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Clarifying Conventional Crude Oil and Conventional Natural Gas

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Hydrocarbons from conventional resources

In this part of our series, we’ll look into the types of hydrocarbons that upstream companies extract from conventional resources.

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Conventional crude oil

Conventional crude oils are the oldest grades of crude oil being extracted from conventional resources by upstream companies. Conventional crude oils are rich in hydrogen and hence tend to deliver more productive value to refineries than unconventional oils.

There is no single form of conventional crude oil and it ranges from high-quality “light sweet” crude oil to low quality “heavy sour” crude oil. API gravity grading methods developed by the American Petroleum Institute are used to indicate a particular type of crude oil according to density. An API gravity of 38 degrees or more fetches a better value as it is classified as high quality “light” oil, whereas an API gravity of below 22 degrees fetches a lesser value because it classified as a low quality “heavy” oil and requires more processing.

Conventional natural gas

Conventional natural gas, which primarily consists of methane, refers to the natural gas that is extracted from conventional resource bases like oil fields or gas fields. When natural gas is extracted from oil fields, it is referred to as “conventional associated gas,” whereas when it is extracted from gas fields, it’s referred to as “conventional non-associated gas.” Due to its free-flowing nature, conventional natural gas deposits are easiest to mine and thus have a lower cost of production when compared with all other forms of natural gas production.

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Natural gas liquids and dry gas

Conventional natural gas often contains NGLs (natural gas liquids), which can be ethane, propane, butane, or pentane. When NGLs are extracted from conventional natural gas, the remaining gas—essentially methane—is referred to as dry natural gas. Notably, conventional natural gas with higher NGL content is particularly valuable because higher crude oil prices fetch higher NGL prices as well. Hence, upstream companies prefer raw, NGL-rich natural gas.

Conventional oil and gas producers

Upstream companies with conventional crude oil and natural gas productions have relatively low production costs. These companies include Occidental Petroleum Corporation (OXY), Noble Energy (NBL), and Murphy Oil Corporation (MUR). Apart from investing directly in these companies, investors can also gain exposure to upstream energy companies like these by investing in the SPDR S&P Oil and Gas Exploration & Production ETF (XOP). The First Trust ISE-Revere Natural Gas Index ETF (FCG) invests in natural gas producers.

In the next part of this series, we’ll talk about tight oil.

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