Understanding Natural Gas Equivalent (NGE) in Oil & Gas

What Is Natural Gas Equivalent?

Natural gas equivalent (NGE) refers to the amount of natural gas needed to equal the energy produced from one barrel of crude oil, as measured in British thermal units (BTUs). The natural gas equivalent for a barrel of crude oil is calculated to allow for a comparison between natural gas and crude oil prices.

Natural gas equivalent is used mainly within the oil and gas industry. In the world of finance, however, it is more common instead to speak in terms of barrel of oil equivalent (BOE).

Key Takeaways

• Natural gas equivalent is a way of standardizing the energy stored in a barrel of crude oil and other energy resources into units of natural gas.
• One barrel of crude oil generally has approximately the same energy content as 6,000 cubic feet of natural gas, so this quantity of natural gas is "equivalent" to one barrel of oil.
• Natural gas equivalent is used by energy market traders as well as within the oil & gas industry, although barrel of oil equivalent (BOE) is more prevalent.

Understanding Natural Gas Equivalent

In the oil and gas industry, barrel of oil equivalent and natural gas equivalent are essentially the same thing—the amount of natural gas it takes to produce the same British thermal units as a barrel of oil, and vice-versa. Of course, barrel of oil equivalent can be calculated and applied to other energy sources as well.

Many oil companies produce both oil and gas, among other petroleum products, but the unit of measure for each is different. Oil is measured in barrels and natural gas is measured in cubic feet. To help facilitate like-for-like comparisons, the industry standardized natural gas production into "equivalent barrels" of oil or "equivalent units of gas."

One barrel of oil is generally deemed to have the same amount of energy content as 6,000 cubic feet of natural gas. So this quantity of natural gas is "equivalent" to one barrel of oil.

Calculating Natural Gas Equivalent

The calculation for the natural gas equivalent of a barrel of oil is fairly straightforward. As both oil and gas can be measured in Btu, the first step is to convert a barrel of oil. There are standard conversions for both a barrel of oil and 100 cubic feet of natural gas. A standard barrel of oil is 42 gallons of crude and equals 5.8 million Btu, while 100 cubic feet of natural gas comes in at 103,700 Btu.

To eliminate the discrepancy in energy, natural gas is measured in 1,000s cubit feet units (Mcf) with an energy of 1.037 million Btu. So there is almost six times the energy in a barrel of oil than there is in 1000 cubic feet of natural gas. By tradition and for the sake of clean, round numbers, the natural gas equivalent of a barrel of oil simply rounds out to 6,000 cubic feet or 6 Mcf.

How Natural Gas Equivalent Is Used

Natural gas equivalent is actually meant to help investors rather than confuse them. By standardizing energy into equivalents of a barrel of oil, energy companies make comparisons of production, proven reserves, probable reserves and so on much easier for investors and industry analysts.

Of course, when it comes to energy, there is still some converting required to get a global picture, as some regional reporting across the world only provides metric units. Mcf is the standard way for reporting natural gas within the United States, but billions of cubic feet (Bcf) may also be used. In Europe, natural gas is reported by the metric ton.

And, of course, natural gas equivalent can be used in a more personal way to measure the difference between housing heating systems (heating oil vs natural gas for example) based on the market prices for their fuel.