# Measuring Natural Gas (MCF)

An acronym equivalent to one thousand cubic feet

## What is Measuring Natural Gas (MCF)?

MCF is an acronym equivalent to one thousand cubic feet that are derived from the Roman numeral M for 1,000, combined with cubic feet (CF) for volumetric determination of natural gas.

Consider a well with the capacity to produce 500 MCF per day. The natural gas well’s daily production rate is 500,000 cubic feet. Since one cubic foot of natural gas is about 1,000 BTU (British Thermal Units) heat of energy, it means that 1,000 cubic feet (MCF) is equivalent to an average of 1,000,000 BTU.

MCF is a tangible, volumetric, and physical measurement unit, and it is based on pressure, temperature, and gravity.

### Summary

• MCF stands for a thousand cubic feet used as a unit value to measure natural gas’s heating value.
• MCS is the preferred unit value for financial reporting because of its accuracy and ease in accounting.
• Due care is needed when analyzing the financial results of oil and gas companies to avoid mixing up various units.

### Understanding MCF

MCF is conventionally used to measure the quantity of natural gas in the U.S., which uses the imperial measuring system. Conversely, thousands of cubic meters (MCM) are often used in Europe, where the standard of measurement is the metric measuring system.

The convenience of transactions and the information required in applications define the metrics of gas measurements. Some of the gas properties that may be measured include liquid volume, vapor pressure, or mass. The properties are affected by purity, temperature, and pressure.

The value of gas produced from the reserves is determined by its energy content, which is measured in joules. 4.2 Joules is approximately equivalent to the heat needed to increase the temperature of one gram of water at a standard pressure by 1 degree Celsius.

Due care is needed when analyzing quarterly financial results of oil and gas companies to avoid mixing up various units. Analysts can easily fail to notice that European Companies report natural gas measurements in MCM, unlike the U.S. companies, which report in MCF. It can result in uniform results because 1 MCM = 35.3 MCF.

Approximate conversion factor guides are used to standardize the reporting difference. The guides comprise six distinct conversion factors – barrels of oil equivalent, cubic meters, BTU, cubic feet, tons of liquefied natural gas, and tons of liquefied natural gas.

### Evolution of Natural Gas Accounting

Between the 1940s and 1960s, the energy industry primarily functioned as a source and transporter of inexpensive heating fuel. The federal government imposed regulations and controls in an effort to ensure the continuous availability of the less costly heating fuel. Notably, the continued supply was encouraged using a reasonable rate of return for investors.

The arrangement ultimately seemed perfect, given the continued availability of inexpensive heating fuel with a guaranteed ROI. The financial reporting process only required confirmation of what was expected in advance. During the period, the natural gas industry adopted the MCF as a standard unit of measure for industry-wide financial reporting.

Some of the investment activities that used MCF included writing contracts, presenting stockholder reports, structuring rate cases, and determining economic value. However, the emergence of the Organization of Petroleum Exporting Countries (OPEC) in the early 1970s led to changes in the natural gas industry.

As a result, the guaranteed ROI ceased to attract capital for investment, and eventually, the MCF fell short of showing the true economic value of natural gas.

### Accounting in MCF

BTU is another unit of natural gas measurement that succeeded MCF due to OPEC’s actions. The federal government used it as a pricing structure. Nevertheless, following the expansion of the gas-liquid processing activities, the BTU became ineffective in reflecting the economic value of natural gas.

Currently, analysts and accountants in the energy sector need to evaluate the standards used for calculating unit values. The three primary standards are MCF, BTU, and Gallons.

Accounting in MCF is still the most preferred method because of its ease and accuracy. However, the method presents the problem of identifying the actual economic value of natural gas.

The BTU or heating value can affect MCF unit prices. The value of entrained liquids is the central variable used in making investment decisions.

Entrained liquids refer to products contained in the natural gas stream in the form of vapor. They include butane, propane, and methane. Extracting or converting these products into liquids requires processing and is measured in Gallons per MCF (GPM).

### Special Considerations

Investment opportunities for natural gas are evaluated using the gas processor, which uses the GPM rate. Checking the data’s accuracy is the responsibility of the accountant. System balances and effective controls are maintained to ensure accuracy.

MCF is a simple and accurate unit value to work with since it represents an exact physical measurement of natural gas. Regardless, MCF is associated with problems when balancing certain BTU contracts, such as transportation and exchange agreements.

The central argument behind the challenges is that the BTU factors for natural gas delivered are different from that of MCF factors.

As a result, the U.S. Securities and Exchange Commission (SEC) requires major international oil firms with stocks listed on U.S. stock exchanges to use standardized reports for accurate assessment and analysis. These reports are called 20-F and are compiled annually.

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