Gas Price Warning as Cold March that Leads to Short Supplies - Essay Example

Article Review: Gas price Warning as Cold March Leads to Short Supplies The four key points highlighted in the first, and the second paragraph of the article are: The cold snap in March, Britain’s gas shortage in the month of March, Outsourcing or importing of fuel and electricity blackouts during the month of March. There are various economic concepts that can be applied in these four key points such as the supply and demand, cost of production, elasticity and market structures. In this paper, the two concepts that have been used are the supply and demand and the cost of production.

Firstly, gas shortage in UK according to the Harvey (2013) has resulted from the lack of gas storage facilities and the rapid depletion of the UK’s North Sea gas field. This has generated a decrease in supply of the gas in UK resulting in an increased demand for gas. This increase in demand is mostly expected during March, the coldest seasons in Britain. Due to an increase in demand, prices of inputs also go up which leads to the increase in the production cost. Secondly, the electricity blackout is the other key point where the supply and demand cost of production concepts are applicable.

The article illustrates “there was very real risk of the lights going out within the next three years” (Harvey, 2013, p.1). This was so because SSE intends to shut down its power plants due to high operation cost making the stations uneconomical, which would result in electricity shortage. This will reduce the supply of electricity to the nearest 2million homes that are being supplied by SSE. The shortage in power supply will lead to rise in demand for alternatives such as gas leading to increase in their prices.

Due to this increase, input prices will also go up, which will in the long run create a foundation for a rise in the cost of production of goods and services in Britain. Thirdly, another issue is the outsourcing or importation of gas from outside UK. With the encroachment of the cold season in March in UK, The demand for the gas increases, but due to low supply from UK suppliers the prices will go up making the country import gas from other countries like Russia and Norway. As illustrated by Spulber (2009), this will increase the cost of the production as importation of the gas will lead to increase in cost of inputs, which will further lead to increase in input prices hence higher cost of production.

Lastly, the cold snap, which is expected in the month of March, is a key point in the article with two economic concepts applicable to it. During this cold season, most people keep their houses warm throughout the day by using various heating mechanisms. This cold season always leads to increase in the demand for various heating mechanisms. However, with a decrease in electricity supply, more gas will be demanded. This creates the exhaustion of UK gas supply causing an increase in the prices of gas.

With the increase in the gas prices, the cost of heating these rooms and keeping various production machines running will increases the cost of production as more input will be demanded but at a higher cost. In conclusion, I agree with the authors comment on the gas price warning in Britain. During the cold seasons most, people require more power to keep their houses warm. Also, due to the warning by the Scottish and Southern Energy, one of the most UK’s biggest supplier that there will be electricity black out during that season.

This confirms that the electricity supply will go down, and most people and industries will turn to gas as the only option. As a result, the gas price will rise.ReferencesSpulber, Daniel, F. (2009). The theory of the firm. Cambridge.Harvey, Fiona (2013). Gas price warning as cold March leads to short supplies. The Guardian.Lawrence, W.C. Lai and Ben, T. Yu (2003). The power of supply and demand. Hong Kong University Press