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Economic War Between Utility Bidders and Gas Prices

Economic War Between Utility Bidders and Gas Prices

Pedro Araez 806 14-Jun-2021

None of us maintain interest in gas pricing unless we experience the rising prices. Be it domestic use or fuel expenses for a car. We immediately demand justification for the price increase from the governing authorities. Today, we are going to analyze why gas prices have been deteriorating for decades.

Weather Impact

Natural disasters such as hurricanes and gulf storms impact gas production significantly. For example, the Gulf storms in the mid-2000s convinced multinational companies to halt gas extraction for over a year. As a result, the gulf countries lost almost four percent yearly of gas production due to unpredictable weather. In addition, the decreased extraction shifted the supply graph, which resulted in a price increase.

Moreover, events such as blizzards, sea storms, and hurricanes can also create an artificial gap between supply and demand. Such events halt transportation to the processing plants and increase running costs for the companies—the burden shifts to the chain-end consumers, where homeowners and industry owners experience the price increase.

Government Strategies

When an economy is shifting its monetary resources from savings to investments, the gas price will increase. Likewise, an economy that sets up industries and commercial sectors will increase demand for goods and services. Utility bidder justify this result by manufacturers demanding increased use in their assembly line and production processes.

Pharmaceutical companies demand high gas supply volumes since they use ethane and butane for various consumer goods. In addition, industrialists require gas to burn fuel and provide furnaces energy used in processing raw material. These economic activities require a constant gas supply. Therefore, any hiccup is likely to increase consumer goods’ prices as well.

Competition for Fuel Sources

Competition between industries and companies that require gas to manufacture is genuine. They are constantly competing for more revenue and customers. However, they are competing for energy sources as well. Depending on the host nation and regulatory laws, most companies use natural fuels such as gas, oil, and coal.

When a company decides to shift its fueling needs from coal to natural gas, the gas prices will increase. Again, this is because more gas is in demand now. On the other hand, the prices will decrease when industries revert to coal fueling.

Storage Costs

Upon extraction of natural gas from earth and seabed, it is transported to heavy industries and processed using ships. The processed version is later stored until it can be transferred for domestic and industrial use. The processing requires storage, rent, and electricity to maintain its viability.

Storage costs are highly detrimental to the policies introduced by the hosting government. For example, a country where electricity is expensive will hike up storage costs transferred onto domestic consumers or industries. Similarly, storage costs in tax-free zones or zero-rated industrial sectors will reduce storage costs and make it cheaper for everyone who requires it.

Future Thoughts

Determining gas prices follow the primary demand and supply rules. However, setting a ceiling on global gas extraction and gas consumer prices may curb inflation and make regulating prices easy.

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