Price Outlook

Natural gas has historically been less expensive than crude oil. To compare pricing between the two commodities, energy equivalency must be calculated. Natural gas is priced in dollars per million British thermal units ($/MMBTU). A British thermal unit is the amount of energy needed to increase the temperature of a pound of water by one degree Fahrenheit. Crude oil is priced on a $/barrel basis. There are 5.8 MMBTU of energy in one barrel of oil.

To compare commodity pricing, multiply the price of natural gas in $/MMBTU by 5.8 to get its energy-equivalent pricing compared to a barrel of oil. Natural gas sells at a significant discount to crude oil as shown in the graph.

Natural Gas & Crude Oil Cost Comparison

The difference in price on an energy equivalent basis between natural gas and crude oil has been growing. This widening gap is linked to factors such as supply and demand, and continental pricing for natural gas compared to global pricing for oil. The recent increase in the supply outlook for natural gas in North America has also reduced the price of natural gas compared to pre-2008 levels. As a result, the demand and supply outlook for natural gas suggests that there will be a strong difference in pricing compared to crude oil.

Increased use of natural gas in transportation is not expected to affect North American natural gas pricing given the gradual transition involved. Less than 10% of vehicles are replaced each year and not all vehicles will be suitable for natural gas depending on their range and refueling needs.