Natural Gas prices are at an all time low. The fuel is at a ten year low in its pricing and exploration companies are really feeling the pinch at this stage. Gas costs less now than it did ten years ago but what’s even more surprising is the difference between it and Oil prices.

Our article earlier today showed that natural gas units were now less expensive than barrels of oil at a rate of more than 50 to 1. The discrepancy seems unbelievable and if believable unsustainable.
The reigning logic is that the energy source has to hit its bottom some time and many people familiar with the industry are saying that time is now. There is some support for that thesis but it is anything but iron clad as Natural Gas futures are now priced at under $2 dollars and there are no obvious signs of a recovery just yet.

Natural Gas (NYSEARCA:UNG) has suffered this decline simply due to supply and demand issues. Demand for the fuel dropped this year due to the unseasonably warm weather in the United States. There is also structural demand problems in the natural gas market that have led to an expectation of higher future demand even though that demand has not come around yet.

Seeing the difference between prices for oil and gas now is the time for demand to change as the gap rises. That demand is hoped to come from the home heating market and the use of natural gas to power vehicle, particularly heavy commercial vehicles. Such a move would change the structure of demand in the market and could be vital for growth in the industry. Some of the gas companies have actually started to convert their own drilling equipment.

That news was reported by Reuters today and showed that Chesapeake, one of the largest drilling companies had converted forty drills last year and other companies are following its lead.

Chesapeake Energy Corporation (NYSE:CHK) has been a leader in promoting the use of compressed gas fuel tanks for heavy machinery and is clearly trying to lead by example. The move within the industry makes sense and saves an estimated 20% on energy bills. The conversions cost $1-$1.5 million and so is capital intensive enough to put many companies off.

The real hope for demand in the sector is the use of gas in commercial heavy vehicles like buses, trucks and even military weaponry.

T Boone Pickens, a major proponent of a switch to natural gas, mad comment today on CNBS. He dealt with the supply problems in the market and says that changes there will raise the price of the fuel. Wells in North America have been closing at a high rate, 10-15 having stopped production last month alone according to Pickens, and the supply of the fuel is going down. There is the problem of potential supply, or gas in the ground, known deposits of which has jumped in recent years. The technology of hydraulic fracking has become widespread in the industry and makes it much easier for drillers to access these supplies making the gas in the ground quicker and easier to put into supply. Despite environmental concerns the technology is now a top tool for firms in gas exploration.

So have we reached a bottom in natural gas prices? The bottom of the market is probably coming soon but that doesn’t mean there will be a rebound in prices. Despite the lower supply a raise in prices will offer exploration companies a more stable market and one they will be likely to take as their sunken costs in rigs are massive.

There doesn’t look to be a quick change coming in the structure of the industry’s demand and though there will be an increase in commercial vehicles using the fuel it won’t have a significant effect on demand for some time.

The ease at which supply can be increased means a slow and steady increase in demand won’t bring a large increase in prices. The industry doesn’t seem likely to rebound quickly and natural gas doesn’t seem like a good investment for any expecting quick easy and high returns. The only thing that will have a significant impact on price in the near future will be a cyclical increase in demand from a change in the climate or another exogenous factor.