While everyone is watching to see how low oil prices will affect U.S. shale drillers, natural gas production continues to rise. Each month, the U.S. posts new production highs (see chart), and 2014 is shaping up to be a record year for natural gas drillers. With production ratcheting upwards, the U.S. has been able to achieve record levels of storage injections, building back inventories after last winter walloped the east coast and depleted supplies.
The abundance of natural gas is allowing utilities to increasingly burn the fuel in power plants for electricity – a well-known trend that continues to accelerate.
But another sector also stands to benefit – the transportation sector. In particular, natural gas is likely to become a serious option for transportation fuels, particularly as an alternative to diesel in long haul trucking or in shorter fleet operations. It can either come in the form of compressed natural gas (CNG) or liquefied natural gas (LNG).
There are several advantages that natural gas has over traditional diesel or gasoline powered vehicles First natural gas can be a lot cheaper on an energy equivalent basis, generally a little more than $2 per gallon. There was certainly a much bigger disparity in prices earlier this year when gasoline prices cost more than $4 per gallon, but there is still a financial gain to be had (see chart below from U.S. Department of Energy). Moreover, crude oil prices won’t stay this low…