Global Oil Prices, "What's Behind the Drop?" Series: US Shale Gas Boom

The evolution in horizontal drilling and hydraulic fracturing technologies in US shale gas plays has led to a steady increase in the country's natural gas production during the last ten years. New global supply balances led to prices for natural gas in the US falling six times, from $12.6 per mmbtu in June 2008 to $2-3 per mmbtu since early 2012. The industry responded by rapidly decreasing new drilling activity since 2008, however, US natural gas output has continued to rise and now remains at the highest levels in years. 

Natural gas and petroleum are partially interchangeable energy sources. However, the price of oil in terms of energy equivalence was unusually high in recent years, a phenomenon abruptly mitigated by the sharp decline in global crude oil prices during the second half of 2014. The average crude oil price in Europe has narrowed particularly, with oil trading at $8.8 per mmbtu compared to $6.7 per mmbtu for natural gas. The US spread remains slightly greater.  

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