Friday, March 27, 2015

Natural Gas to Gasoline GPM% Compared to Crude Oil to Gasoline/Diesel GPM% Data

The graph above was created based on US Energy Information Administration (EIA) crude oil, gasoline/diesel, and natural gas price data from January 2001 to December 2014.  (Click here, here, and here to find this data.)   Based on this EIA data and assumptions about the quantities of gasoline and diesel that are obtained from crude oil and natural gas, gross profit margin percentages (GPM%) were computed for gasoline/diesel sales from crude oil and gasoline sales from natural gas.

The resulting monthly GPM% results for both crude oil to gasoline/diesel and natural gas to gasoline were then used to create the graph.  The X-axis is the range of crude oil prices, per barrel, over the period January 2001 to December 2014 (sorted from lowest to highest).  And the Y-axis is GPM% values.   The blue line shows the monthly GPM% of selling gasoline and diesel produced from crude oil against monthly Brent crude oil prices.   The red line shows the monthly GPM% for selling gasoline produced from natural gas against various crude oil prices.

Based on EIA information, 12 gallons of diesel and 19 gallons of gasoline are obtained (on average in 2013) from 1 barrel of crude oil.  Using this output quantity and EIA per gallon market prices, a total sales price for the diesel and gasoline produced from one barrel of Brent crude oil was computed for each month.  The cost of material sold is the Brent monthly market price.  From these values, a monthly gross profit and GPM% were computed and plotted against monthly Brent crude oil prices per barrel (shown by the blue line on the graph).

From several sources found on the Internet, an estimated 5 gallons of gasoline can be obtained from each thousand cubic feet of natural gas.  And, from EIA monthly data for the industrial delivery price of natural gas and the monthly gasoline market prices, monthly GPM% were computed and plotted against the monthly Brent crude oil prices per barrel (shown by the red line on the graph).

No other costs were considered in computing the GPM%; other than the cost of the input material (crude oil and industrially-delivered natural gas) – costs obtained from the EIA.  Therefore the GPM% is only for sales prices less cost of raw material.  

The graph indicates that as the price per barrel of Brent crude oil increases, an increasing GPM% divergence clearly shows in favor of the natural gas to gasoline conversion compared to the crude oil to gasoline/diesel conversion.  This begins to happen in the $65 to $70/barrel range.

This divergence is consistent with what seems to be an increased commercial interest in recent years with gas to liquid conversion processes.

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