Why Isn’t Natural Gas at $19.50 Per Mcf?

This article is a departure from the usual format, but I want to discuss the current price of natural gas and its sluggish behaviour against the booming oil price. Traditionally gas was evaluated at its energy content which, when compared to the energy content of a barrel of conventional oil, was about one-sixth. This traditional measurement was used for years as a tool for evaluating gas reserves in barrels of oil equivalent (BOE). Therefore, it was a tool for setting the value of reserves in a single format.

Over the last half dozen years this traditional measurement has lost its validity as the price of natural gas has failed to maintain its place in a rising oil price environment.

The reasons for this disconnect are manyfold:

OIL IS A WORLDWIDE COMMODITY, GAS IS NOT

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