Economics Professor Explores Price Gap between Oil, Natural Gas Prices
Tuttle, D Ray, THE JOURNAL RECORD
A shift in market forces has led to a separation of crude oil and natural gas prices in the United States, an economics expert said.
The price gap between the two commodities is unprecedented, said Stephen Brown, professor of economics and director of the Center for Business and Economic Research in the Lee Business School at the University of Nevada, Las Vegas.
Oil has traded above $100 per barrel since February. Natural gas prices have toppled to $2 per million British thermal units, from $4.85 in June of last year. In the Mid-Continent, 1,000 cubic feet of natural gas roughly equals 1 million Btu.
The price divergence between the two has never happened before, Brown said.
"In fact, there is more of a competition between natural gas with coal," Brown said.
The reason for the competition is that natural gas and coal both are used in electric power plants.
"Natural gas prices are being set in competition with coal, which is very low," Brown said.
There has been a long-term relationship between crude oil and natural gas prices in the U.S.
"But, with a widening difference in recent years," Brown said.
He will lecture at 8:30 a.m. Wednesday during the 66th Conference of Accountants in the Lorton Performance Center at the University of Tulsa campus. Brown's topic will be "Making Sense of Natural Gas Prices - An examination of the forces shaping U.S. natural gas prices - including technology, demand and other energy sources."
Brown spoke with The Journal Record in a telephone interview Thursday.
The prices are a break from recent history, Brown said. Until mid- 2009, he said, there was a relationship between natural gas prices and crude oil prices.
"But, from that time on, the prices of the two commodities really went in different directions," Brown said. "Then we began to see the relationship less and less."
There were signs of the prices going in opposite directions as late as 2008, he said.
"We began seeing a surplus of natural gas in 2008," Brown said.
Oil prices collapsed in 2008 and for the next year prices went up. But in '09 oil started moving up toward $100 per barrel, while natural gas prices began to slide. …