The Cost of Gasoline vs. Natural Gas

I just wanted to share a quick back of the envelope calculation. I did not realize the price difference was this large, but it turns out that gasoline is about 5 to 6 times as expensive as natural gas on a per unit energy basis.

In November, Boone Pickens told CNBC that gasoline was about 4 times as expensive as natural gas, but it appears that he either underestimated the true difference in price or the price has diverged even further since his testimony. Those of you in the energy industry can just ignore this blog post, as I imagine you monitor this price differential on a daily basis and I won’t be saying anything you don’t already know, but I would appreciate any commentary you might have to offer.

Here in California I paid $4.80 last month for each block of 1,000 cubic feet of nat gas that I consumed from my local utility company. 1,000 cubic feet of natural gas has about 1 million BTUs of energy although it can vary slightly depending on where the gas came from. From this logic I paid $4.80 for each 1 million BTUs of energy that I consumed from natural gas.

Refined gasoline has about 120,000 BTUs per gallon, but again it depends on where the oil came from, the precise refining process, and how much ethanol and other additives the gasoline contains. Thus, it takes about 8 gallons of gasoline to produce 1,000,000 BTUs of energy. According to Gasbuddy.com the average price today in the USA for a gallon of gasoline is $3.35. Thus, it costs about $27.92 to produce 1 million BTUs of energy from refined gasoline.

Thus, gasoline is almost 6 times as expensive as natural gas on a per unit energy basis.

Ethanol is even more expensive than gasoline. Wholesale ethanol is currently trading at $2.59 per gallon. Ethanol has about 80,000 BTUs per gallon, which means it presently costs about $32.38 to produce 1 million BTUs from ethanol. This is the wholesale trading price and does not consider any mark up or taxes passed on to consumers at the pump.

I thought some of you who don’t pay attention to this type of thing might find this interesting. I think it shows that we really need to begin switching to natural gas automobiles soon. Ethanol is a complete waste of time in my opinion because it causes the price of corn and sugar to rise since it is made from those agricultural commodities.

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