Natural Gas: Background, History, and Extraction Process

Natural Gas

Natural Gas is a naturally occurring mixture of hydrocarbon gases, with methane forming its primary constituent. It is classified as a non-renewable fossil fuel and serves as one of the most versatile energy sources in the modern economy. Its applications span electricity generation, residential heating and cooking, industrial manufacturing processes, and the production of fertilisers and plastics. Despite growing investment in renewable energy sources globally, Natural Gas continues to occupy a central role in the global energy mix as a transition fuel, valued for its lower carbon emissions relative to coal and oil and its ability to provide reliable baseload power generation.

The recorded history of Natural Gas as a known phenomenon stretches back several millennia. Natural gas seeping from the ground on Mount Parnassus in Greece around 1000 B.C. is believed to have ignited a flame that inspired the establishment of the Oracle at Delphi, one of the ancient world’s most revered religious sites. By approximately 500 B.C., the Chinese had identified naturally occurring gas seeps and developed a practical method of harnessing them, constructing rudimentary pipelines from hollowed bamboo to transport the gas from surface seeps to locations where it could be used to boil seawater and produce drinkable fresh water. This early Chinese application represents one of history’s first documented examples of energy infrastructure.

The first commercial use of Natural Gas in the modern sense occurred in Britain. From as early as 1785, coal-derived gas was being used to illuminate lighthouses and street lighting in British towns and cities, laying the groundwork for the gas distribution networks that would develop across Europe and North America over the following century.

The Formation and Extraction of Natural Gas

Natural Gas originates from the same geological processes that produce coal and crude oil. Millions of years ago, the remains of plants and marine organisms accumulated on the seabed and were gradually buried under successive layers of sediment. Over geological timescales, the combined effect of heat from the earth’s interior and pressure from overlying rock layers transformed this organic material into hydrocarbons. In some geological formations, the gas migrated through cracks and fissures in rock layers and became trapped beneath impermeable cap rock. In others, it accumulated within the pore spaces of permeable rock formations.

In its natural state, Natural Gas is colourless, odourless, and tasteless. These properties make it potentially dangerous in the event of a leak, as an undetected accumulation of gas in an enclosed space creates a serious explosion and asphyxiation hazard. To address this, producers add a chemical compound called mercaptan to the gas before it enters distribution networks. Mercaptan imparts a distinctive and unmistakable sulphuric odour that makes even small gas leaks immediately detectable by human smell, providing an effective safety mechanism across the entire supply chain from production to end consumer.

The process of locating and extracting Natural Gas begins with geological survey work. Specialist geologists assess land and offshore areas for the geological characteristics associated with gas-bearing formations. Seismic survey technology, which involves generating and measuring sound waves through rock formations, allows geologists to map subsurface structures in detail and identify the most promising locations for exploratory drilling. Where the geological and economic case is sufficiently strong, an exploratory well is drilled to confirm the presence and commercial viability of a gas reservoir. If successful, additional production wells are drilled to bring the field into full commercial operation.

India’s Position in the Global Natural Gas Market

India ranks as the world’s seventh-largest producer of Natural Gas, accounting for approximately 2.5 per cent of global production. Domestically, Natural Gas is deployed primarily across four key sectors. Power generation represents the largest application, with gas-fired power plants providing an important complement to coal-based generation in the national electricity mix. Industrial consumption accounts for a substantial share, with manufacturing processes across a range of sectors relying on gas as both a fuel and a feedstock. The fertiliser industry is a particularly significant consumer, using Natural Gas as a primary raw material in the production of urea and other nitrogen-based fertilisers that are essential to Indian agricultural output. Liquefied Petroleum Gas production for household cooking fuel represents a further important application.

India’s domestic Natural Gas production has historically fallen short of demand, making the country a significant importer of Liquefied Natural Gas. This import dependency introduces a currency dimension to domestic gas pricing, as international LNG prices are denominated in US Dollars and the landed cost in Indian Rupees is directly influenced by the prevailing USD-INR exchange rate. In the current environment of early 2026, with global LNG supply under pressure from the disruption to flows through the Strait of Hormuz, India’s energy import costs have risen materially, adding to the broader inflationary pressures discussed in earlier chapters.

The full scope of Natural Gas production, distribution, and consumption across the global economy is an extensive subject in its own right. For the purposes of this series, which is oriented towards practical short-term trading knowledge, the discussion now turns to the contract specifications that govern Natural Gas futures trading on MCX. Before doing so, however, one episode from the history of Natural Gas trading demands attention: the Amaranth Natural Gas gamble, which stands alongside the Sumitomo Copper Scandal as one of the most instructive case studies in the consequences of unchecked risk exposure in commodity markets.