On An Energy-Equivalent Basis Gas Is 79% Cheaper Vs. Oil

Includes: GAZ, OIL, USO
by: Mark J. Perry

I featured a post Friday about oil prices vs. natural gas prices with charts from Scott Grannis and Nathan Slaughter, and have two new charts to present above inspired by some charts in the NY Times last February (thanks to Ed Dolan for the link).

The top chart compares oil prices ($ per barrels) to natural gas prices back to 1994 for the energy equivalent of one barrel of oil, with natural gas prices converted at the ratio of 5.8 million BTUs per barrel of oil. The bottom chart shows the percentage price difference between oil and natural gas, on an energy equivalent basis, from January 1994 to November 2011.

The bottom chart shows that over the last 18 years, natural gas has been cheaper than oil on an energy-equivalent basis most of the time except for fairly short periods in 1996 (1 month), 2001 (5 months), 2003-2004 (7 months), and 2005 (4 months). For the last 33 months starting in March 2009, natural gas has been more than 50% cheaper than oil, and in November gas was cheaper by a record 79% ($95 per barrel for oil vs. $19.82 for gas).

Bottom Line: Thanks to the shale gas revolution, there's never been a time in recent history when natural gas has been cheaper when compared to oil on an energy-equivalent basis.