The chart below is an update of one I've featured before showing the percentage price difference between natural gas on an energy equivalent basis from January 1994 to February 2013. To compare oil (priced in dollars per barrel) and natural gas (priced in dollars per million BTUs) on an energy-equivalent basis, natural gas prices have to be increased by a factor of 5.8, because one barrel of oil produces 5.8 million BTUs of energy.
Relative to the price of oil, natural gas prices have been falling steadily since early 2006, and are now almost 80% cheaper than oil on an energy-equivalent basis. In February oil was selling for an average of $95.32 per barrel, and natural gas was selling for $3.34 per million BTUs. At a multiple of 5.8 times to equal the same amount of energy produced by a barrel of oil, natural gas was selling for the equivalent of only $19.38 per barrel. That's a real game-changer and is providing huge cost-saving incentives to switch from gasoline to natural gas and its derivatives to power vehicles, especially the commercial variety.
For example, consider this report from AutoBlog today:
Thanks to the precipitous drop in prices for compressed natural gas (CNG) and liquid propane (LPG), fleets can save a fortune by switching over to these fuels. OEMs such as Freightliner and Thomas Built Bus have jumped into the market. International now offers the Transtar Class 8 semi (above) that runs on CNG. A cost calculator on the truck maker's website shows that a fleet can save well over $150,000 in fuel costs over the six-year life of a truck. For fleets that run their per-mile operating costs to the penny, this is a financial windfall.
Ford, General Motors and Chrysler now offer commercial trucks that can run on these fuels. Ford is the most bullish, offering 10 different models. It charges $325 to add harder valves and valve seats so a truck engine can accommodate CNG or LPG, but a customer must spend an additional $10,000 or so to add the tanks and fuel system. Even so, for many fleets, which can easily put 100,000 miles on the odometer a year, the payback only takes two years. Ford says its sales of these vehicles, while still small, have shot up 350 percent since 2009.
With an 80% cost advantage over oil, we can expect a future with a lot more vehicles powered by CNG and LPG, because as the article points out, the "savings are simply too big to ignore."