Natural Gas at 10-year lows as diesel hits retail records in Europe

Whatever happened to fuel switching between natural gas and diesel? The switch from diesel to natural gas is one of the biggest types of fuel switching in transport. You see this with all the buses now running natural gas instead of diesel. Other companies with fleets of cars and trucks are making the switch too. So, peak oil or not, you know something is not right when diesel fuel is hitting record highs across Europe and Gasoline is edging toward $4.00 a gallon in the US while natural gas prices are at 10-year lows.

Here’s what the EIA says about fuel switching in the manufacturing sector:

A fuel may be completely or partly nonswitchable. In the case of it being completely nonswitchable, it often means that the configuration of the plant’s equipment would not allow another fuel to be used in place of the one currently being consumed. Even when an establishment has the ability to switch a portion of its consumption from one fuel to another, it could have a certain amount for which it cannot substitute. The term used to describe both types of situations is, “nonswitchable minimum requirement.” For example, a plant may use natural gas in both a boiler and specialty oven used to dry paint. In the boiler, all fuels used may be completely interchangeable. However, in the oven, using something other than natural gas may alter the pigment of the paint. In that case, the natural gas would be nonswitchable. Other reasons a fuel may be partly nonswitchable are the practical considerations such as in-place take-or-pay contracts with a supplier or environmental restrictions that limit the amount the establishment can consume during a specified time.

They then provide a chart of switchability based on decade old data. I bet the numbers are higher for natural gas today. In any event, this is something I have been watching in awe and I suspect portfolio preference-based speculation is a large part of why there is such a dichotomy. Does anyone have more information? Also, why are companies drilling shale oil wells when the spot market is cratering?

The CNBC video below talks about the record levels of natural gas storage and one guest sees natural gas breaking below $2 until production comes down.

  1. Lyle says

    One major factor is that natural gas is a North American market while diesel and oil in general is a world market (plus or minus the problem of getting oil out of Cushing Ok).
    The natural gas price in Europe is much higher than in the US, partly since it in large measure comes from Russia. The price in Europe is about where it was at its peak in the US in 2007-2008. In the UK its about $9 compared to $2.50 in the US. (Let alone what the price in Japan is now with all the nuclear power plants offline). So in Europe according to Business Week the natural gas price is linked to the price of oil, but because of the shale gas boom in the US it has unlinked in the US. (Else why build LNG plants in Nigeria and Angola)

    1. Edward Harrison says

      Thanks for that, Lyle. Any thoughts on the plans for LNG terminals in the Gulf and the impact that could have?

      1. Lyle says

        The question with respect to the export terminals is does the US just want to supply the Gas or get the jobs that go with making things with the Gas, such as fertilizer and plastics, as well as yield cheaper electricity. Given that big terminals are being built in Nigeria and Angola. So its partly a question of how many jobs we want in the US. My thinking would be to decline the LNG terminals in favor of exporting more finished goods, but then its a question of the political power of the various sectors of the economy.

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