FRONT PAGE CONTRIBUTOR
Gas Reaches Record High as Gas Hits Record Low
On an annual basis, retail gasoline prices hit an all-time high in 2011. The average price for all grades was $3.576 per gallon, vs $3.299 in 2008.
Meanwhile, the shale gas revolution has set the stage for declining prices per mmbtu of natural gas.
The chart above shows the price of natural gas per million BTU delivered to the Henry Hub, a large pipeline interconnection point in Louisiana. The current ratio of oil price per barrel to gas price per mmbtu is about 33:1 ($100/bbl to $3.00/mmbtu), a historically low value. The energy equivalency is about 6:1.
Before the impact of the shale boom, a normal ratio was about 10:1. On rare occasion, the ratio has been below 6:1 for brief times.
Transportation and distribution add significantly to the price of gas at the retail level, but even there the gas price is about a 40% discount to oil on the basis of energy content.
Cross-posted at stevemaley.com.