Changes in the Demand and Supply of Cooking Gas in the U.S - Research Paper Example

Changes in the Demand and Supply of Cooking Gas in the U.S Cooking gas is one of the basic items in the U.S whose demand and supply has been very unsteady over the last two financial years. These changes in the prices for cooking gas have led to shifts in the demand and supply of these items in the U.S. With the introduction of new technology that is essential in reshaping the production of natural gas in the U.S., the country has faced a new challenge in meeting the daily growing demand for natural gas products, particularly cooking gas.

The new engineering tools have resulted into boom in the supply of natural gas products, hence a change in the consumption pattern for cooking gases. According to the U.S. Energy Information Administration, the changing nature of supplies and production of natural gases in the U.S. is mainly attributed to the growing demand for these non-renewable natural resource endowments. This is because majority of Americans rely on natural gases to heat their houses and for home heating in general. Some significant amounts of these natural gases are used for cooking and other heating purposes.

The demand for natural gas often increases during winters as the residential consumption for natural gases for the purpose of home heating significantly increase. Natural gas has become a preferred energy source in the U.S. and has served as the replacement of the old and popular coal-fired generations and nuclear gas in some circumstances. The report by the EIA further revealed that the United States’ demand for natural gas has been fueled by the fast increasing industrial energy demand. The industries are preferring natural gas over other sources of energy given its economics value such as reduced negative externalities such as pollution and affordability.

However, the main challenge is the sustainability of the supplies of natural gases given that it is one of the natural resources whose supply is limited. The sector also faces competition for these resources from domestic consumption units of the U.S. Such booming demand for natural and cooking gases has resulted into fluctuation in the prices natural gas over the last two years. Over the first quarter of 2013, the industrial and domestic demand for natural gases increased by over 3 percent compared to the same period in 2012.

Following resurgence in the manufacturing industry of the U.S., the industrials sector witnessed a significant flexibility in the energy consumption pattern, with the many industries and manufacturing plants opting to replace coal with natural gas. According to the EIA, the increase in the demand for natural gas by the industrial sector was partly attributed to the Great Recession ongoing recovery. On the other hand, the low prices for the natural gas is another reason for the shift, hence demand push inflation for natural gases.

However, the inflationary pressure on these resources was sustained and contained, thus resulting into lower prices for natural gas products. It is this low price relative to other energy sources that caused the demand for these products to swell in during July 2013 as the house hold increased their consumption of natural has (cooking gas) for heating purposes. These increases in demand for natural gas with steady supplies for these resources gave rise to price increase as graphically represented below.

Price D1 S D P1 P0 D1 S D Q1 Q2 Qnty Following a shift in the demand from DD to D1D1 with supply curve remaining unchanged at SS, the equilibrium price for natural gas increased from P0 to P1 with a small change in equilibrium quantity from Q1 to Q2. Unlike oil whose price is expected to drop to an average of $91.18 per barrel by the end of 2013, the price for natural gas is expected to further climb by over 26% to $3.48 per million Btu, up from $2.75 million per Btu that it was selling at last year.

It is further feared that the upward trend in gas prices will increase within the next two years to reach a record high of $4.09 million per Btu while the price for oil is likely to drop to a record low of $94.12 per barrel. These changes in the prices of natural gas have given rise to speculative demand for natural gas in the U.S. In conclusion, given the price elasticity of demand for natural and cooking gases in U.S., any little change in the demand for these products results into a significant change in prices.

Therefore, the upward trend in natural gas prices is unlikely to continue as long as demand for these products keeps increasing. Work Cited http://why.knovel.com/all-engineering-news/2555-industrial-demand-for-natural-gas-rises-as-prices-fall.html