Coal, Natural Gas, and Oil Price Trends: If these three fuels were perfect substitutes, the price trends would be identical. However, they are not perfect substitutes in all uses.
The shapes of oil and coal price trends (Figures 1 and 3)are similar and different from the shape of the natural gas price trend. But the extent of price increases is different for all.
The Price of oil has increased the most since January 2000. The price trend value now is about 4 times it's value in January 2000. Contrast this with the price trend for coal. This trend is only about 1.8 times its value in January 2000. While natural gas is about 3 times the January 2000 value.
A primary reason for coal prices to have increased half the rate of oil is the limited market and substitutability as well as the delivery cost of coal.
The transportation cost of coal is a big part of the delivered cost while the transportation costs of oil and gas are a relatively small portion of the delivered costs.
Domestic coal use has declined recently due to the economic conditions. The price has not declined, however, due to higher transportation fuel costs and increased foreign demand for U.S. coal. So, the increase in the price of crude oil has indirectly caused an increase in delivered coal prices. ("U.S. Coal Supply and Demand: 2008 Review," EIA, April 15, 2009)
Now I haven't checked this yet, but the increase in the price of crude oil probably caused an increase in demand for coal outside the U.S. where coal can more easily be substituted for oil. This substitution probably has been one reason that coal prices have not declined worldwide.
The natural gas market in the U.S. is essentially isolated from the rest of the world. It is a regional market. The price of natural gas outside of North America does not directly influence domestic natural gas prices.
Regulations in the U.S. are so stringent that LNG terminals cannot be constructed easily or at all. Thus, the price of LNG does not put a lid on U.S. natural gas prices.
Natural gas prices are more a function of domestic economic activity and availability of North American supply. To the extent that natural gas is substituted for oil, oil price increases have an influence on gas prices through an increase in demand due to cross price elasticity of demand.
The more vehicles are modified to run on natural gas, the more sensitive natural gas prices will become to changes in gasoline and diesel prices.
Crude oil prices are more a function of world economic growth and supply restrictions. The growth rates oil consumption in developing economies have been greater than the growth rate of the world crude oil supply.
The recession temorarily removed the consumption-supply upward price pressures. But the recession is a temporary condition.
The availability of LNG to the rest of the world can have a damping influence on crude oil price increases. There are incentives for countries rich in natural gas to cash in on rising energy prices through exportation of and use of indiginous natural gas.
Relative Price Comparsons: Figure 5 shows natural gas price and coal price comparisons to the WTI price. These prices are in dollars per million btu's. Both natural gas and coal prices have generally declined relative crude oil over recent years.
Figure 6 shows the trend lines associated with the lines in Figure 5. The trend lines give a simplified, clearer picture of what has been happening to energy prices.
The recession worldwide has decreased the difference in growth rates of oil demand and natural gas and coal demands. It only takes a slight difference between demand growth and supply growth to create an increasing price. This is what was happening to crude oil before the recession.
The trends, however, ignore the recession for the most part because there are not a lot of data points since the downturn. The trend calculated from the data in a year from now will most likely reflect a flatening as the decline in oil prices increases the ratios.
Figure 1: Coal Price Changes Relative to January 2000
Figure 2: Natural Gas Price Changes Relative to January 2000
Figure 3: Crude Oil Price Changes Relative to January 2000Figure 4: Coal, Natural Gas, and Oil Price Changes Relative to January 2000, Comarison
Figure 5: Natural Gas and Coal Price Changes Relative to Oil Price Changes
Figure 6: Natural Gas and Coal Price Changes Relative to Oil Price Changes - Trends