Editor’s note: This article originally appeared at Econbrowser with the title: Using Natural Gas
The figure below plots the price of crude oil in dollars per barrel and the price of natural gas on an equivalent BTU basis. Historically, the two prices had tended to stay fairly close together. But they began to diverge significantly in 2006. Even with the recent easing in oil prices, today you’d have to pay over $14 to get a million BTU in the form of crude oil, but only $2.30 if you were willing to use natural gas as an alternative.
That’s a lot of incentive to try to use natural gas for more of what we do with oil. And people are responding to those incentives. For example, Westport Innovations Inc. issued the following press release last week:
Westport Innovations Inc. (WPRT), a global leader in natural gas engines, has signed agreements with Caterpillar Inc. (CAT) to co-develop natural gas technology for off-road equipment, including mining trucks and locomotives. Caterpillar and Westport will combine technologies and expertise, including Westport (TM) High Pressure Direct Injection (HPDI) technology and Caterpillar’s industry leading off-road engine and machine product technology, to develop the natural gas fuel system. Caterpillar will fund the development program….
While the agreements initially focus on engines used in mining trucks and locomotives, the companies will also develop natural gas technology for Caterpillar’s off-road engines, which are used in a variety of electric power, industrial, machine, marine and petroleum applications worldwide….
Development programs will start immediately for both new and existing engines, combustion technology and fuel systems. Commercial production is expected to begin in about five years.
Producing and finding ways to use natural gas may be the most promising answer to the question I posed last year of what could America be good at? Consider also this report last week from Business Week:
Exxon Mobil Corp. (XOM) … plans to build factories that produce ethylene and plastics in Texas, joining a growing group of competitors racing to use U.S. natural gas to make chemicals.
A new plant at the company’s site in Baytown would produce 1.5 million metric tons of ethylene annually starting in 2016, pending regulatory approvals…
The Houston-area plants would “significantly” increase exports of plastics, Exxon said in the statement. Chevron Phillips Chemical Co. is planning a $5 billion ethylene project at its Baytown site and Dow Chemical Co. (DOW) is also expanding to use more gas-based raw materials that provide a cost advantage over oil-based production in Europe and Asia.
And if America can’t figure out how to use our natural gas, other countries can. Two weeks earlier, Reuters carried this story:
Energy companies announced two multibillion-dollar North American liquefied natural gas export plants on [May 15], adding to a lengthening list of projects aimed at shipping surplus gas overseas to take advantage of more lucrative markets.
Excelerate Energy, the U.S. liquefied natural gas company founded by Oklahoma billionaire George Kaiser, plans to develop the country’s first floating LNG export plant off the Gulf Coast, while Royal Dutch Shell (RDSA) has partnered with Asian buyers to build a plant in western Canada.
Though once again there’s a key U.S. sector that seems to be slower to recognize the new opportunities:
Despite the strong case to allow natural gas exports, the U.S. government is proceeding cautiously with the issue. The topic is seen as being politically sensitive and no decision is expected before the November elections.
America: Cheap Natural Gas Disrupts European Plans GEI News, 27 May 2012
Other analysis posts on energy
About the Author
Professor James D. Hamilton received his Ph.D from the University of California Berkley. Among his many scholarly recognitions, achievements and awards, he has also written and published on a variety of topics ranging from econometrics to energy markets. His graduate textbook concerning time series analysis has over 10,000 scholarly citations and has been translated into multiple languages. Currently he is a professor of economics at the University of California San Diego and writes for the blog, EconBrowser.com.