The price of natural gas

Natural gas used to be a relatively Cheap primary energy source, always at a discount to crude oil (on a comparative British thermal unit basis). It gradually evolved into a major resource during the 20th century — reaching a 24 per cent share of global primary energy in 1999. In the year 2000, natural gas prices in the USA rose to unheard‐of highs of $10/million Btu, ushering in a new era, with natural gas at a 120 per cent premium to crude oil. This clearly was a watershed for gas, somehow similar to the 1973‐74 watershed for oil prices. And similarly, any return to the status quo‐ante looks rather improbable, although a number of experts (alongside the International Energy Agency) still believe the 2000 price ‘spike’ to have been “only transitory” The consequences of higher gas prices (at a level equal to crude oil prices on a Btu basis) will be multifaceted and momentous, altering habits and uses in downstream industries and economic sectors, as well as providing added income for major gas‐exporters, such as Russia, Canada and Algeria. Another potential consequence of the 2000 watershed might be to propel US standard prices (such as the ‘Henry Hub’ spot) to international status and gas price‐setter, as the ‘WTI spot’ became an “international benchmark” for crude oils in the post‐1993 era. For the time being, the equality of gas and oil prices has become the new norm; but, in the longer term, a discount of crude oil relative to natural gas might be envisaged, as the latter is a cleaner fuel and emits less carbon dioxide when used.