It wasn’t that long ago when natural gas wasn’t the bargain that it is today. It was only a few years that natural gas was nearly $11 per thousand cubic feet or Mcf but now, in the first quarter of 2012, the fuel has hit a low of $2.08 per Mcf. (1) The reason for this drop in prices is simple to understand but what is even more important is how it will affect the average American consumer in the future.
Why is it so low?
You may have never heard the name T. Boone Pickens. If you were looking for the stereotypical Texas oil tycoon from years ago, T. Boone Pickens was that guy. He has made a fortune finding oil and has turned that fortune in to a profitable investment but this old school oil man has turned his back on the fossil fuel that made him rich.
Pickens believes that our reliance on foreign oil is much too high and in light of that, he came up with the Pickens plan which, along with its reliance on wind and solar power, wants to see natural gas become the fuel of choice in America.
America has the lowest natural gas prices in the world making it the obvious choice for a domestic fuel source but the reason the price has dropped is the most basic of economic concepts: supply and demand. Because of new, efficient ways to collect natural gas, there is far too much supply and with an unseasonably warm winter, America is running out of places to put the natural gas. Most experts agree that we have enough domestic natural gas to satisfy our energy demands for a very long time and it only makes sense to transition to this fuel.
How does that help me?
First, if you have a natural gas furnace, your heating costs were surely lower than usual this winter. This along with water heaters, stoves, dryers, and any other natural gas powered household items likely made you a little more happy after looking at your gas bill.
But there’s more coming. With natural gas this low, there is a renewed call to transition our vehicles over to natural gas. With gasoline sitting around $4 per gallon, natural gas would cost slightly above $2.50 for the same amount. This represents a 40% discount on our weekly fueling costs. As commercial vehicles make the switch, the costs of transporting food will also drop hopefully making our food costs more affordable.
In addition, more electric power plants are transitioning from coal to natural gas, driving down the cost of electricity.
What’s the problem?
The problem is that the infrastructure isn’t in place. There are only a relative handful of natural gas filling stations across the country. Six states currently have no natural gas filling stations and those that do may only have a few. Giving a car the ability to burn both natural gas and gasoline comes with an $8,000 price tag while installing a system that allows a vehicle to fill up with natural gas at home may cost $5,000 or more. That can make you think twice about selling your gas hog – it’s a lot of money to recoup before a savings is realized.
The Bottom Line
Natural gas is still in its infancy. As more filling stations come online and automobile manufacturers begin rolling out cars that can run on natural gas and traditional gasoline, natural gas will become as mainstream as gasoline over time and this will likely represent a substantial fuel savings for consumers.
Have any thoughts about the natural gas and the future? Leave a comment below!
References:
(1) http://geology.com/articles/natural-gas-prices/
{ 11 comments… read them below or add one }
Natural gas is plentiful and buried deep beneath America’s heartland. The price will continue to drop. I use natural gas to heat and cook. Couldn’t be happier with how little it costs me.
When we got our dryer, we converted it into a gas dryer for $50. Saved us a lot of money in the long run. India and other countries have been running vehicles on CNG for quite some time (and villages have used biogas from a long time for cooking and lighting). Hopefully, these technologies will become more available here.
My only concern with it is the fact that the price is low because demand is low. If vehicles start using it, the increase in demand will surely cause the price to rise as well. That’s basic economics.
I do like the fact though that we have enough in US so that we wouldn’t be dependent on another country to supply us with it.
I agree with MoneySmartGuides about the price increase.
Also, I know nothing about how natural gas is collected, but will we have to get around the tree-huggers who might fight collection, reinforcing reliance on more lenient/reasonable/rational countries?
Call me jaded, but I’m skeptical. I currently enjoy the low cost of natural gas in my home appliances, I fear in automobiles it would take the same turn as diesel, which now costs more than gasoline. If that happens I will end up paying more in my domesile too. Great.
I appreciate the srticle. However, I keep very close watch on my utility bulls from year to year. I know how much electricty I used last year for the same time. I also know how much gas I use in comparison. This past winter I used far less gas each month. My cost was between 18 and 22% higher for less gas. I was not a happy camper. It seems the more we conserve the higher the price. Utility co. are not cutting their expenses so they raise the price to make up the difference. It seems the government is more than happy to help them raise prices. The PSC says they have to prove the increase is needed, I have never known the PSC to decline a request for higher rates.
I agree Natural Gas is a great natural resource, however, the methods in which it’s extracted are still questionable. I personally know many families that have been impacted negatively (health and water) by natural gas extraction in their areas. There’s a good documentary about it: http://www.gaslandthemovie.com
Great analysis. I went to Oklahoma State so I’m quite familiar with T Boone, who has been an incredibly generous donor (500+ million to the university). I love the idea of transitioning to natural gas, but as T Boone said, there are some major interests fighting against it. He said the biggest is Koch, which makes huge margins on the fertilizers it makes from natural gas. I’m not much of a conspiracy theorist, but I definitely found this interesting!
Terry, remember, there is a certain base cost for the infrastructure and delivery to get that first CF of gas to your house. When your use drops, that base cost becomes a more significant % of your bill, and it is the part that does not go down. So please recheck you bills and see if it was really the cost per unit going up or the impact of the base cost cited above.
Well lets hope that this new technology can develop, through personally I doubt that substantial changes in the U.S. energy infrastructure could happen quickly.
Like you said, a big reason for the low prices is low demand. The prices will continue to drop until the demand for it grows. As the demand grows, the infrastructure for it will increase and some of the costs of building these infrastructure will most likely be passed on to the consumers. After these increases, I hope the natural gas prices will still be lower than oil prices.
Have you seen the movie Gasland?
Do you have any research on fracking and it’s effects on the environment and local esidents?