For anyone who hasn’t read or heard about it yet, there’s an oil-and-gas boom under way in the US. By some estimates, the US has three times the proven shale oil reserves of Saudi Arabia.
Thanks to new drilling techniques for extracting oil and gas from shale rock underground, the price of natural gas has plummeted to 10-year lows, creating a market-based incentive — no government subsidies required! — for truckers to convert to the cheaper, cleaner fuel. All of this has broader implications for the US economy.
The huge supply of inexpensive (to produce and to buy) natural gas has the potential to accelerate the return of manufacturing enterprises to the US. That trend is already under way as rising wages in China and higher fuel-related shipping costs reduce the appeal of outsourcing.
“Cheap natural gas is transforming the competitive economics of the marketplace,” says Daniel Yergin, the author of “The Quest: Energy, Security, and the Remaking of the Modern World.”
Natural-gas prices fell last week to a 10-year low of $2.27 per million British thermal units, half the price of eight months ago. After adjusting for the lower energy content, natural gas is now about 40% cheaper than petroleum fuel, according to calculations by the US Energy Information Administration. That’s why many trucking companies are choosing to convert. With the differential between oil and natural-gas prices at a record high, more and more homeowners are converting from oil heat to natural gas even though the switch may take anywhere from one to five years to pay for itself.
If the price trends continue, the focus may shift from concern about higher gas prices killing the economy (the glass is half-empty) to the realization that cheap natural gas can act as a tailwind (the glass is half-full).
Not everyone will be happy, of course, including President Obama. Cheap natural gas makes renewable energy even less competitive than it was before.