The Oil Drum

The current natural gas price of about $7.50/mmBTU is quite cheap relative to the going price for oil. Using the converion factor of 6:1, this gas price is $45/barrel of oil equivalent, less than half that of oil. At the current pricing, there is a huge incentive to convert gasoline cars to run on CNG, which BTW is the latest venture of T. Boone Pickens. In many parts of the world, the price of pipeline gas and LNG is tied to the market price for oil. Because North American natural gas production is now in terminal decline, increasing amounts of LNG will need to be imported to fill the gap. I believe it is inevitable that the price of natural gas will reach some sort of BTU parity with oil in most markets over the next few years.

Because I see oil reaching $120/barrel this year, I guessing that US natural gas will double in price to $15 this year. Even with this doubling, it will still be quite discounted relative to oil. A doubling of natural gas prices will put severe upward pressure on electricity prices in a lot of states.