Natural gas: What is it and how does it work?
What is natural gas and how is it formed?
Natural gas is a type of fossil fuel formed from decomposing plant and animal matter. This organic matter gets trapped underground and, over millions of years, pressure and heat from deep under the Earth’s crust turn it into a pocket of fossil fuel underground.
Commonly, natural gas is found close to crude oil deposits (which are turned into petroleum products) close to the surface, but more significant natural gas deposits are typically deeper down.1
Natural gas can also be produced and harnessed from landfills in a similar way to biofuels, which are a renewable energy source.
On its own, natural gas is colourless and odourless. As it’s also flammable, leaks can be dangerous and hard to detect without additional chemicals being added as part of the refining process. For example, mercaptan is a chemical that’s added to give gas the distinct ‘rotten egg’ smell, making it easy to detect gas leaks.
Types of natural gas include liquefied natural gas (LNG) and compressed natural gas (CNG). Both are the same substance as natural gas, but LNG has been cooled to a cryogenic liquid, while CNG is squeezed to less than 1% of its standard volume and used to power vehicles.
Other types of gas fuels are made through chemical reactions and are not found underground, though they may share some common elements. For example, propane is a byproduct of natural gas processing and petroleum refining, and biogas is a renewable fuel produced from decomposing organic waste.2
How is natural gas turned into energy?
Natural gas is turned into an energy source by a process called combustion. By burning gas, high-temperature gases or steam are produced, which spins a turbine. The rotation of this turbine subsequently turns a generator to produce electricity.
Before this process occurs, natural gas first needs to be extracted from large-scale gas fields. This is done by using drills to bore a hole from the earth’s surface down to the gas deposits. If the gas is found in a deep underground rock formation known as shale, a process called hydraulic fracturing (fracking) is used. This is known as shale gas.
The natural gas is then harvested before being processed into fuel and shipped to a network of pipes, known as gas mains, that form part of the energy grid.
The composition of elements and materials can lead to different natural gas chemical formulas. This gas is then processed to remove unwanted elements such as hydrogen sulphide. Natural gas is mostly composed of methane gas, a hydrocarbon, before chemicals such as mercaptan are added to it.2 Other hydrocarbons are also components of natural gas such as butane, propane, ethane and pentanes.
Once refined into a fuel, gas is transported by a gas network distributor underground alongside other utilities like water. Your home can then secure a gas connection if it’s available in your area.
Check out our guide to how natural gas goes from the gas well that extracts it to a gas supply for your home or business.
Which of my home appliances use natural gas?
There are a few home appliances that commonly use natural gas such as ovens and air conditioners. Purpose-built devices and appliances at your home that use gas include:
- ovens, stoves and barbecues
- heaters and air conditioners
- clothes dryers
- fireplaces
- hot water systems.3
Most of these have electric options as well, which are generally cheaper to install or buy but cost more in energy use compared to some gas counterparts.
Learn more about the difference in costs between gas and electricity here.
Understanding natural gas
What is natural gas used for?
Natural gas is used for heating and cooking, as well as in electricity generation.
There are other reasons for the use of natural gas, too. It can be turned into liquefied natural gas (LNG), which can be stored for later or exported across the world to other countries. It can also be sent to a gas-fired power plant and burned to spin a turbine to create electricity, which is then fed back into the energy network.
Some large-scale industrial natural gas consumers may be connected straight from the processing plant that turns the extracted gas into a usable fuel.
Is natural gas renewable?
No, natural gas is not primarily considered a renewable source of energy if it’s harvested from gas pockets underground. However, natural gas can also be harvested from landfills, and this method of harvesting gas fuel is renewable.
Ultimately, this natural gas can be considered both a renewable and non-renewable source of energy, depending on its source.
Is natural gas a fossil fuel?
Yes, natural gas is a fossil fuel, made from decomposing matter and pressure underground. When it’s harvested and burned, it provides energy but it also gives off carbon dioxide emissions.
Plus, if it is not burned completely during the process, it will also produce carbon monoxide, a highly toxic gas that contributes to air pollution.
Is natural gas environmentally friendly?
Natural gas production (and its usage) does create carbon emissions, which are harmful to the environment. It also produces nitrogen oxides, because extreme heat forces atmospheric nitrogen and oxygen to react. This means it is not considered a true clean energy source.
However, gas emissions are lower than the greenhouse gas emissions made by electricity generated from coal-fired power stations, making it the most environmentally friendly fossil fuel.4
Regardless, Australia is trying to move away from natural gas electrification by moving to renewable power sources instead (such as wind and solar), and by replacing fossil-fuel powered gas appliances with high-efficiency, electric alternatives.5
What else do I need to know about natural gas?
How is gas usage measured?
In most states, gas usage is measured in megajoules (MJ), while electricity usage is measured in kilowatt-hours (kWh). However, Western Australia measures gas in units (one unit is equal to 3.6MJ).
Your gas consumption is measured at your home’s gas meter, which looks a lot like electricity meters, but it records MJ consumption in cubic feet or metres (M3). You can learn more about how to read your energy bills with our helpful explainer.
Meanwhile, when gas is being internationally exported (such as LNG exports), it is commonly measured in million British thermal units (MMBtu).
Is liquefied petroleum gas (LPG) a type of natural gas?
No, liquefied petroleum gas (LPG) is not considered a natural gas. Instead, it is primarily recovered during natural gas and oil extraction and is also a co-product of oil refining.6
While gas mains are connected underneath the house, LPG is bottled in a liquid form in metal, pressurised containers.
You’ll typically see LPG connected to barbecues, portable ovens, grills and fireplaces. Sometimes there will be a large LPG cylinder connected to the side of the home that’s connected to each gas appliance. You’ll need to get the container replaced or refilled when it runs out.
Meet our energy expert, Meredith O’Brien
As the Head of Energy at Compare the Market, Meredith O’Brien believes in educating Australian customers about the ever-changing gas and electricity market so they can adjust their energy usage habits and get the most out of their energy plans.
Meredith has seven years of experience within the energy industry, following 15 years in financial services. Meredith is a dedicated customer advocate who is passionate about empowering Australians to find the right products to suit their needs by removing the confusion from comparing.
How can I save money on gas bills?
If you use gas appliances at home, you could potentially save money on gas plans by comparing the available options in your area. Our free comparison service is easy to use, only takes minutes, and helps you compare energy plans including gas prices (such as usage fees, supply charges and tariffs) from a number of energy providers.
1 U.S. Energy Information Administration, Government of the United States of America. Natural gas explained. Accessed May 2026.
2 Australian Gas Networks. What is renewable gas? Accessed May 2026.
3 Australian Gas Networks. Power up your lifestyle and discover how to connect natural gas home appliances. Accessed May 2026.
4 Ian Cronshaw, Crawford School, Australian National University, Parliament of Australia. Australian electricity options: natural gas. Updated July 2020. Accessed May 2026.
5 Australian Government, Department of Climate Change, Energy, the Environment and Water. Electricity and energy sector plan. Updated September 2025. Accessed May 2026.
6 World Liquid Gas Association. Where does LPG come from? Accessed May 2026.