Price ratio of crude oil to natural gas increasing

Energy Information Administration ^ | 4/20/2011 | Energy Information Administration

[thackney]

The ratio between the spot prices of crude oil and natural gas is a measure of the market's relative valuation of these two fuels. This ratio climbed rapidly in 2009 peaking near 36 on September 4, 2009 and remains very high in comparison to to typical valuations over the past years. In the five years prior to 2009, the ratio averaged about 9. The 2009 increase was driven by both an increase in oil prices, and low natural gas prices held down by increasing shale gas supplies and a mild hurricane season. The ratio has remained high, averaging close to 30 since the beginning of March 2011.

The crude oil-to-natural gas spot price ratio also has implications for both production and consumption. On the production side, a higher ratio encourages operators to drill for oil in preference to natural gas and makes natural gas liquids developments more commercially attractive. This ratio can also influence operator's decisions about where to drill within a supply basin. High crude to gas ratios have encouraged operators to deploy rigs in "oily" (liquids-rich) parts of supply basins containing both oil and gas.

On the consumption side, the crude-oil-to-natural gas ratio also affects end-user decisions–encouraging end users to choose natural gas over products derived from crude oil, such as distillate and residual fuel oil. High relative oil prices limit the role that oil now plays as a substitute fuel for power generation. Increasingly, electric power plants rely upon oil only when natural gas is unavailable or when spot natural gas prices rise to very high levels usually due to winter natural gas pipeline constraints, especially in the Northeast.

[thackney]

[Flintlock]

Is there something WRONG with the gasoline/cng hybred car?
You can get/convert them all over south America.

EPA? Just asking..............

Should be one helluva lot cherper to run.

[dirtboy]

Is there something WRONG with the gasoline/cng hybred car?

We probably need a lot more cng refueling stations to make them viable in the U.S. - but I agree it's an idea whose time has come here, given all the NG shale reserves we are discovering.

[thackney]

Just to be clear with descriptions, that is not a hybrid but a dual-fuel engine.

I think we will see a lot more CNG fueled vehicles. The efficincy should be higher with a CNG only design but dual-fuel gives you more options.

Dual-fuel may be another way for this market to grow. It is a chicken-or-the-egg problem. You won't get many people who want to own a CNG vehicle until there is enough fuel stations. You won't get many fuel stations until there are enough CNG vehicles on the market.

I have always thought the home refueling system was the way this market would take off. However, dual-fuel would also allow this market to grow quickly.