For U.S., natural gas is an alternative energy source for the next decade

By Money Matters Editors

What to make of natural gas? Well, if the United States is smart it will ‘make’ something of it, soon, as in making it a major energy source for at least the next decade, and perhaps for longer.

And the reasons are obvious enough: driven in part by a new technology called hydraulic fracturing, estimated U.S. natural gas reserves have increased 35 percent, mostly on the ability to access new or ‘unconventional’ gas sources, with estimated reserves totaling 2,074 trillion cubic feet in 2008, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee, The New York Times reported.

The technology is enabling exploration and extraction of natural gas in previously cost-prohibitive U.S. regions in Appalachia, the Mid-Continent, the Gulf Coast, and in the Rocky Mountains.

The new technology, plus producers’ reluctance to cut production, are two reasons natural gas is trading at 7-year-low prices, falling through the psychologically-significant $3 per million BTUs (MMBTUs) level. Further, traders say prices could fall to $2.25-2.50 per million Btus before demand picks up, assuming the U.S. economy’s recovery track continues to progress this fall. Natural gas traded Thursday down 18 cents to $2.53 per MMBTUs.



Natural gas beating oil on price

Further, with a price around $68 per barrel, oil is about 27 times the price of natural gas, compared to a historical average of about 8.4 times natural gas over the past decade. Traders say that gap will likely shrink as natural gas use increases, but natural gas’ price advantage on a dollar per energy unit delivered basis, will persist, assuming historical global oil demand growth during economic expansions.

The above more than tips the scale in favor of increased use of natural gas, where possible, across the U.S. energy platform: homes, businesses, electric power plants, and vehicle fleets. Currently, natural gas accounts for about 25 percent of the nation’s energy production, and 22 percent of electricity production: given the abundance of natgas and its comparatively low price, policy makers and business executives should do what’s necessary to enable  those percentages to increase.

And here’s another reason for increased use of natural gas: it’s a domestic U.S. energy source! Unlike oil, the importation of some of which results in a $200-$450 billion annual transfer of U.S. wealth to foreign producers and governments, natural gas production and consumption dollars are retained in the United States, creating domestic jobs and increasing the pool of funds for investment by American businesses.