Natural Gas vs Oil Prices: What Does It Matter?


Image: Real Clear Energy

[Vaclav] Smil selected the above figures, which chart the divergence between natural gas and oil prices over the last four years. “[There are] too many choices possible,” he told the Post, “but here is one epoch-making trend: as the post-2008 rise of hydraulic fracturing drove U.S. natural gas prices down and increased the supply (in 2013 the U.S. will be again the world’s largest natural gas producer) oil and gas prices, traditionally moving in tandem, have diverged significantly. History is being made.” The price divergence has sparked signs of a manufacturing revival in the United States and spurred efforts to substitute gas for gasoline and diesel fuel in cars and trucks. The trend is indeed driving historical changes _ http://www.realclearenergy.org/charticles/2013/12/30/vaclav_smils_graph_of_the_year_107438.html

Vaclav Smil is a Canadian academic who is well known for his analyses of energy trends. If he thinks the oil price : gas price divergence is an important energy trend of the year, brighter people should pay attention.

More important than the substitution of gas for gasoline and diesel fuel in cars and trucks, is the movement toward “gas to liquid fuels” processes, and “gas to industrial chemicals” processes. These trends will significantly reduce demand for oil in transportation, agriculture, and industry.

The ultimate death of “peak oil doomerism” will occur once new generations of very high temperature nuclear reactors are produced cheaply and reliably in mass production factory settings. Cheap production heat from these nuclear reactors will make viable a wide range of new processes for turning cheap natural gas (and coal, bitumens, kerogens, gas hydrates, etc) into more expensive fuels, fertilisers, plastics, lubricants, industrial chemicals, and other materials.

Al Fin has been following the divergence between gas prices and oil prices for a number of years now. Market forces will continue to drive this divergence as long as they are allowed to work. The economic and energy repercussions of this trend are likely to be significant, unless bad government policies of the green lefty-Luddite dieoff.orgy variety are implemented by incompetent governments in Europe and the Anglosphere.

From Al Fin Energy:

http://alfin2300.blogspot.com/2012/06/dynamic-energy-markets-underlie-price.html

http://alfin2300.blogspot.com/2012/09/oil-prices-debt-and-demographic.html

Fiscal Breakeven articles

“Fiscal breakeven” is a different concept than “production costs,” and applies to the viability of governments that are largely financed by oil & gas revenues — such as Venezuela, Russia, Iran, the Arab Gulf states, etc. For example, Saudi Arabia is doing very well in terms of production costs, but because of its generous welfare disbursements it runs the risk of falling below fiscal breakeven if oil prices drop significantly.

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3 Responses to Natural Gas vs Oil Prices: What Does It Matter?

  1. Craig says:

    I think to your point about the government or the greenies spiking the new energy paradigm is the wildcard. It could only be good news for the middle class to have companies repatriate there manufacturing operations. But I see the government rubbing their hands together with visions of a new taxing opportunities and any savings the company would see with reduced energy costs would disappear anyway. That is if they even win the inevitable fight with the green movement.

  2. alfin2101 says:

    When anticipating Obama administration and US government policy-making, it is best to focus on “crony capitalism.” Obama staffers understand how lucky they were to win the last national election, even with a large degree of voter fraud in large city precincts across the country.

    Some crucial states that Obama “won” by a tight margin were economic beneficiaries of gas and oil fracking. If Obama pulls the trigger on fracking too soon, he and his cronies lose. Obama’s cronies include the largest Wall Street investment houses as well as trial lawyers, environmental lobbies, government unions, Hollywood moguls, tech billionaires, and corrupt green billionaires.

    Just as the one’s political machine delayed Obamacare, IRS scandal, and Benghazi details until after the election, so does the EPA et al delay damaging policies until after the next congressional elections in ’14. Obama’s most used strategy has always been to vote “present,” not committing himself.

    Of course theoretically, the Obama machine wants another Democrat to win the presidential election in ’16, in part because many operators in the Obama machine hope to be able to shift to the political machine of the next Democratic party presidential administration. So that complicates the degree to which the Obama machine can sabotage the US economy — until the ’16 election results come in.

    Clinton behaved the same way, saving most of his poison pill executive orders until the election results were decided by chit and by chad.

    • Craig says:

      Enter Sarah Palin circa 2012… She made one of the best speeches I’ve heard on the subject of crony capitalism. I’d guess she probably wrote it herself too. It got a modicum press at the time, but because she had been so thoroughly marginalized by the MSM the only ones listening were the so-called Tea Party (you know the racist, women hating patriarchs). The poor Tea Party might be the only thing attacked as vociferously as Sarah Palin was.

      The unadulterated scorn on her was because she actually threatened the socialist/crony capitalist cabal. The cowards in the Republican party left her hung out to dry. So we get Obama. He may be socialist/communist in his heart but crony capitalism is his vector. Jan 20th 2017 can’t get here soon enough…

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