A barrel of oil is a barrel of oil, but how much is an mcf of gas? Herein some basic facts about natural gas composition and measurement.
The first thing to remember: natural gas is measured by volume (cubic feet) but is sold based on its heating content (Btus).
A cubic foot of natural gas is the amount of natural gas that can be contained in a cube one foot on a side, at a certain standard temperature and pressure. But gas is not actually produced at a "standard" temperature and pressure. Temperature and pressure affect the amount of gas that can be contained in a one-foot cube. The higher the pressure, the more gas can be contained within the cubic foot of space. Conversely, the higher the temperature, the less gas can be contained in a cubic foot of space. So, when gas is measured, its pressure and temperature must also be measured. Its actual volume, at its actual temperature and pressure, can then be corrected to show what volume the same gas would have at a standard temperature and pressure. The volume at the standard temperature and pressure is the volume reported by producers to the Texas Railroad Commission, and is also the volume used to compute the price the purchaser will pay for the gas.
There is also another variable that must be taken into consideration when measuring volume -- water content. Most gas has some water vapor dissolved in the gas when it is produced. The water vapor takes up space. So gas with lots of water vapor has less natural gas for the same unit volume than gas with no water vapor. "Dry gas" has no water vapor. "Wet gas" has water vapor. "Saturated gas" has the maximum amount of water vapor that can be contained in the gas without precipitating out as liquid water. Measured gas volumes must therefore be corrected for water vapor content.
Gas measurement is highly developed technical science. Gas meters do not measure volume directly. A gas meter contains an orifice plate - a plate with a small hole in it through which the gas must pass. The meter measures the pressure on either side of the orifice. The pressure differential - the difference in the pressure on either side of the orifice - can be used to determine the volume of gas passing through the orifice.
Gas is sold not based on its volume, but based on its heating content. Heating content is measured in British thermal units, or Btu's. A Btu is the amount of heat required to raise one pound of water one degree Fahrenheit at one atmosphere of pressure. A Btu is equivalent to 251.99 calories.
Here we must harken back to our high school chemistry. Natural gas consists primarily of methane. Methane is a hydrocarbon molecule consisting of one carbon atom and four hydrogen atoms: CH4. But natural gas, as it is produced, may also contain ethane (C2H6), propane (C3H8), butane (C4H10), and "heavier" hydrocarbons. These heavier hydrocarbons have a higher heating value -- a higher Btu content -- for the same unit of volume.
One cubic foot of methane gas at standard temperature and pressure (60 degrees Fahrenheit and 14.73 pounds per square inch) contains exactly 1,000 Btus. So one thousand cubic feet of methane, 1 mcf, contains one million Btus, or one MMBtu. Gas is priced by the MMBtu. Gas sold at $5 per MMBtu, if solely methane, would sell at $5 per mcf.
But since natural gas is in fact usually a mixture of methane, ethane, propane, and other hydrocarbons, its Btu content often exceeds 1,000 Btus per cubic foot. Since natural gas is sold by the MMBtu, one must measure not only its volume but its Btu content. The Btu content of gas is measured by taking a sample and having it analyzed to determine its constituents of hydrocarbons. This is done periodically for each well, once or twice a year, since the hydrocarbon content of gas from a particular well usually does not change materially over time. "Rich" natural gas may have a Btu content of as much as 1,200 Btu's per cubic foot or more. Some natural gas may also contain carbon dioxide, hydrogen sulfide, or other gases that reduce its heating value to below 1,000 Btus per cubic foot.
The Btu content of gas is usually expressed as MMBtus/mcf. Gas having a Btu content of 1,200 Btu's per cubic foot has a Btu content of 1.2 MMBtus/mcf.
Once the heating value of gas is known, its volume can be easily converted to Btus. For example, if a well has produced 100,000 mcf of gas having a heating value of 1,200 Btus per cubi foot, the total MMBtu's of gas produced is determined by multiplying mcf by MMBtu's/mcf: 100,000 X 1.2 = 120,000 MMBtus.
For comparison, a barrel of oil contains approximately 5.8 MMBtus (depending on the constituency of the oil). Therefore, a barrel of oil is roughly equal in heating value to 5.8 mcf of methane. When companies report their production or reserves in "barrels of oil equivalent" or "boe," they are converting their reserves of gas into barrels of oil on this 5.8-to-one ratio. Based on its heating content, methane is today much cheaper than oil. At the current price of natural gas, about $3.50 per mcf, oil would sell on a Btu-equivalent basis for $20.30 per barrel.
Exploration companies must report their production of natural gas on royalty checks in mcf, even though the actual price is based on Btus. In order to know the price per MMBtu, you must know the Btu content of the gas. Some companies include that information on their check details. If not, the company should provide that information if asked. It is not possible to compare prices between companies and wells without knowing the Btu content of the gas being produced.