How are oil and gas formed?
Crude oil is a yellow-to-black fossil fuel comprised of a complex mixture of hydrocarbons, organic compounds (nitrogen, sulfur, oxygen), and metals (copper, nickel, vanadium, and iron). It maintains a liquid state both in underground reservoirs and at the surface.
Natural gas is an odorless, colorless, combustible fossil fuel gas consisting largely of methane and other hydrocarbons with minor amounts of carbon dioxide, nitrogen, and hydrogen sulfide. Compared to other fossil fuels, burning of natural gas produces less emissions and is considered to be a cleaner form of energy.
Crude oil and natural gas are formed when large amounts of algae and zooplankton settle to the bottom of a sea. This biological material is then incorporated into the mud, and subsequently buried by thick layers of sediment. The weight of the overlying sediment increases the temperature and pressure of the organic-rich mud. If these temperatures and pressures are sustained for long periods of time (~10 million years), the organic material is converted into kerogen and bitumen. As temperatures continue to increase, the kerogen undergoes a process called catagenesis (also called “thermal cracking”) in which it is converted into crude oil. The temperatures that are ideal for crude oil formation are called the “oil window,” and are approximately between 150° – 300°F (65° and 150°C ). Natural gas begins to form at temperatures higher than approximately 300°F (150°C).
The process described above is a thermogenic process. Natural gas can also form by biogenic processes, where bacteria in low-oxygen environments such as swamps and marshes produce methane as a metabolic byproduct.
Crude oil classifications
Crude oil is classified by its non-hydrocarbon content (especially sulfur), its API gravity, and pricing benchmarks.
Crude oil containing low amounts of sulfur (<0.42%) and trace amounts of hydrogen sulfide and carbon dioxide is called sweet crude. Sweet crude oil is typically processed into gasoline. Sour crude oil has total sulfur amounts greater than 0.5% and higher hydrogen sulfide (>1%) and carbon dioxide concentrations. Because of the larger amounts of impurities in sour crude, larger portions of it are converted to heavy crude oil products, such as diesel and fuel oil.
The American Petroleum Institute (API) gravity of crude oil is an indicator of how heavy oil is compared to water. Oil with an API > 10° is lighter than water, while an API < 10° is heavier than water and will sink. In general, light crude oils have low viscosity, low wax content, and low density/high API gravity (>30° API). Medium crude oil has API gravity between approximately 20° API and 30° API. Heavy crude oil is more viscous, and has a higher density/lower API gravity (10–20° API). Extra heavy crude oil (also called bitumen) has an API gravity less than 10° API.
Because a large proportion of light sweet crude oil can be directly processed into gasoline and other petroleum products, it typically commands the highest prices on commodity markets. An example of light sweet crude is West Texas Intermediate (WTI) Crude from the Texas Permian Basin. It has an API gravity of ~ 39.6° and sulfur content of ~0.24%. WTI crude is used as a benchmark in crude oil prices and is usually priced several dollars higher per barrel than other common benchmarks such as the Organization of the Petroleum Exporting Countries (OPEC) Reference Basket and United Arab Emirates (UAE) - Dubai. Recently, however, North Sea Brent crude has been priced higher than WTI, even though North Sea Brent is less sweet (~0.37% sulfur).
Comparison of crude oil benchmarks’ API gravity and sulfur content. Source: EIA, 2012
Natural gas categories
Natural gas is often categorized based on its liquid content.
Dry natural gas is almost entirely methane and can be extracted from traditional reservoir rocks or from coal seams. It contains less than 0.1 gallon of liquid fractions per 1,000 ft3 of produced gas.
Wet natural gas contains a larger proportion of natural gas liquids than dry gas. Natural gas liquids (NGLs) are fractions of natural gas that are liquid at surface conditions, and are often separated from dry natural gas in processing facilities. NGLs with a low vapor pressure are called condensates, while NGLs with medium and high vapor pressures are called natural gasoline and liquefied petroleum gas, respectively. Examples of NGLs include propane, butane, isobutene, hexane, heptane, and pentane. Ethane is not typically considered an NGL because it needs to be refrigerated in order to maintain a liquid state. Wet gas typically sells at higher prices than dry gas.