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Natural Gas or Electricity, Which Costs More? Why?

5/16/17

Which costs more, natural gas or electricity?

This is a tough question because you can’t go down to the local store and buy a bucket of electricity or natural gas. But if you could, it would not be measured out in inches, pounds or gallons. Electricity is sold in units of kilowatt-hours, and natural gas is typically sold in cubic feet.

Natural Gas Versus Electric PricingSo, if we want to compare energy pricing, we need to convert these two forms of energy to a common energy measurement, the BTU (British Thermal Unit). The BTU is a common denominator that puts electricity and gas on a level playing field, and helps us understand that $8/1,000 cubic feet of natural gas is actually less expensive than $.11/kilowatt-hour of electricity. By referring to the graph of average electricity and natural gas retail pricing in the U.S., you can see that historically, electricity costs more than 3 times the price of natural gas. Furthermore, U.S. businesses and homeowners can expect to pay 3.6-3.9 times the cost of natural gas for electricity in 2018.

Now that we know that electricity costs more than 3 times the price of natural gas, we might question if there is a simple reason for such a price disparity. The simple explanation is related to the efficiency of energy delivered to the point of end use. From the time natural gas is extracted, processed and distributed, approximately 92% of the source energy makes it to the end user. On the other hand, electricity is not quite as efficient when you look at source to site; only about 32% of the source energy that goes into generating electricity and distributing it makes it to the end user. This is related to substantial losses of energy in the conversion process to make the electricity. Since only one third of the energy purchased makes it to the end user, it’s no wonder that the cost of electricity is three times the price of natural gas.

So, next time you are shopping for a new water heater or HVAC equipment that can run off natural gas as opposed to electricity, keep this cost difference and the reason behind it in mind.

This content was originally posted by Eric Burgis of the Energy Solutions Center to LinkedIn on April 24, 2017.