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!