Diesel is now six times more expensive than natural gas on an energy-equivalent basis in the United States, a gap that is unsustainable.

As Herbert Stein, chief economist to President Richard Nixon noted, if something cannot go on forever, it will stop. But how and when the gap closes is the single most important question facing oil and gas consumers around the world.

The financial incentive to substitute gas for oil is enormous. Cheap gas has already started to transform America's industrial landscape and transportation system.

On a global level, two parallel transformations are underway. A world gas market is slowly emerging as increasing volumes of seaborne LNG integrate the current system of separate national and regional prices. And the gas market is gradually becoming more integrated with oil as more users switch to gas.

Half of all refuse trucks sold in the United States last year run on gas. Chinese firm ENN Group has opened five public refueling stations for gas-powered trucks and plans to open 50 by the end of the year. Ventures backed by Chesapeake and Shell plan hundreds more.

On the railways, Burlington Northern-Santa Fe (BNSF), the second-largest buyer of diesel in the country after the U.S. Navy, has revived plans for gas-powered trains. BNSF could convert its entire fleet of 6,900 locomotives to run on a mix of diesel and up to 90 percent gas if the pilot is a success. Other Class 1 railroads such as Norfolk Southern and Union Pacific are partnering with locomotive manufacturers on the same idea.

Gas is also starting to replace diesel in a range of industrial engines. Oilfield services company Halliburton has converted some of the pressure pumping equipment it uses for hydraulic fracturing to run on a gas/diesel mix. Major engine manufacturers including Caterpillar, General Electric and Wartsila are marketing dual-fuel motors and retrofitting kits.

In manufacturing, companies making energy-intensive products including chemicals, fertilizers, steel, aluminium, tires, plastics and glass have announced 107 major new investments in the United States totaling $95 billion that will use up to 6 billion cubic feet of extra gas per day, raising industrial gas consumption by about a third.

The full list is contained in a letter from the Industrial Energy Consumers of America (IECA) to the Department of Energy that argues against the approval of gas exports.

Not all these projects have reached a final investment decision. But this week Austrian steelmaker Voestalpine became the latest company to confirm it will build a big new gas-fired plant, in this case to produce sponge iron, to take advantage of cheap gas in Texas, among other considerations.

Voestalpine's chief executive noted that natural gas prices on the Texas coast were about a quarter of those in Europe. "It would have been impossible to build a comparable plant in the European Union, not least because of a lack of competitiveness in terms of operating costs."

Others are trying to exploit the differential between gas and oil prices by building Fischer-Tropsch plants to convert gas into higher-priced diesel and jet fuel or applying for U.S. licenses to export liquefied natural gas (LNG) to markets in Europe and Asia, where gas commands a price nearer to crude.

Sasol has announced plans to build a gas-to-liquids (GTL) plant in Louisiana. Shell is reportedly examining a similar project in Louisiana or Texas. And the U.S. Department of Energy has received applications from 25 companies to export nearly 30 billion cubic feet of gas per day as LNG, more than 40 percent of what the country presently consumes.

More Price Convergance

The gas revolution is furthest advanced in North America, where hydraulic fracturing has had the biggest impact on gas output and the gap between gas and refined product prices is widest. But it is starting to be felt even in regions where the gas industry is relatively immature and fracturing has yet to be widely used.

China had 1.48 million vehicles driving on natural gas i