Journal Article

Natural Gas vs. Oil in U.S. Transportation: Will Prices Confer an Advantage to Natural Gas?

Aug 19, 2017 | Stephen P.A. Brown

Abstract

The U.S. Energy Information Administration (EIA) projects that U.S. natural gas prices will provide a substantial cost advantage over petroleum products as a transportation fuel during the next 30+ years. Although U.S. natural gas prices closely tracked those of world oil prices from the mid-1990s to early 2009, U.S. natural gas prices have been much lower relative to those for oil since early 2009. The break owes to technological change that substantially increased the supply of U.S. shale gas resources. Although recent weakness in world oil prices has restored at least some temporary comparability between U.S. natural gas prices and those for petroleum products, EIA projects U.S. natural gas prices will rise more slowly as world oil prices recover. Relatively weaker gains in U.S. natural gas prices would support the substitution of natural gas for other fuels—such as petroleum products in transportation—whether such substitution is driven by business or policy decisions. Will U.S. natural gas prices be sustainably lower relative to those for petroleum products so as to support the increased use of natural gas in the transportation sector? An interpretative review of current market developments and recent research finds the answer is yes.