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. Primary Recovery

    The first stage of oil and gas production, in which natural reservoir ...
  2. Petroleum

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

    An E&P company is known to be in a specific sector within ...
  4. Natural Gas Equivalent

    The amount of energy used by the burning of natural gas versus ...
  5. Natural Gas Liquids - NGL

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

    A sovereign wealth fund administered by the Banque Centrale de ...
Related Articles
  1. Trading

    Oil And Gas Industry Primer

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

    What is Crude Oil?

    Crude oil is a natural petroleum product that’s composed of organic materials, including hydrocarbon deposits.
  4. 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.
  5. ETFs & Mutual Funds

    Will the Natural Gas ETF KOLD Stay Hot?

    Proshares UltraShort Bloomberg Natural Gas ETF isn't an investment for the faint of heart.
  6. ETFs & Mutual Funds

    Top 3 Natural Gas ETFs (UNG, FCG)

    Explore the variety of options that are available through exchange-traded funds for investors looking to obtain exposure to the natural gas market.
  7. Markets

    Do Oil and Natural Gas Prices Rise And Fall Together?

    Do the prices of crude oil and natural gas affect each other? Investopedia explores price patterns and provides analysis.
  8. Markets

    Shale Oil vs. Oil Shale: What's the Difference?

    The biggest difference between oil shale and shale oil is that one is still a money making endeavor.
  9. Managing Wealth

    5 Reasons Why Private Equity Investors Like Oil and Gas Companies

    Oil and gas companies may look like a risky industry on the outside, but private equity investors have found reasons to regularly invest in these firms.
  10. Markets

    The World's Top 10 Natural Gas Companies (XOM, OGZPY)

    Read about the 10 companies that combined to produce about 105 billion cubic feet of natural gas in 2014, about 30% of the world's total production.
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 economic indicators are important to consider when investing in the oil and ...

    Find out more about economic indicators and which ones are important when investing in companies in the oil and gas sector. Read Answer >>
  3. What impact has the increase in shale gas drilling had on the oil and gas industry?

    Read about some of the domestic and global impacts of the shale oil and gas revolution on the oil and gas industry, particularly ... Read Answer >>
  4. 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 >>
  5. 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 >>
  6. What regulations are in place that affect fracking?

    Read about some of the regulations that impact the practice of hydraulic fracturing, which is used to increase oil and gas ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center