What Is Natural Gas? The Storage & Infrastructure Guide
Natural gas is a fossil fuel composed primarily of methane (CH₄) — a colourless, odourless hydrocarbon gas formed from the remains of ancient marine organisms buried under sediment and subjected to intense heat and pressure over millions of years. It is the world’s third-largest primary energy source by consumption, supplying approximately 23% of global energy demand, and the primary feedstock for electricity generation, industrial heating, fertiliser production, and — when liquefied — long-distance international energy trade.
For terminal operators, pipeline engineers, and storage professionals, understanding what natural gas is means understanding a product with distinct infrastructure requirements at every stage of the supply chain — from wellhead processing and pipeline transmission to underground storage caverns, LNG peak shaving plants, and regasification terminals.
What Is Natural Gas Made Of
Natural gas is predominantly methane, typically comprising 70–95% of raw wellhead gas by volume. The remainder consists of small quantities of ethane (C₂H₆), propane (C₃H₈), butane (C₄H₁₀), and heavier hydrocarbons — collectively called natural gas liquids (NGLs) — along with non-hydrocarbon components including carbon dioxide, nitrogen, hydrogen sulphide, and traces of helium.
Before natural gas can enter the transmission pipeline network, it must be processed to remove these impurities. Water vapour is stripped to prevent hydrate formation in pipelines. Hydrogen sulphide — present in sour gas fields — is removed via amine gas treating and converted to elemental sulphur. NGLs are separated and sold as distinct products: ethane feeds petrochemical crackers, propane and butane are distributed as LPG, and natural gasoline (pentanes+) blends into refinery streams.
Processed sales gas entering the transmission network must meet strict quality specifications — typically a gross calorific value between 35–39 MJ/m³ and maximum limits on CO₂, H₂S, and water content. These specifications determine pipeline compatibility and are verified at custody transfer points throughout the distribution system.
How Natural Gas Forms
Natural gas is a fossil fuel formed over millions of years through the same geological process that produces crude oil. Marine microorganisms — primarily plankton and algae — accumulated on ancient seabeds, were buried under layers of sediment, and subjected to increasing heat and pressure as burial depth increased. This process, called catagenesis, converted the organic matter first into kerogen and then into liquid and gaseous hydrocarbons.
The type of hydrocarbon produced depends on the temperature and depth of burial. At moderate temperatures (the oil window), liquid crude oil dominates. At greater depths and higher temperatures, thermal cracking converts oil into dry gas — predominantly methane. Gas formed this way is called thermogenic gas. A secondary process, biogenic gas formation, produces methane at shallow depths through microbial decomposition of organic matter — the source of landfill gas and some shallow coal seam gas.
Natural gas accumulates in porous reservoir rocks — sandstone, limestone, or dolomite — beneath impermeable cap rocks that prevent upward migration. It may occur as non-associated gas in dedicated gas fields, or as associated gas dissolved in or capping crude oil reservoirs. The world’s largest gas field is the South Pars/North Dome structure shared between Iran and Qatar, estimated to hold 51,000 km³ of recoverable gas.
Natural Gas Classification: Associated, Non-Associated, and Unconventional
The petroleum industry classifies natural gas by its source and production method — a distinction that affects both infrastructure requirements and commercial handling.
Associated gas is produced alongside crude oil. Historically flared or vented at oil fields, it is now increasingly captured for sale, reinjection, or conversion to LNG. Managing associated gas volumes is an operational challenge at crude terminals and offshore platforms, where gas-to-oil ratios vary with reservoir pressure depletion.
Non-associated gas comes from dedicated gas reservoirs and forms the backbone of pipeline transmission systems in the US, Russia, and Europe. The South Pars field in Qatar and the Groningen field in the Netherlands (now in managed decline) are examples of major non-associated gas fields.
Unconventional gas — including shale gas, tight gas, and coalbed methane — requires hydraulic fracturing or other stimulation techniques to achieve commercial flow rates. The US shale gas revolution, centred on formations including the Marcellus, Haynesville, and Permian Basin associated gas plays, transformed America into the world’s largest gas producer by 2014 and the largest LNG exporter by 2023.
What Is Natural Gas Storage: Infrastructure Types
What is natural gas storage in infrastructure terms? It is the system of facilities that decouples gas production — which flows continuously from wells — from gas demand, which is highly seasonal and weather-dependent. Without storage, pipeline systems would require peak-day capacity many times the average throughput, at prohibitive cost.
Underground gas storage (UGS) is the dominant storage method globally. Three geological formations are used. Depleted oil and gas reservoirs are the most common: the porous rock that once held hydrocarbons is repressurised with working gas, providing large-volume seasonal storage with established geological integrity. Salt caverns — formed by dissolving underground salt deposits with fresh water — offer fast injection and withdrawal rates suited to daily and weekly balancing, though at smaller volumes than reservoir storage. Aquifer storage uses water-bearing rock formations as the reservoir, requiring larger cushion gas volumes to maintain pressure.
LNG peak shaving plants are a third storage category — onshore facilities that liquefy pipeline gas during low-demand periods and store it in cryogenic tanks for rapid regasification during peak demand events. They are particularly common in the northeastern United States and Japan, where winter heating demand can exceed pipeline send-out capacity. Peak shaving plants are distinct from baseload LNG import terminals: they operate as grid balancing assets rather than international trade infrastructure.
For a detailed look at European gas storage operators, see our top 10 gas storage companies in Europe ranking, and our profile of Uniper Gas Storage — Germany’s largest underground storage operator.
How Natural Gas Is Traded and Priced
Natural gas pricing varies significantly by region, reflecting the limited interconnection between the world’s major gas markets compared to the globally integrated crude oil market.
In the United States, Henry Hub — a pipeline interconnection point in Erath, Louisiana — is the primary spot and futures price benchmark. Henry Hub prices are the basis for NYMEX natural gas futures contracts and have become a global reference for US LNG export pricing. In Europe, the Title Transfer Facility (TTF) in the Netherlands is the dominant hub, with the NBP (National Balancing Point) in the UK serving as a secondary benchmark. Asian gas markets have historically been priced against oil indices, though spot LNG trading against the Japan Korea Marker (JKM) is growing.
The large price differentials between regional gas markets — a persistent feature of global gas trade — are what make LNG arbitrage economically viable. When Asian spot LNG prices significantly exceed Henry Hub plus liquefaction costs, US export terminals run at maximum utilisation. When European TTF prices spike — as they did dramatically in 2021–2022 following the reduction in Russian pipeline supply — Atlantic Basin LNG cargoes divert from Asia to Europe.
Current natural gas benchmark prices are tracked on our natural gas price page. For LNG spot prices, see our LNG price page.
Natural Gas Storage Economics: Seasonal Demand and the Injection/Withdrawal Cycle
Natural gas storage demand is driven by a fundamental mismatch between production, which flows at relatively constant rates from wells, and consumption, which peaks sharply in winter for heating and in summer for power generation cooling load. Storage facilities bridge this gap through an annual injection/withdrawal cycle.
In the Northern Hemisphere, the injection season runs from April to October, when demand is lower and gas is bought and injected into storage. The withdrawal season runs from November to March, when stored gas supplements pipeline supply to meet heating demand. European gas storage inventories — reported weekly by Gas Infrastructure Europe — are closely watched by traders, utilities, and terminal operators as a forward indicator of winter price pressure.
When gas forward prices exceed spot prices — a contango structure — the spread between spot and forward price can exceed the cost of storage, creating a commercial incentive to buy spot gas, inject it into storage, and sell forward. This storage arbitrage drives injection activity beyond seasonal necessity during contango periods, increasing demand for both underground storage capacity and LNG storage ullage at peak shaving facilities.
Natural gas storage inventory data for the United States is published weekly by the U.S. Energy Information Administration (EIA), and is one of the most closely followed data releases in energy commodity markets.
Natural Gas in the Global Supply Chain
Natural gas moves from wellhead to end consumer through three supply chain stages. Upstream covers exploration, drilling, and production. Midstream encompasses gathering pipelines, processing plants, transmission pipelines, and storage facilities. Downstream covers local distribution networks and end-use customers — power plants, industrial facilities, and residential consumers.
The midstream storage layer is operationally critical: without adequate underground storage capacity, pipeline systems cannot guarantee supply security during peak demand events. Major European storage operators — including Uniper, E.ON, and Centrica Storage — manage tens of billions of cubic metres of working gas capacity that underpins continental supply security. The 2021–2022 European energy crisis exposed the vulnerability of storage systems that entered winter at below-average inventory levels.
Where pipeline infrastructure cannot reach export markets, natural gas is liquefied and transported as LNG — a process that requires large-scale liquefaction terminals at the export end and regasification terminals at the import end. The tank terminals global guide covers both LNG terminal infrastructure and broader gas storage assets in the context of the global liquid and gas storage sector.
What is natural gas?
Natural gas is a fossil fuel composed primarily of methane, formed over millions of years from ancient marine organisms buried under sediment and subjected to heat and pressure. It is extracted from underground reservoirs, processed to remove impurities, and transported via pipeline or — when liquefied as LNG — by sea. It is used for electricity generation, industrial heating, residential cooking and heating, and as a feedstock for fertiliser and petrochemical production.
What is natural gas storage and why is it needed?
Natural gas storage facilities decouple continuous gas production from seasonal demand, which peaks sharply in winter for heating and in summer for power generation. The three main storage types are depleted reservoir storage (large-volume seasonal storage), salt cavern storage (fast-cycle daily and weekly balancing), and LNG peak shaving plants (onshore cryogenic storage for rapid regasification during peak demand events). Without storage, pipeline systems would require capacity many times the average daily throughput.
What is the difference between associated and non-associated natural gas?
Associated gas is produced alongside crude oil and was historically flared or vented at oil fields before infrastructure was built to capture it. Non-associated gas comes from dedicated gas reservoirs drilled specifically for gas production. The distinction matters operationally: associated gas volumes fluctuate with oil production rates and reservoir pressure, while non-associated gas fields can be managed primarily for gas output.
What is natural gas price based on?
Natural gas prices are determined by regional supply and demand, with limited price integration between major markets due to pipeline constraints. In the US, Henry Hub is the primary benchmark. In Europe, TTF (Netherlands) is the dominant hub. Asian markets price primarily against oil indices and the Japan Korea Marker (JKM) for LNG. The large price differentials between regions drive LNG trade, with cargoes flowing to whichever market offers the highest netback above liquefaction and shipping costs.
What is the difference between natural gas and LNG?
Natural gas and LNG are the same molecule — predominantly methane — in different physical states. LNG is natural gas that has been cooled to approximately −162°C, converting it from a gas into a liquid that occupies 1/600th of its original volume. This compression makes it practical to transport by sea in cryogenic tankers. At the destination import terminal, LNG is warmed and returned to gas form through regasification before entering the local pipeline network.