Interfuel substitution and cyclical volatility in US natural gas markets

Journal Article · · J. Energy Dev.; (United States)

OSTI ID:5753356

Considine, T J

Several long-held myths surrounding gas markets have evaporated in the shining light of economic realities. The first myth is that contracts are sacrosanct. Instead, many contracts have been nailed to the Marshallian cross. In other words, prices and deliveries of gas are determined by those age-old forces called supply and demand. The second myth is that gas is a premium fuel. Markets now clear at or below the price of residual fuel oil, which is hardly a premium fuel. Gas may deserve a premium for its clean-burning properties but it is relatively costly to transport from the wellhead to the burner tip. The price of fuel oil, however, is not heavily influenced by location because fuel oil is cheaper to transport. Thus, oil prices, unlike gas prices, are not very different around the nation. This uniformity in fuel-oil prices puts gas at a disadvantage because retail gas prices are determined by transportation costs and pipeline acquisition costs that result from contract provisions, which reflect market conditions at the time of negotiation and sheer historical accident in terms of who gets the best deal first. Finally, the gas customer base has changed. Many aggressive pricing programs by gas utilities and pipelines have not yielded big gains in unit sales volumes simply because many of their large industrial customers have vanished from the rate base. Furthermore, other large gas-consuming industries have radically scaled back their break-even levels of production. 6 tables.

• Research Organization: Bank of America, San Francisco, CA
• OSTI ID: 5753356
• Journal Information: J. Energy Dev.; (United States), Journal Name: J. Energy Dev.; (United States) Vol. 10:1; ISSN JENDD
• Country of Publication: United States
• Language: English

Related Subjects

03 NATURAL GAS
030600* -- Natural Gas-- Economic
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
294003 -- Energy Planning & Policy-- Natural Gas
CONTRACTS
ENERGY SOURCES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUEL OILS
FUEL SUBSTITUTION
FUELS
GAS FUELS
GASES
LIQUID FUELS
MARKET
NATURAL GAS
OILS
ORGANIC COMPOUNDS
OTHER ORGANIC COMPOUNDS
PETROLEUM PRODUCTS