Natural Gas
Multi Commodity Exchange of India Ltd (MCX) is a demutualised exchange with permanent recognition from the
government of India. MCX offers futures trading in 56 commodities including bullion, energy, grains, plastics, metals, oil
and oilseeds, fibres, spices, pulses, sugar, plantations and carbon credits as on March 31, 2008. The average daily
turnover on the MCX platform was Rs. 102,827.60 million during fiscal 2007-08.
Natural gas is by far the
cleanest source of
energy amongst existing
options like electricity,
oil and coal.
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INTRODUCTION
Natural gas is a colourless, odourless, environment-friendly energy source, which is cleanest of all the fuels
that are traditionally being used in India. Natural gas is a highly flammable hydrocarbon gas chiefly
consisting of methane (CH4). It may also include other gases such as oxygen, hydrogen, nitrogen, ethane,
ethylene, propane, and even some helium. In India's energy mix, natural gas is the fastest-growing energy
source. Its consumption in India is expected to grow by 10% during 2005–2010. This can be met by
liquefied natural gas (LNG) imports as well as domestic gas discoveries. Natural gas is used mainly in the
industrial, commercial, transportation, and household sectors. The power and fertilizer sectors are the
largest consumers of natural gas. Natural gas, converted into a liquid state by cooling it to –161ºC, is
termed as LNG. LNG is more compact than natural gas and occupies 1/600th of its gaseous volume.
Natural gas, when compressed at a pressure of 250 bars, is termed as compressed natural gas (CNG).
Since natural gas is not a pure product, when non-associated gas is extracted from a field under superficial
conditions, it may partially condense upon isothermic depressurizing – an effect called retrograde
condensation. Natural gas is simply referred to as gas, especially when compared to other energy sources
like electricity. Before natural gas can be used, it must undergo processing to remove all materials except
methane.
FRACTIONS OF NATURAL GAS
Fraction Common Name Applications
C1 Methane Fuel and feedstock for urea plants and fuel for power plants
C2 Ethane Production of petrochemicals
C3 Propane Production of petrochemicals, LPG, auto fuels, and industrial fuels
C4 Butane Production of LPG
C5 and heavier Other Fractions Production of solvents and pentane
APPLICATIONS
Electricity generation by utilities: Fuel for base load power plants and cycle/cogeneration power plants.
Public and commercial: Natural gas is a clean fuel for use in households. Household use of piped
natural gas (PNG) is expected to increase in future.
Industrial: Natural gas is used as a fuel for utilities like boilers, furnaces, baking ovens, air conditioning,
etc. It is also used as a feedstock by fertilizer companies.
Alternative motor fuel: Used in compressed (or CNG) form.
Petrochemicals: A variety of chemical products (e.g., methanol) can be derived from natural gas.
Power generation
Natural gas is a major source of electricity generation through the use of gas turbines and steam turbines.
Particularly high efficiencies can be achieved through combining gas turbines with a steam turbine in
combined cycle mode. Natural gas burns cleaner than other fossil fuels, such as oil and coal, and produces
less carbon dioxide per unit energy released. For an equivalent amount of heat, burning natural gas
produces about 30% less carbon dioxide than burning petroleum and about 45% less than burning coal.
Combined cycle power generation using natural gas is thus the cleanest source of power available using
fossil fuels, and this technology is widely used wherever gas can be obtained at a reasonable cost. Fuel cell
technology may eventually provide cleaner options for converting natural gas into electricity, but as yet it is
not price-competitive.
For private circulation only.

Natural gas is less risky
as it evaporates in the
air after leakage
preventing damage due
to spillage of fuel
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Hydrogen
Natural gas can be used to produce hydrogen, with one common method being the hydrogen reformer.
Hydrogen has various applications: it is a primary feedstock for the chemical industry, a hydrogenating
agent, an important commodity for oil refineries, and a fuel source in hydrogen vehicles.
Natural Gas Vehicles
Compressed natural gas (methane) is a cleaner alternative to other automobile fuels such as gasoline
(petrol) and diesel. As of 2005, the countries with the largest number of natural gas vehicles were Argentina,
Brazil, Pakistan, Italy, Iran, and the USA. Energy efficiency of compressed natural gas is generally equal to
that of gasoline engines, but lower compared with modern diesel engines. Benzene (aka gasoline, petrol)
vehicles converted to run on natural gas suffer because of the low compression ratio of their engines,
resulting in a cropping of delivered power while running on natural gas (10%-15%). CNG-specific engines,
however, use a higher compression ratio due to this fuel's higher octane number of 120-130.
Residential domestic use
Natural gas is supplied to homes, where it is used for such purposes as cooking in natural gas-powered
ranges and/or ovens, natural gas-heated clothes dryers, heating/cooling and central heating. Home or other
building heating may include boilers, furnaces, and water heaters. CNG is used in rural homes without
connections to piped-in public utility services, or with portable grills. However, due to CNG being less
economical than LPG, LPG (propane) is the dominant source of rural gas.
Fertilizer
Natural gas is a major feedstock for the production of ammonia, via the Haber process, for use in fertilizer
production.
Aviation
Russian aircraft manufacturer Tupolev is currently running a development program to produce LNG- and
hydrogen-powered aircraft. The program has been running since the mid-1970s, and seeks to develop LNG
and hydrogen variants of the Tu-204 and Tu-334 passenger aircraft, and also the Tu-330 cargo aircraft. It
claims that at current market prices, an LNG-powered aircraft would cost 5,000 roubles less to operate per
ton, roughly equivalent to 60%, with considerable reductions to carbon monoxide, hydrocarbon and nitrogen
oxide emissions.
The advantages of liquid methane as a jet engine fuel are that it has more specific energy than the standard
kerosene mixes and that its low temperature can help cool the air which the engine compresses for greater
volumetric efficiency, in effect replacing an intercooler. Alternatively, it can be used to lower the temperature
of the exhaust.
Other Applications
Natural gas is also used in the manufacture of fabrics, glass, steel, plastics, paint, and other products.
GLOBAL SCENARIO - DEMAND AND SUPPLY
Natural gas supply is expected to increase by 143% over the next five years, because many gas discoveries
are starting their production, and various LNG projects are being commissioned or expanded.
Transnational gas pipelines are being planned and pursued with great vigour by companies like GAIL,
Reliance, etc. This will result in a better flow of gas to the deficit regions in the country. As per India
Hydrocarbon Vision 2025, natural gas demand is expected to be 313 million standard cubic metre per day
(MMSCMD) by 2011–2012. New sources of gaseous fuel, like coal bed methane, underground coal
gasification, etc., will be opened up. The latent demand of gas is estimated to be twice its supply.
 Demand – Supply Gap

Billion cubic meters

120.0
100.0
80.0
60.0
40.0
20.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Year
Demand Supply

Source: Hydrocarbon Vision 2025

Proven natural gas reserves have increased substantially over the years as the world finds more gas in
search for cleaner fuel. In 1986, Europe leads the world with over 43% of proven reserves.
However, now the Middle East is growing to become a huge natural gas supplier with reserves increasing to
33% in 1996 compared to 28% ten years earlier.
In 2005, the Middle East contributed nearly 40% to the proven reserves while South and Central America
along with Asia Pacific contributed 8% each.

Distribution of Proved Reserves in 1985, 1995, and 2006

8% 4% 4%
7% 6%
7% 4% 8%
8% 10%
7% 4%

35%
33% 43%
28% 41%
43%

1986 1996 2006

North America South and Central America Europe & Eurasia

Share of natural gas, as
a primary energy
resource, is expected to
grow from 8.87% in
2004 to 22.71% by
2032
Middle East Africa Asia Pacific
Source: BP Statistical Review 2007
INDIAN SCENARIO - DEMAND AND SUPPLY
In India, the power and fertilizer sector are major users of natural gas. Since the fertilizer sector is
subsidized by the government to allow for economical availability to farmers, the input for the fertilizer sector
is also indirectly subsidized. This means that natural gas supplied to fertilizer companies are at a rate fixed
by the government which is actually much lower than the market price.

Natural Gas Usage Pattern in India

13%
5% 41%
4%

37%

Power Fertilizer Sponge Iron Internal use Others

www.mcxindia.com Source: Hydrocarbon Vision 2025

 GLOBAL SCENARIO - PRODUCTION & CONSUMPTION
Globally, Africa produces much more than it can consume while North America falls short in its production.
The remaining consumption is sufficed through LNG imports which prove to be much expensive considering
the liquefying and deliquefying costs. Europe, too, consumes more than it produces.

Production - Consumption
1400

1200
billion cubic metres

1000

800

600

400
200

0
North South and Europe & Middle East Africa Asia Pacific
America Central Eurasia
America
Production Consumption
Source: BP Statistical Review 2007

INDIAN SCENARIO - PRODUCTION & CONSUMPTION

The natural gas market is dominated by explorers and producers (ONGC, OIL, and JVs); processing
companies (ONGC, GAIL, OIL, and IPCL); and transmission, distribution, and marketing entities (GAIL, GSPL,
Jvs).
India’s energy requirement shall keep pace with the expected GDP growth during the next few decades.
Share of natural gas, as a primary energy resource, is expected to grow from 8.87% in 2004 to 22.71% by
2032 in the overall basket.

Share of Natural Gas

2.14%
8.87% 1.53% 2.36%
22.71% 6.31%

The current import of Hydro Hydro

Nuclear Nuclear
natural gas is around Coal Coal
22% of the domestic Oil Oil
Natural Gas Natural Gas
consumption. This is
likely to grow to 33% by 36.39%
23.86% 44.76%
51.07%
2010–2011
(2003 - 04) (2031 - 32)

Source: Report on Integrated Energy Policy

The current import of natural gas is around 22% of the domestic consumption. This is likely to grow to 33%
by 2010–11.
Though gas availability in India from existing resources has declined, several large gas reserves have been
discovered by various private sector firms, joint ventures, and public sector firms, which would significantly
contribute to the gas availability.
The supply of gas from private sectors (which is currently 27%) is expected to increase to 64% by 2010–11.
Current trends (recent LNG imports) in the industry demonstrate convergence of India prices with the
international level. This may continue with the government policies to integrate the hydrocarbon sector with
the international market.
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In India, the power and
fertilizer sectors are
major users of natural
gas.
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MEASUREMENT
= 1 mmBtu (million British thermal units) = 25.2 SCM
= 1 SCM = 1 cubic metre at 1atm and 15°C
= 1 TCF = 4 MMSCMD
= 1 MMTPA of LNG = 4 MMSCMD
= 1 BCM = 2.8 MMSCMD
= 1 MT of LNG = 1300 SCM
BENEFITS OF TRADING ON MCX
= Standardized, accepted and liquid financial instruments
= Cost-efficient trading and risk management opportunities
= Competitive trading in an anonymous auction process
= Futures prices serve as world reference prices  MCX offers safe, fair, and orderly markets protected by its
rigorous financial standards and surveillance procedures.
= Futures contract performance is supported by a strong financial system, backed by the Exchange’s
clearing members, including some of the strongest names in the brokerage and banking industries.
LEADING EXCHANGE DEALING IN NATURAL GAS FUTURES
= New York Mercantile Exchange (NYMEX)
= Multi Commodity Exchange of India Ltd. (MCX)
IMPORTANT WEB SITES
www.eia.doe.gov
www.petroleum.nic.in
www.nymex.com
www.pricegroup.com
www.bp.com
www.intelligencepress.com
www.nbhcindia.com
 CONTRACT SPECIFICATIONS OF NATURAL GAS

Symbol NATURALGAS
Description NATURALGAS MMMYY
No. of contracts a year 12
Contract duration 3 months
Trading period Monday through Saturday
Trading session Monday through Friday: 10.00 a.m. to 11.55 p.m. Saturday:
10.00 a.m. to 2.00 p.m.
TRADING
Trading unit 1250 mmBtu
Quotation/base value Ex-Hazira exclusive of all taxes, levies and other expenses
Price quotation Rs. per mmBtu
Maximum order size 20,000 mmBtu
Tick size (minimum price movement) 10 paise (0.10 rupees)
Daily price limits 4%
Initial margin 5%
Special margin In case of additional volatility, a special margin at such
percentage (as deemed fit) will be imposed immediately on
both buy-side and sell-side in respect of all outstanding
positions, which will remain in force for next two days. After
LNG imports which, the special margin will be relaxed.
demonstrate Maximum allowable open position Client level: 50,00,000 mmBtu
convergence of India Member level: 2,00,00,000 mm Btu or 20% of the open market
position, whichever is higher
prices to the For near month contracts, the following limits will apply one
international level. month prior to the expiry date of the contract:
Client level: 5,00,000 mmBtu
Member level: 20,00,000 mmBtu
DELIVERY
Delivery unit 10,000 mmBtu
Delivery centre Hazira Hub
Quality specifications It should be of the standard pipeline quality. The quantity of
natural gas bought or sold under any contract will be delivered
at the uniform hourly rate (with maximum of 10% variation)
during the period of eight hours covered under the contract.

Note: Please refer to MCX circulars for the latest contract specifications, and delivery and settlement
procedures.
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12/2008

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