July 2014, Vol. 241, No. 7

In The News

Report Points To Closing Oil-Gas Price Gap

A new CME Group report suggested that if natural gas only increases its share of energy use for transportation from the current 3% to the 7-10% range over the next five years, the result would translate into a dramatically faster closing of the energy price gap.

“If natural gas and crude oil come more directly into competition with each other as sources of energy for end-users, then the energy price gap might be closed in a matter of years,” the report said.

According to analysts for the derivative market group, the significant cost gap between natural gas and oil should logically set off market forces leading to a shift in usage patterns having the potential to close the spread over time. Decisions to invest or develop new uses of natural gas, however, will depend, in part, on how long those making such decisions expect natural gas to remain the cheapest source of energy.

Currently, from the vantage point of units of energy, natural gas gives a lot more energy bang per buck compared to oil – a whopping 330% energy content price gap, even after the polar vortex and deep freeze have raised natural gas prices.

To that point, the report said, “Even after taking all the global and regulatory risks into consideration, we believe the consensus among market participants suggests an extremely long time frame for closing the US energy price gap.”

The report said whether the gap shrinks because natural gas prices rise or crude prices fall is “another story, determined by a plethora of factors and involving much more impact from global factors.”

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