I want to keep these lessons as short as possible. By doing this, you’ll miss out on some finer details that may be important down the road. I would like to think it is more important to just be aware of this info rather than to dive too deep and bore you to death.
When talking about natural gas and how it functions in the United States, gas will be referenced using the U.S. customary units of measurement. examples of these will be
- BTU – British Thermal Unit
- MMBTU – Million BTU
- cf – Cubic Feet
- MMcf – Million cubic feet
- Bcf – Billion cubic feet
- Tcf – Trillion cubic feet (yeah, you heard right)
- Bcf/d – Bcf per day
- Tonnes – I think I’ve only heard this in reference to LNG – Liquefied Natural Gas on a boat.
The two key elements are British Thermal Units and Cubic Feet.
First thing I’m going to mention is the MM in MMBTU. M is the roman numeral for 1000. So MM is 1000×1000 = 1,000,000. You may see someone write MBTU or MMBTU. This is not a typo, they should be talking in terms of Million BTU. Same with MMcf, this is million cubic feet, which you may hear about a lot. 1000 MMcf would be the same as Bcf or billion cubic feet.
Now, back to BTU – British Thermal Unit. BTUs are how we gauge how hot or lack of hot (cold) something gets. If you get into trading NG (natural gas) futures contracts, you are trading a quantity of 10,000 MMBTU. The current price for December contract (NGZ19) of natural gas is $2.856 per MMBTU. Multiply that by 10,000 and you have 1 full contract of NGZ19. That’s $28,560 worth of NG in one contract. A lot. Luckily there is margin that prevents you from having to fork over that much money just to trade one contract. Margin will be covered in trading lessons.
If you were to search NGZ19 on google, market watch, barchart, and yahoo finance are the first three sites listed and each will give a recent (usually delayed 10 mins) price of December gas contract. I recommend using Tradingview. I use it a lot, and it’s free to use.
Maybe you don’t plan to trade natural gas contracts, maybe you just plan to trade UNG, UGAZ, and DGAZ, then you still need to understand cubic feet. The following is not required knowledge but there are about 1000BTUs for every 1cf of methane (natural gas). This can fluctuate, but for simplicity sake, go with 1000. 1 cubic foot is between this size of a basketball and a beach ball and we will discuss gas by the billions most of the time. It shouldn’t take long to get used to seeing Bcf behind every number. Right now just understand MM is million, B is billion, T is trillion, B/d is billion per day. If you subscribe to a data service such as HFIR on seeking alpha, you’ll get daily updates of this data.
Next up… Production