Newspaper article International Herald Tribune

The Great Gap in Gas Prices

Newspaper article International Herald Tribune

The Great Gap in Gas Prices

Article excerpt

Never in the two decades that natural gas and oil futures have traded have their prices diverged as much as they have now.

The price of gas has risen rapidly this year.

The price of gas has fallen to the lowest level in a decade.

Both of those statements are true. The first refers to gasoline, the second to natural gas.

As the accompanying charts indicate, never in the two decades that natural gas and oil futures have been traded have their prices diverged as much as they have now. On an energy equivalent basis, oil costs more than eight times as much as natural gas.

In the past week, the price of a million cubic feet of natural gas, or about 28,000 cubic meters, fell to less than $2.20 for the first time since 2002, while oil prices slipped a little but remained at more than $100 per barrel. The last time natural gas was this inexpensive, oil cost about $20 per barrel.

The diverging prices reflect the fact that while oil and natural gas can substitute for each other in some uses, the markets for the two products are very different.

Crude oil is a relatively efficient international market, in which the product moves around the globe in tankers that can be diverted from one destination to another almost instantaneously in response to shifts in demand. A sharp change in demand or supply in any region of the globe is likely to show up in prices everywhere.

Oil prices can also be affected by geopolitical concerns well before actual events take place. These days, it appears that oil prices have been pushed up by worries that Israel might attack Iran, leading to a drastic reduction in Iranian oil exports.

The natural gas market, on the other hand, is not a global one. There is a limited trade in liquefied natural gas, which can be transported in tankers, but mostly, natural gas must move in pipelines over land. …

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