Is Gas Or Electric Cheaper? Shocking Cost Difference ($2727,60 Per Year)

What is cheaper: gas or electric?

The age-old question. Pretty much every big household appliance you can think of – air conditioner, furnace, land mower, tankless water heater, fireplace, and so on – can run on either electricity or gas. The question ‘is gas or electric’ cheaper makes a lot of sense, and knowing the answer can save you $1,000s per year.

To adequately answer if natural gas is more expensive than electricity we need to compare 3 key parameters:

  1. Price of natural gas. Measured in cost per CCF (hundred of cubic feet) or in cost per therm.
  2. Price of electricity. Measured in cost per kWh (kilowatt-hours). Currently, the national average cost of electricity is $0.1319 per kWh.
  3. Energy efficiency of the selected appliance. Most electric appliances (like electric tankless water heaters, furnaces, space heaters, fireplaces) have almost 100% energy efficiency. Gas-powered appliances (like gas furnaces, gas tankless water heaters, etc.) have lower energy efficiency; in the 40% – 95% range.

Now, we can’t just say what is cheaper gas or electric from therm and kWh prices. For example, the average price of US natural gas for residential use in July 2021 was $19.94 per thousand cubic feet. The average price of electricity was $0.1319 per kWh. Does that mean that gas is almost 20-times more expensive than electricity?

Certainly not. To properly compare the price of electricity vs the price of gas, we have to put them on the same common denominator. We can’t compare apples and pears; that’s why we’ll compare gas vs. electric apples-to-apples.

On top of that, we have to factor in the energy efficiency of appliances that use gas or electricity.

What makes the whole is ‘natural gas cheaper than electricity’ even more complex are the ever-changing prices of gas. The price of electricity is pretty stable compared to the price of gas. Gas prices change depending on the:

  • State. According to the July 2021 state-by-state natural gas price statistics provided by Energy Information Administration (EIA), the price of 1000 cubic feet of gas costs was $22.81 in Texas, $15.80 in California, and $13.98 in Minnesota.
  • Year. In the 1980s, the price of 1000 cubic feet of gas costs was about $6. In the 2000s, it was about $13. Today, it’s about $15.
  • Month. Natural gas prices are seasonal. If we just look at 2021, the average price of 1000 cubic feet of gas costs was $9.68 in January, $10.51 in March, $14.13 in May, and $19.94 in July. You can check the statistics provided by EIA here.

We will calculate quite a bit to get an exact answer ‘is gas more expensive than electricity’ or visa-versa.

However, in most cases this will happen when we run the number:

You will be really shocked when you see how much gas is cheaper than electricity.

Ok, let’s start by putting gas prices and electricity prices on the same denominator

Gas Prices Vs Electric Prices (Apples-To-Apples)

The simplest way to compare gas vs electricity prices and answer if gas or electric is cheaper is to express both of these in terms of energy.

Price Of Electricity: Let’s take into account that the price of electricity per kWh doesn’t change all that much. We will use the $0.1319 per kWh average in all our calculations.

Price Of Natural Gas: EIA provides us with average price of natural gas per month. Let’s take year 2020 since we have all the numbers, and calculate the average price of natural gas in 2020 like this:

($9.4 (Jan) + $9.1 (Feb) + $9.8 (Mar) + $10.4 (Apr) + $11.7 (May) + $15.3 (Jun) + $17.4 (Jul) + $18.2 (Aug) + $16.8 (Sep) + $12.2 (Oct) + $10.9 (Nov) + $9.75 (Dec)) / 12 = $12.58 per thousand cubic feet

Henceforth, we will use the average price of natural gas of $12.58 per thousand cubic feet. If you follow along, you can insert the price of natural gas in your state, and get more precise information on what is more expensive – electricity or gas – in your state.

Our common denominator will be energy; measured in BTUs (British Thermal Units). You’re probably familiar with BTUs; they are a unit of energy frequently used in HVAC, especially for heating and air conditioning.

We will first transform electrical units kWh into BTUs. After that, we will transform the quantity of natural gas to BTUs:

Transforming Electricity (kWh) To BTUs

This is quite an easy task. We know that 1 kWh is equal to 3,412 BTU. The cost of this is $0.1319.

Let’s look at how much 100,000 BTU worth of electricity costs:

For 100,000 BTU, you would need 100,000 BTU / 3,412 BTU per kWh = 29.31 kWh.

Here’s how much 29.31 kWh costs:

29.31 kWh * $0.1319 per kWh = $3.87

That means that 100,000 BTU worth of electricity costs $3.87.

Alright, let’s now calculate how much 100,000 BTU worth of natural gas costs:

Transforming Natural Gas (kWh) To BTUs

EIA gives us a price per thousand cubic feet of natural gas. We have calculated that that amount of natural gas costs $12.58. Now we have to transform this unit ‘thousand cubic feet of natural gas’ to BTUs.

How do we do that? It’s a bit more complex than with electricity.

Luckily, EIA can help us out here with this simple formula:

$ per Mcf divided by 1.037 equals $ per MMBtu

Mcf is what we have; 1000 cubic feet of natural gas. We know that the price per 1000 cubic feet is $12.58.

MMBtu is 1,000,000 BTUs. The formula above tells us that if we divide our ‘per 1000 cubic feet’ price by 1.037 we get how much will a 1,000,000 BTU cost. Let’s apply this calculation:

$12.58 / 1.037 = $12.13 per 1,000,000 BTU

Now we know how much 1,000,000 BTU worth of natural gas costs. To compare this with the price of electricity (apples-to-apples), we need to know how much 100,000 BTU worth of natural gas costs.

This is quite easy: If 1,000,000 BTU costs $12.13, then 100,000 BTU (10-times smaller quantity) costs 10 times less. This 100,000 BTU worth of natural gas costs only $1.21.

Comparison Of Per 100,000 BTU Prices (Before Energy-Efficiency)

We now have both numbers for prices of gas and electricity. We can compare them:

  • 100,000 BTU worth of electricity costs $3.87 (on average).
  • 100,000 BTU worth of natural gas costs $1.21 (on average).

What we clearly see here is that natural gas is cheaper than electricity. Considerably so, in fact. The price of electricity is about 3-times that of the price of natural gas.

Is that the end of the story? Electricity is more expensive than natural gas?

Not really. We need to also take into consideration the energy efficiency of an appliance. That’s because all that $3.87 worth of electricity will be used (100% efficiency) while we will have losses when using natural gas.

This is best explained using this last real-life example:

Is It Cheaper To Heat My Home With Gas Or Electricity?

Let’s first calculate how much energy (in BTUs) an average household will burn throughout the winter heating season.

If we presume that a household has a 50,000 BTU furnace that is running continuously (24h per day) for 3 winter months (90 days), we see that the total heating needs amount to:

50,000 BTU/h * 24h * 120 Days = 108,000,000 BTU

To answer if it’s cheaper to heat your home with gas or electricity, we need to know how much gas or electricity we need to produce these 108,000,000 BTU.

Electricity is quite easy. We calculated that 100,000 BTU worth of electricity costs $3.87. How much does 108,000,000 BTU cost? Let’s calculate:

(108,000,000 BTU / 100,000 BTU) * $3.87 = $4,179.60 worth of electricity

$4,179.60 is quite a lot. Why is that? Well, simply because heating by using electricity is incredibly expensive. Heating by natural gas is several times cheaper.

How much exactly? Let’s figure it out:

First, we need to be aware that gas heating is not 100% efficient like electrical heating. The energy efficiency of furnaces is determined by AFUE value; you have anything from 70% energy efficient to 95% efficient gas furnaces.

Let’s say we have a highly efficient 90 AFUE gas furnace. That means only 10% of the energy-packed inside natural gas will be lost. That also means that to produce 108,000,000 BTU of heating output, we will have to buy this amount of natural gas:

108,000,000 BTU / 0.90 = 120,000,000 BTU

These extra 12,000,000 BTU are to cover the losses of not-100% efficient natural gas burning. Alright, how much does 120,000,000 BTU worth of natural gas cost?

We know from the calculations we have done that 100,000 BTU worth of natural gas costs $1.21. Here’s how much 120,000,000 BTU worth of natural gas costs:

(120,000,000 BTU / 100,000 BTU) * $1.21 = $1,452.00 worth of natural gas

As we see, heating with natural gas is much cheaper than heating with electricity. How much cheaper exactly?

Well, in our case we have seen that we would need to pay $4,179.60 per heating season if we were to use electricity. However, if we use natural gas as a heat source, we will only have to pay $1,452.00. That is a giant $2.727,60 in favor of heating with natural gas.

That answers it: It’s much less expensive to heat your home with natural gas than with electricity.

Do note that all of these are just rough estimates. The prices of natural gas and electricity are always changing and it’s not possible to exactly figure out how much heating expenses you’re likely to have.

Nonetheless, using this kind of calculation, you can pretty accurately answer if it makes more financial sense to use natural gas instead of electricity for your big home appliances in your state.

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