The main constituent of natural gas is methane and its methane content varies depending on what oil field, the gas has been extracted from. The range is usually 70-90 percent. Ethane, propane, and butane are other constituents of natural gas. Russia, Iran and Qatar account for about 33 percent, 17 percent and 6 percent of the world’s known natural gas reserves, ranking the first, second and third in this regard. To delineate magnitude of global gas reserves, it would suffice to note that Iran’s gas reserves alone are bigger than total natural gas reserves in the United States, Canada, the whole Europe as well as the whole Asia-Pacific region. Among producers of natural gas in the world, Russia, the United States, and Canada rank from the first to the third by accounting for 24 percent, 23 percent and 7 percent of total global gas production. Meanwhile, share of the United States and Canada from global gas reserves is slightly higher than 3 percent and 1 percent, respectively. There is no doubt that the world will be heavily dependent on Iran’s gas reserves in the 21st century. The extracted natural gas is called “wet gas”, which is converted to “dry natural gas” once it is refined. During refining process, hydrocarbons with lower evaporation rate, such as propane and butane and similar gases, are separated from methane. The remaining dry gas mostly (up to 95 percent) consists of methane, though it is also mixed with ethane, butane, propane and nitrogen too. The refined gas or dry gas can be transferred via pipeline and can be converted into liquid at low temperatures in which case, it will be called liquefied natural gas (LNG). LNG is carried via pressurized containers and by special ships. Gases with lower evaporation rate, such as propane and butane are also liquefied and sold as liquefied petroleum gas (LPG). LPG can be carried in pressurized containers. Natural gas can be converted to compressed natural gas (CNG) which entails lower storage and transportation costs than LNG and can also be used as fuel for automobiles. If natural gas is converted to LNG at a temperature lower than about 260 degrees centigrade, its volume will be reduced to about 1/600 of its original volume. Therefore, it can be transported aboard special ships. However, high costs of liquefaction and transport of liquefied gas calls for more attention to such issues as international crude oil prices, situation of supply and demand, as well as rivalries from other producers and the need to inject gas into oil reservoirs to increase their recovery factory, before investing in development of LNG production industries. It should be noted that serious reduction in oil price during 1997 and 1998, stagnated LNG industries while international oil price hike during recent years has encouraged renewed investments in the sector. Today, Indonesia is among the biggest suppliers of energy by producing about 28 million tons LNG per year. Algeria, Malaysia, Australia, Brunei, Qatar, Oman, the United Arab Emirates, Trinidad, Libya and Nigeria are major producers of LNG. Iran is in the early stages of investment in LNG industry. Japan, South Korea and the United States are the biggest consumers of LNG followed by Taiwan, Belgium, France, Spain, Italy and turkey. Another development in natural gas markets is development of gas to liquid technology, known as GTL, which is used to convert gas to liquid fuel. Efforts made to reduce pollution resulting from burning associated gas and endeavors of automobile industries to make the most of clean and sulfur-free fuels in conformity to new environmental regulations have led to growth and development of gas to liquid industry. Production of fuel products with low sulfur content at refineries requires removal of sulfur and will subsequently, increase refining costs. Taking advantage of crude oil, which naturally contains low sulfur, such as sweet and light crude oil varieties will lead to production of low-sulfur products. Therefore, observing environmental standards for production of low-sulfur products has increased price of sweet crude oil. Increased costs of producing fuels containing low sulfur through refining crude oil, has provided enough motives for development of synthetic fuels technology. One of the most important of those technologies is GTL. Natural gas can be converted to fuel products with low sulfur content or free from sulfur through GTL technologies without suffering high costs of removing sulfur at refineries. Studies carried out over the recent few years about growth and development of GTL technology have lowered cost of producing fuel products through GTL technology. However, GTL technology still needs more profound studies and research as well as more tests and experiences at pilot production plants. Development of GTL technology has been affected by two factors: 1. Pressures from environmental activists, especially in the United States and Europe, for reduction of greenhouse gases such as carbon monoxide, methane, nitrogen oxides, and suspended particles; and 2. Increased price of crude oil, especially light, sweet crude oil in global markets. Pressures exerted by local authorities on refineries to produce low-sulfur diesel and gasoline have led to price difference between sour and sweet crude oil varieties. This is, especially of importance in developing countries exporting crude oil, including Iran, which aim at making heavy investments in GTL technology. Calculating profitability of investment in GTL plant when crude oil price is constantly on the rise cannot be accurate. Assessment of GTL projects should be made in the light of crude oil prices. Another important point with regard to GTL technology is taking advantage of associated gases to produce natural gas products. A positive point regarding use of GTL technology is that small amounts of natural gas can be used to produce fuel products. For this reason, one of the best methods for taking advantage of associated gas, especially in those regions where such gases cannot be injected into oil fields to increase recovery factor, is to use them for production of oil products through GTL method. Sasul Company, in cooperation with Chevron Corporation, is planning to build one of the world’s biggest GTL plants in Nigeria with a total capacity of 30,000 barrels to make use of associated gas, 80 percent of which is currently being burnt in that country. Volume of associated gas, which is being burnt in Iran, is considerable. Therefore, taking advantage of GTL technology for producing oil products in Iran will lead to further development of oil and gas sector of Iran. Of course, that part of associated gases should be used for this purpose which is currently being burnt and there is no plan to inject them into oil wells to boost recovery factor or to inject them into cross-country gas network. Of course, gas reserves that are located far from urban centers and lack economic justification for transport into cross-country network can also be used for this purpose. Natural gas has gained in importance in global fuel basket since 1970s and 1980s. It seems that three main reasons could be mentioned for this: 1) Low environmental pollution resulting from using natural gas as power plant fuel. The amount of environmental pollutants such as nitrogen oxides and sulfur oxides, as a result of converting fuel system of power plants to use gas, will be much lower than using fuel oil at power plants. 2) Unpredicted changes regarding crude oil supply; 3) Liberalization of energy industries in the United States and the United Kingdom. A combination of the abovementioned factors has led to rapid growth of natural gas market in Europe since early 1990s. Natural gas consumption in Europe was reported at about 419 billion cubic meters in 1996, while the figure is forecasted to reach about 612 billion cu. m. as of 2010. The following factors have played an important part in developing gas markets in Europe: 1) Liberalization of gas supply industries in the United Kingdom during 1992-1996 caused new suppliers to have access to national gas distribution networks. More gas production and access by more suppliers to cross-country networks means more facilities and prosperity in gas trade. 2) Opening a 235-km pipeline between England and Belgium, which led to direct supply of North Sea gas to Europe. 3) Permission issued by European Union for gas consumers to enable them to purchase their needed gas directly from competitive markets instead of buying it through state monopolies. Development of competitive natural gas markets in Europe caused electricity producers and other major consumers of natural gas to face unexpected changes in gas price. Therefore, designing needed financial tools for covering risk of unexpected fluctuations in natural gas price is a necessity. Since 1994, out-of-bourse or OTC contracts for advance sales of gas, which cover time period of one month up to three years, have been in vogue in European countries. London’s International Petroleum Exchange (IPE) introduced the first tradable natural gas contract in 1997. Also, NYMEX (New York Mercantile Exchange) in the United States had introduced natural gas contracts before IPE and the first natural gas contract was traded in NYMEX in 1990. Source: Derivatives and Risk Management in Oil Markets; Dr. Masoud Derakhshan, Institute for International Energy Studies, 1st Edition; 2004