Full Title: Leveling the Playing Field for Natural Gas in Transportation
Author(s): Christopher R. Knittel
Publisher(s): The Hamilton Project
Publication Date: June 1, 2012
Full Text: Download Resource
Description (excerpt):
Technological advances in horizontal drilling deep underground have led to large-scale discoveries of natural gas reserves that are now economical to access. This, along with increases in oil prices, has fundamentally changed the relative price of oil and natural gas in the United States. To illustrate this, Figure 1 plots the ratio of the oil prices to natural gas prices on a per-energy basis from 1975 to the end of 2011. As of December 2011, oil was trading at a 500-percent premium over natural gas. This ratio has increased over the past few months.
The discovery of large, economically accessible natural gas reserves has the potential to aid in a number of policy goals related to energy. For one, replacing oil with natural gas can reduce U.S. dependence on oil, thereby reducing the vulnerability of the U.S. economy to macroeconomic downturns caused by oil shocks. Second, because natural gas is cleaner in terms of greenhouse gas emissions and local pollutants compared to both coal and oil, replacing these other fossil fuels with natural gas can reduce U.S. greenhouse gas emissions and health problems associated with local pollution. Third, replacing oil with natural gas can increase U.S. profits associated with fossil fuel production and create excellent opportunities for the U.S. economy.