Tremendous Growth in the Global Trade in Gas - Research Paper Example

Gas Price The price of gas has not been stable for several years in the global, regional, national as well as local levels. Many features have caused gas prices to escalate and this has caused many impacts to businesses as well as individuals. This paper will analyze various aspects of gas prices including its relation to the price of oil and the determination of gas prices. In addition, the paper will address the causes of escalating gas prices, impact of this increase in prices and recommend some solutions to this issue. Introduction There has been a tremendous growth in the global trade in gas. In the past years, there was no advanced pipeline infrastructure. In this regard, gas trade only occurred regionally. However, due to the availability of Liquefied Natural Gas (LNG) transport capacity, international gas trade have become more popular (Siliverstovs et al, 1). Gas prices are of irrefutable significance to consumers and economies at the grassroots, state, and nationwide levels in the United States and overseas. Oil imports offer a noteworthy proportion of North America and Europe’s refined gas, nevertheless, the international oil market is disreputably unsteady, and can create unexpected “price spikes” or “price shocks” (Bomberg et al, 1). Thomas indicates that increases in the gas prices pose a great problem to the consumers in general as well as to the global market. In this regard, it can affect most individuals and families by increasing their budgets. In addition, the various aspects that lead to increases in gas prices may appear mysterious to many people (1). Determination of Gas Price The determination of gas prices varies according to various regions. For instance in Europe, the energy sectors set the prices of gas in a manner that prevents the consumers from diverting to the alternative fuel. They do this by setting the level of the price on a platform that places the two options on a complex price relation. The price for the gas manufacturers derives from the customer prices for the cheapest substitute fuel following the netback market value model. This means that the gas producers carry the burdens of the fluctuations in oil prices. These extended indentures comprise the prospect of price reconciliation to adjust to the oil price every three to six months (Siliverstovs et al, 3). Generally, lasting prices occur through a price band where manufacture and distribution cost delineate the floor, and substitute fuels in the power sector the ceiling. If gas prices remain exterior to that band for a phase of some years, the effects will be either inadequate supply or sluggish market growth. Since different European nations and regions will have dissimilar gas delivery costs and diverse power generation options, price trends might fluctuate all through Europe (Stern, 31). Various economic aspects provide a strong correlation between oil and gas prices. Market behavior and changes in demand and supply assert that precedent changes in the oil price affected adjustments in the natural gas price (Villar & Joutz, 2). This correlation is evident since gas production occurs in relation to oil production, which depicts changes in oil prices pushes changes in gas prices. This correlation occurs in another level, which is through Gas to Oil projects. In this case, a gas producer may choose to either produce gas or convert the gas to liquid fuels, which might become transportation fuel (Stern, 24). Causes of Increasing Gas price One of the major aspects that lead to increase in the prices of gas is the increase in crude oil prices accruing from augmented demand for crude oil. This causes augmented prices of natural gas manufacture and development, placing growing pressure on natural gas prices. The reason for this impact is that there is a competition between crude oil and gas operators for the same financial resources for instance drilling rigs and labor (4). A rise in oil price might cause higher levels of drilling or manufacture activities as operators might discover and develop oil prospects at a higher rate. The augmented activity would raise the price of the pertinent aspects, which will augment the cost of discovering and developing natural gas prospects (Villar & Joutz, 5). The major aspect that causes oil prices to increase gas prices is an imbalance between the supply of oil and the demand for oil products like gasoline. In this regard, the fundamental cause of gas price augments at the beginning of the 21st Century is the augmented demand for oil all over the world, mainly in China and India (Thomas, 2). For instance, in the summer of 2008, gas prices mounted to $4 a gallon as oil prices escalated to $145 a barrel, although demand and supply remained steady. In summer of 2009, gas prices increased once more, in spite of the global depression, which reduced demand. Although this increase was due to commodities traders, there is a usual increase of gas prices in the summer due to increase in driving (Amadeo, 2). Another cause of the increase of gas prices in America lack of adequate refining facilities. It is evident that there is an increase in demand for gas prices, in which the America refining infrastructure cannot meet (Thomas, 3). Another international market force that leads to increase in gas prices is foreign currency trading and inflation. It follows that a decrease in the value of a nation’s currency causes less purchase of oil on the global market, increasing the price of gas at home (5). In addition, another cause of increases in gas prices is rampant high taxation. There is high taxing of gasoline sales globally. For instance in the United States, the state governments as well as federal government impose tax on gas. This means that when these taxes increase, then the price of gas increases (Thomas, 6). Impacts of Increase of Gas price and recommended solutions In America, the escalating prices of gas affect how Americans use the public transport system. In this regard, when the gas prices increase, then most people are willing to leave their private vehicles and opt for the public transport system. For instance, the American Public Transportation Association has recently reported that $4 per-gallon gas prices might effect in an extra 670 million public transit passenger trips. In addition, the report estimated that if pump prices would rise to $5 a gallon, it would cause extra 1.5 billion public passenger trips (Johnson, 2). Another change in the transport system is that more and more people are opting to work from home; hence, avoiding commuting. There is also a change in the means of transport with many people opting to walk, use bikes or even skateboarding (Folger, 7). The increase in gas prices does not only affect individuals, but it also has a significant effect on the businesses especially small businesses. These small businesses feel that the escalating gas prices are diminishing their profits, which are not very stable (Gomez, 1). Some businesses, and principally those that provide transportation or distribution services, might avoid increasing their costs because of higher gas prices by levying their clients a fuel add-on fee (4). This is because, these businesses would like to avoid as much as possible, to loose their clients. They therefore have a hard time pondering on the best measure that would guarantee profits while at the same time retain their customers. As these small businesses struggle to contain higher gas prices without passing on the burden to consumers, they are seeking ways of reducing the costs elsewhere (Gomez, 5). The best solution of lowering the gas prices and containing the issue is through reducing the demand for gas and oil over an extended period. This strategy would be very appropriate to the United States since it has a consumption of approximately 25% of the global oil. An intensive attempt may persuade commodities traders, who have pushed oil prices up 25% that oil was a dreadful investment, thus permitting oil prices to go back to pre-bubble levels (Amadeo, 14). Bilateral trading helps gas market partakers since it permits them to complete deals that only ensemble their requirements. Liquid spot and prospective markets offer price signals concerning the market value of gas, aiding market members to make choices concerning the most favorable formation of their contract portfolio. In addition, they can merge long, medium, and short-term agreements in a manner that diminishes the attainment costs for natural gas and maximizes the consistency of supply (Juris, 15). Resource diversification, especially improved ventures in Renewable Energy (RE) and Energy Efficiency (EE), might assist mitigating the danger high gas prices both in short-term and long-term (Ryan et al, 39). Renewable Energy and Energy Efficiency helps in mitigating the escalating gas prices since they lessen the requirement of buying natural gas-fired electricity invention at viable price. In this regard, this replaces the electricity invention to fixed-price Renewable Energy or Energy Efficiency resources. Besides this, direct contribution to price constancy, Renewable Energy and Energy Efficiency can lessen demand for natural gas and therefore indirectly put descending pressure on gas prices (1). Another way of easing the escalating gas prices is deregulation of the gas industry. This facilitates the distinction of monetary and physical trading. Gas market partakers reduce supply risks through matching their demand with gas supply agreements in the short and long term (Juris, 8). On the other hand, the most abrupt measure for managing the increasing gas prices is to reduce gas usage. This can occur through reduced driving or increasing fuel efficiency. These measures may seem absurd and unworkable, but they would help to reduce the impact of escalating gas prices in the short-term (Amadeo, 8). In the longer term, the best way is through opting for alternative fuel vehicles, working from home or staying closer to the places of work as well as using bikes (9). Conclusion There has been a significant increase in gas prices over the past years. The causes for this increase include increases in oil prices, lack of adequate refining facilities, changes in foreign currency as well as high taxation of gas. These factors have all caused escalating prices in gas, which have in turn affected people as well as businesses. However, various mitigation measures are available for curbing the impacts of escalating gas prices. These measurers include resource diversification, using alternative fuel in transport, reducing demand for oil and gas as well as bilateral trading. Works Cited Amadeo, Kimberly. Why Gas Prices Are High. 2011. Web. Bomberg, Matthew et al. Traveler Response to the 2005 Gas Price Spike. 2010. Web. Folger, Jean. How Rising Gas Prices Affect Consumer Decisions. 2011. Web. Gomez, Cynthia. The Effects of Rising Gas Prices on Small Businesses. 2011. Web. Johnson, Fawn. The Impact of High Gas Prices. 2011. Web. Juris, Andrej. Development of Natural Gas and Pipeline Capacity Markets in the United States. N.d. Web. Ryan, Wiser et al. Easing the natural gas crisis: Reducing natural gas prices through increased deployment of Renewable energy and energy efficiency. 2005. Web. Siliverstovs, Boriss et al. International Market Integration for Natural Gas: A Co-integration Analysis of Gas Prices in Europe, North America and Japan. 2004. Web. Stern, Jonathan. Is There a Rationale for the Continuing Link to Oil Product Prices in Continental European Long-Term Gas Contracts? 2007. Web. Thomas, Edwin. What Causes the Gas Prices to Go Up? 2011. Web. Villar, Jose & Joutz, Frederick. The Relationship between Crude Oil and Natural Gas Prices. 2006. Web. Read More