Hydrocarbon

DEFINITION of 'Hydrocarbon'

An organic chemical compound composed exclusively of hydrogen and carbon atoms. Hydrocarbons can be solids, liquids or gasses and are what petroleum and natural gas are primarily made of. The way the hydrogen and carbon atoms are arranged and the types of chemical bonds that connect them determine what product they create. Butane, methane, ethylene and benzene are all hydrocarbons. Crude oil, tar, bitumen and condensate are all petroleum hydrocarbons.

BREAKING DOWN 'Hydrocarbon'

A basic understanding of hydrocarbons and how they are extracted and processed will help if you want to invest in oil and natural gas stocks. It will be easier to understand the companies’ financials and make sense of news and analysis related to oil and natural gas companies.

Hydrocarbons form naturally from plant and animal remains that are compressed through temperature and pressure over millennia, deep within the earth, in porous rocks like sandstone, limestone and shale. These types of rock exist in large bodies of water, especially oceans, and the natural gas and petroleum gradually rise through the rock and closer to the water’s surface (but still thousands of feet deep) and form a reservoir. Oil and natural gas exploration companies can drill wells into these reservoirs and extract these hydrocarbons, which are then turned into fuels, explosives, plastics, rubber, chemicals, lubricants, solvents and fibers that consumers can use.

Different techniques are used to extract hydrocarbons depending on their type and the material they’re contained in. For example, hydraulic fracturing (“fracking”) is used to extract natural gas from shale by cracking the rock and using pressurized liquid to force the gas up through a well to the earth’s surface.

Hydrocarbon combustion in the presence of sufficient oxygen produces carbon dioxide, water and heat, which is why hydrocarbons are desirable as fuels. Methane, the main component of natural gas, is the simplest hydrocarbon because of the way it is structured. The four classes of hydrocarbons are aromatics, alkanes, alkenes (olefins) and alkynes (acetylenes).

RELATED TERMS
  1. Petroleum

    A naturally occurring liquid found beneath the Earth’s surface ...
  2. Exploration & Production - E&P

    An E&P company is known to be in a specific sector within the ...
  3. Natural Gas Liquids - NGL

    Components of natural gas that are separated from the gas state ...
  4. National Fund For Hydrocarbon Reserves ...

    A sovereign wealth fund administered by the Banque Centrale de ...
  5. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  6. Carbon Dioxide Tax

    A tax on businesses and industries that produce carbon dioxide ...
Related Articles
  1. Markets

    Oil And Gas Industry Primer

    Before jumping into this hot sector, learn how these companies make their money.
  2. Trading

    Natural Gas Industry: An Investment Guide

    Investors looking into this industry are faced with a confusing amount of information. We explain the important concepts and terms.
  3. Markets

    Fracking Can't Happen Without These Companies

    With all the attention paid to fracking, what is are the good investment opportunities? Are the companies that extract oil and natural gas a good bet?
  4. Markets

    The 5 Biggest Russian Natural Gas Companies

    Learn about the energy sector as well as why the energy sector is so important to Russia. Understand the five largest Russian oil and natural gas companies.
  5. Markets

    What is Crude Oil?

    Crude oil is a natural petroleum product that’s composed of organic materials, including hydrocarbon deposits.
  6. Markets

    Commodities Outlook For The Remainder Of 2012: Natural Gas

    Natural gas accounts for approximately one-fourth of the world's energy production. Since it is a much greener source of energy than oil and coal, it is picking up popularity. Natural gas has ...
  7. Markets

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  8. ETFs & Mutual Funds

    A Look Inside The Natural Gas Pipeline

    The United States is the Saudi Arabia of natural gas, but natural gas stocks were a mixed bag last year.
  9. Markets

    Commodities: Natural Gas

    By Noble DrakolnNatural gas is used extensively throughout the U.S. to heat homes, and also has important applications in commercial and industrial settings. It is similar to what is referred ...
  10. Markets

    4 Reasons Natural Gas Is So Cheap

    An unseasonably warm winter wasn't the only reason why prices were cheap.
RELATED FAQS
  1. What percentage of the global economy is comprised of the oil & gas drilling sector?

    Read about a rising industry that already composes as much as one-twentieth of total global economic output: the oil & gas ... Read Answer >>
  2. What are the main benchmarks that track the oil & gas drilling sector?

    Read about several different types of benchmarks that investors can use to track the overall performance of the oil and gas ... Read Answer >>
  3. How does fracking affect natural gas prices?

    Take a deeper look at the impact of hydraulic fracturing on the price for natural gas, and why fracking may eventually price ... Read Answer >>
  4. How does government regulation impact the oil & gas drilling sector?

    Find out how government regulation of the oil and gas sectors is often positive for the large companies, but may be negative ... Read Answer >>
  5. What developed countries have the greatest exposure to oil & gas drilling?

    Find out which countries have the largest proven reserves of oil and gas, and learn how the energy landscape has changed ... Read Answer >>
  6. What are the major types of insurance policies that insurance companies will offer?

    Explore one of the largest market sectors, the chemicals sector, and learn which primary basic commodities are used in producing ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center