Tuesday, March 13, 2012

On An Energy Equivalent Basis, Oil Is Almost 8 Times The Cost of Natural Gas

From Carpe Diem Blog, "Chart of the Day: Natural Gas Prices Fall to Fresh Record Low vs. Oil on an Energy-Equivalent Basis" by Mark Perry:
Source: Prof. Mark Perry, Carpe Diem Blog
With natural gas selling for about $2.30 per million BTUs, its equivalent price for the same energy as a barrel of oil would be $13.34, or 87% below the price of WTI oil at $104.71 per barrel. When measured on an energy equivalent basis, natural gas has never been cheaper than oil than it is today.
There are about 5.8 million BTUs per barrel of oil. One million BTUs of natural gas is selling for $2.30 or $13.34 for 5.8 million BTUs, the amount in a barrel of oil. $104.71 (price of oil)/$13.34 (price of same BTUs of gas as barrel of oil) = 7.85.

1 comment :

  1. 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.