Ubs Investment Research - Global Oil & Ga - What Are Hydrocarbons?

UBS Investment Research - Global Oil & Gas.

What are hydrocarbons?

'Hydrocarbon' is the term used to describe any organic compound consisting

only of carbon and hydrogen. Hydrocarbon reserves evolve naturally and are

derived from the decomposition of organic matter, algae and bacteria trapped

and preserved in sedimentary deposits. Burial of these deposits and the

corresponding increase in heat and pressure 'cooks' the organic matter. This

breaks down the complex hydrogen and carbon molecules and converts them

into solid, liquid or gaseous hydrocarbons known as fossil fuels.

Natural gas

Natural gas is a mixture of light hydrocarbons, predominantly methane. Around

three-quarters of the world's natural gas is found in separate accumulations from

crude oil ('non-associated gas'); the remainder is found in combination with or

in solution in crude oil ('associated gas').

The constituent elements of natural gas vary throughout the world and typically

include (in varying proportions) methane and ethane, plus propane, butane and

heavier compounds, which are collectively known as natural gas liquids

(NGLs). Natural gas often contains inert substances such as sulphur, carbon

dioxide and nitrogen, which lower its thermal efficiency and hence its value,

unless removed.

Natural gas liquids

Natural gas liquids (NGLs) comprise heavier hydrocarbon fractions, which are

extracted in liquid form from natural gas, usually at or near the point of gas

production, or in a separate processing or treatment plant. NGLs can be further

classified as ethane, liquefied petroleum gas (LPG) - mainly propane and

butane - and condensate (natural gasoline), the latter being in liquid form.

Natural gas liquid margins are influenced by two factors: natural gas prices and

crude oil prices. Natural gas is the feedstock for NGLs. Wet natural gas is piped

into a natural gas