Choose ONE product/service of a popular company or any company which is listed on a stock exchange market Contents Introduction 3 Demand and Supply Factors 3 Market Structure 3 Necessities to compete in the market 4 Elasticity Concepts 5 Efficient use of resources 5 Economic Growth 5 Unemployment 5 Inflation 5 Balance of Payments 6 Business Cycle 6 Reference 6 Introduction The company that has been taken in the essay is BG Group Plc, one of the leading oil and gas producers in United Kingdom…
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BG Group is one of the listed companies in the London stock Exchange (LSE). The British Gas plc divested Centrica and the company was created. BG Group marks its presents in 5 continents. Demand and Supply Factors First consider the demand side factors which include weather, demographics, economic growth, consumption of fuel, storage of the products and exports. The cyclical pattern seems to be the demand pattern for natural gas. The demand follows the step path in the coldest months while the opposite is the nature of demand in the hotter months (EIA, 2008). The demand tends to rise slightly in summer to meet the demand of natural gas for electric generators. Demand also increases when there is growth in the economy. Cyclical pattern is the nature of the demand curve. Storage of the produced is difficult for the companies in this sector and so excess supply cause a fall in the price level. The supply side factors are the capacity of the pipeline through which the transportation of natural gas takes place, drilling of the gas and technological advancement. The price of electricity also has a major role to play in the demand and supply frameworks of natural gas. As several competitors compete in the market, the price is set at the equilibrium level. Recently there has been technological advancement in the demand for natural gas. The rising electricity prices are the main reason for this situation. The appliances operated through natural gas can now compete closely with the electrical appliances causing demand to shoot up. The short term barriers affecting the supply of natural gas are availability of skilled workers and equipment, permitting and well development, delivery disruptions. The barriers that affect in increasing the supply of natural gas are onshore and offshore access, the financial environment (Natural Gas, n.d.). Market Structure The consumers of natural gas are now exposed to choice and competition. The government does not regulate the price mechanism. The price is set by the demand and supply conditions. Generally the price is set at the level where demand equals supply. (Soligo and Jaffe, p.2). The figure above shows the demand for gas over the past 30 years. The nature of international gas market is experiencing change. Bilateral contracts between the buyers and sellers are the characteristic of markets outside the U.S. The increased liquidity in the market has called for the emergence of non-contract LNG market. The producer owns the gas at wellhead and sells to the marketers, less developed countries and sometimes to the end users. The market for natural gas faces a significant setback. The market for other commodities can immediately react to the change in demand and supply conditions but this type of market takes time to react to such situations mainly because to increase the supply of natural gas it is required to lease land and acquire the permission of the government. Seismic work and drilling the path towards the pipeline needs a lot of time. The lifetime of the existing wells will come to an end at some point and the amount of production they are capable to produce involves uncertainty. Necessities to compete in the market The company should have access to non-competitive facilities at non-discriminatory terms and
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