Although energy stocks are broadly all linked as a single commodity, the reality is that the different means of developing power for people’s homes are very separate. The difference between oil and gas is perhaps one of the most obvious examples of how two fuel sources have not yet reached parity.
Natural gas, for now, is the inferior little brother of oil. Oil is a global commodity, whereas natural gas is only a regional commodity. What that means is that oil prices are generally quite stable worldwide, whereas gas prices can vary hugely from country to country depending on who is supplying it.
The main reason for these price discrepancies is transportation. Transporting gas is a niche market at the moment and anything that is in limited supply is extremely expensive. Oil tankers are readily available and are the established method of transportation method for fuel. Oil has the advantage over gas of an historical infrastructure, which keeps costs down.
On the other hand, gas is the better of the two fuels. Natural gas has the advantage of being cleaner to burn, creating less carbon emissions, and there is no risk of disastrous spills, as there is with oil. However, gas is expensive to get from one side of the world to the other, and that’s what makes it unworkable.
In the Middle East, both oil and gas are abundant. As gas has no real market value to the major world producers of oil though, it is used to drive more oil through the wells. Natural gas is pumped underground to raise the oil levels which make them easier to extract. Without the ability to easily transport the abundant gas to where it is needed, the oil producers have no need for gas as a fuel source.
As new techniques for gas delivery are made on a global scale though, gas could emerge as more dominant and less of a regional source of energy. Liquefied Natural Gas (LNG) is a part of the solution, which temporarily transforms gas into a liquid that not only takes up less space but is also easier for suppliers to handle in transportation. As gas becomes a more readily transportable commodity, parity between gas and oil may finally be reached. Experts expect it to be at least a decade however, before gas can catch up with the might of the oil companies.
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