On January 13, 1994 the ratio(*) of the price of oil to the price of natural gas was 1.14.   Today it hit a 17 year record high of 5.26.   Gas traded at $3.28 today, just 21% of the $15.38 / mmBtu it traded for on December 13, 2005.   Shale gas is providing gas in volume at moderate cost driving this record high price disparity.

 

 

IMO, the impact of moderately priced gas hasn’t been factored into energy policy to any great extent.   Nor has the balance of the energy market had time to react.  And the media hasn’t realized this is happening.

But there should be many winners – combined cycle generation, CNG vehicles, chemical processing that uses gas, and gas consumers.  Why isn’t there a stamped into new fleet conversions to CNG….it’s way cheaper than gasoline?

The will also be disruption, - coal, climate change strategies, and renewable generation will be impacted.   Why sequester carbon when you can replace a coal plant with a super efficient combined cycle plant and emit 50% less CO2?

My prediction for 2012 – renewable electric generation, and its subsidies, feels some competitive heat in the US.

(*) The energy price ratio is the price of crude on a $/mmBtu basis divided by the price of natural gas on a $/mmBtu.  The crude prices used are the front month NYMEX contract for WTI crude at Cushing Oklahoma.  The $ per barrel price is converted to $/mmBtu using 5.8 mmBtu / bbl.   The gas price used is the front month NYMEX contract for natural gas at Henry Hub Louisiana.