This time it’s Different (!)
At a macro level, the reality of higher gasoline prices is not quite as severe as prior cycles. While much higher crude oil prices have brought misery to drivers (including truckers), much lower natural gas prices are bringing pleasure to many of the same consumers. From 2004-7, higher oil and gas prices were additive, but lower gas prices have helped to mute the pain from 2007-11:
| Incremental Cost of Energy | ||||
| Millions of Dollars/Day | ||||
| 2004-2007 | 2007-2011 | |||
| Oil Related | ||||
| Gasoline |
315 |
360 |
||
| All US Oil |
630 |
720 |
||
| Natural Gas Related | ||||
| Residential |
56 |
-56 |
||
| All US Nat Gas |
220 |
-220 |
||
Relative to all energy inflation from 2004-7 ($850- billion — 7% of GDP effect), the current net inflationary effect is more like 3-4%.
Capital Spending is Back! More Domestic Winners from the US Shale Gas Boom – “Downstream” Capital Spending is Back
Low natural gas liquids prices, due in part to the shale boom, have turned North America into one of the lowest cost suppliers of chemicals, worldwide. Robust earnings results from Dow, Lyondell Basell, and the chemical arms of several oil companies reinforced the point. In the last month, both Dow and a Chevron-ConocoPhillips JV is planning a world scale cracker on an existing site – with numerous incremental expansion plans elsewhere in the sector. Chemicals exports, long in the 10-12% range until the mid 2000s, fell to a slight trade deficit, but are back to double digit levels. And rising.
Is it a matter of time before lower chemical costs drive increased sales (and jobs) to domestic markets? The unprecedented (20:1) oil:gas ratio has finally reached Washington, DC, where even some budget-cutting Republicans are increasingly attracted to some form of Natural Gas Act. Despite huge infrastructure headwinds (like electric vehicles), return-to-base natural gas fueled buses and waste haulers make sense. And, like electric vehicles, the incremental cost of battery or dual fuel capability seems to need price relief to win customers. However, at $3 gasoline ($3.50 diesel!) wholesale and under $2/gallon for an equivalent natural gas fuel, the real question is “When?” Well, in late March, AT&T followed through on a plan, with the first announced purchase of compressed natural gas (CNG) vehicles — the company will purchase 2500 Chevy Cargo Express Vans – as part of an 8000 vehicle program