Natural Gas - Partner and Competitor

Abstract

Abstract While producers look upon natural gas as a source of added income, it is also a direct competitor to products of crude oil at the consumer level. The growth rate of natural gas consumption has been greater than that of crude oil. This growth can be attributed mainly to the lower price per unit of energy for which gas is sold. The increase in the consumption of natural gas has had as great an impact on the domestic producer as have crude oil imports. The lower price of natural gas and its increased use have had the net effect of keeping the average wellhead price of hydrocarbon energy at approximately the same level for the past 30 years. Therefore, it appears that many of the domestic producer's troubles today are caused not so much by the fact that he is selling two competing forms of energy, but that he is forced to sell one, natural gas, below its true market value because of artificially depressed prices. The best remedy for this situation lies in the freeing of natural gas prices from control and allowing them to compete in the open market. Every domestic producer of crude oil has a big stake in the solution of this problem whether he sells gas or not, since his oil is forced to compete with the under-priced gas for a portion of the energy market. Introduction The purpose of this paper is to emphasize the fact that natural gas is much more than just a source of additional revenue to the crude oil producer. We must recognize that while a small fraction of crude oil is used to make lubricants and for chemical feed stock, most of it is used as a source of energy. Natural gas, along with coal and other energy fuels, also serves the U. S. energy market. Consequently, natural gas is a competitor to crude oil at the consumer level, and the supply and price of natural gas are having a significant effect on crude oil demand. There is some question as to whether natural gas now is more important to oil producers as a source of revenue or as a competitor; however, it is reasonably certain that if artificial control of gas prices continues, the importance of gas as a competitor will grow much faster than its importance as a revenue source.