I'm replacing the natural gas shutoff valve to my water heater with a
1/2" ball valve with a red handle. The existing valve is 2.0" long; the
replacement one is 2-1/4", which means that one of the iron nipples
fitting into it must be shortened 1/4". Problem is, I don't know if the
existing ones are standard lengths or one is custom cut and threaded.

The visible length of the nipple going into the existing valve is
4-9/16". The visible length of the nipple between the output of the
existing valve and the union just in front of the heater is 2.50". The
actual lengths of these nipples are longer by the amounts that fit into
the threads of the valve and the adjacent fittings. How much should I
increase the length of a nipple over the distance between the end of a
fitting and valve to account for the threads that go into the fittings?

Standard nipples sold in Home Depot and Lowe's vary in length by 1/2".
That's why I think one must be custom cut and threaded.

One other concern is the lace of slack between the input gas supply and
the heater. This suggests that those nipples must be exact lengths so
when tightened there isn't a leak.

The final concern is using a brass valve with iron nipples. Is this okay
with natural gas?

Here's a photo of the setup:

http://tinyurl.com/pyppcg

Thanks,

Ray