or gas can rise to the surface. Crude oil is usually stored in tanks or oil tankers whilst natural gas is stored, either in a liquefied form, or underground in huge caverns – depleted gas reservoirs being a prime example. Occasionally, natural gas is stored in tanks above ground, though the capacity is nothing like the underground alternative.

Usage

The two fuels are also used for different purposes. In reality, crude oil isn’t one homogenous fuel in the way that natural gas is, at least for conventional natural gas (for more information about conventional and unconventional fuel resources, read our previous blog here). Natural gas refers to, most generally, a primarily methane-based composition, whereas crude oil has to be heavily refined down into its usable forms: gasoline, propane, naphtha and diesel. Crude oil and petroleum products are most commonly used as fuels (for motoring, aviation and shipping).

Natural gas, on the other hand, is primarily used in power generation. In fact, according to the US Energy Information Administration (EIA) the largest usage for natural gas was the generation of electricity, coming in at 36% of total consumption. Natural gas is used almost as much in a domestic setting for purposes such as heating and cooking. Fancy a brew or a bath? The chances are, you’ll have used natural gas at some point along the line to get it.

Price

Interestingly, the demand for both of these energy commodities is most commonly determined by a singular ratio between the two. Known on the markets as CONGPR (Crude Oil to Natural Gas Price Ratio), this figure, historically, sat most of the time at around the 10:1 mark. That’s to say, one barrel of crude oil was worth ten times that of the comparable quantity of natural gas. Over the past half a decade or so, however, the ratio has fluctuated (on average) between 15:1 and 25:1.

The correlation between the two commodities, from a price perspective, is a somewhat contentious issue. How linked the two are, for instance? And if they are linked, which affects the other more? Traditionally, their prices moved in tandem (as showcased by that 10:1 ratio), however those more recent variations in price ratios indicate something of a decoupling from one another. This will most likely have been caused by the Shale Gas Revolution of the past decade. Here at TriStone Holdings, we’re interested to see just how this ratio will develop over the coming years. It will be especially interesting to see how it is affected by COVID-19.

The Future

What, then, does the future hold for these two energy staples? It’s hard to say with any degree of certainty, given the events of the past six months, however there are a few key trends worth pointing out. Overall energy demand, for instance, is set to see large growth over the next 30 years. This increase in energy demand is predicted to come about from the aggressive economic growth currently being showcased throughout Asia (predominantly China and India).

By 2050, it’s thought that natural gas will account for an equivalent proportion of the global energy demand as it currently does (around 22%), whilst crude-based fuels will see a slight reduction, as renewables continue to become increasingly popular (this, according to the US EIA’s International Energy Outlook 2019).

Our focus in the Cherokee Basin centres initially around crude oil production. There does lie, however, the potential for upstream natural gas production as well. So, if you’d like to find out more about our UK oil and gas investment company, then get in touch! Contact TriStone Holdings Ltd today on 0800 055 7079. You can also visit our Facebook page here!

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