It is a fact that the global increase in gas prices has to lead to various changes in the consumption of products across different industries. Of particular interest in this context are the energy and auto industries whose current products have suffered low demand due to changes in consumption trends. For instance, in the U.S., which provides the largest consumer market for automobiles, consumers have significantly changed their driving habits besides preferring other automobile models at the expense of the ever-profitable fuel-guzzling luxurious trucks and SUVs since the gas prices hit the all-time high of $ 4 per gallon (Strategic Management par. 1).
Consequently, analysts note that the American automakers have once again found themselves trailing their European and Asian counterparts in terms of responding to the ever-changing consumer needs and attitudes. Here, it is worth noting that most consumers will prefer energy-efficient models of vehicles relative to changes in the global fuel prices, which may not be decreasing in the near future (Strategic Management par. 3). Currently, many consumers are more concerned about the Changes in global warming, and as a result, their attitudes towards powerful SUVs and other fuel guzzlers are changing because the availability of alternative technology models in U.S. markets has broadened consumer options.
Furthermore, the increase in global fuel prices is also affecting other sectors associated either directly or indirectly with the auto manufacturing industries. For instance, it is certain that the high fuel prices have led to the high cost of steel, which is a paramount raw material in auto industries. Consequently, there is a need for automakers to re-evaluate their strategies relative to high fuel costs and to change consumer attitudes. Here, the essay looks at the mistakes committed by American automakers in their response to increasing fuel prices and changing consumer needs. Furthermore, the essay offers alternative strategies for automakers in adapting to changing market demands and developing new strategies.
The mistakes committed by U.S. Automakers
Analysts note that the problems facing the American auto industry now can be traced back to 1973 when the American automakers, as opposed to their European and Asian counterparts, decided to respond to the increasing fuel price by introducing powerful SUVs, pickup trucks, and big minivans, which replaced other small cars from the marketplace. By then, consumers were oblivious of the impact these models could have on their environment, but now things have changed, considering that millions of Americans are aware of the effects of global warming.
Moreover, as mentioned earlier, other international automakers are aware of the need to introduce new technologies such as fuel cells and hybrids to increase the demand for the existing car models. In fact, these new technologies promise to offer immediate and long-term benefits regarding fuel consumption (Strategic Management par. 4). On the other hand, for many years now, the American auto industry has been producing big and luxurious models at the expense of small cars. As a result, other international automakers such as Honda, Toyota, Hyundai, and Daimler-Benz are producing small and fuel-efficient cars that are gaining the preference of most American auto consumers.
However, the scramble to introduce new technologies into the American marketplace at the expense of the all-time famous pickup trucks and SUVs has led to a significant decrease in auto sales as of 2008. Despite that these automakers are following the right course with regard to changing consumer demands relative to increasing costs of oil, they have overlooked the need to address the factors affecting the global oil prices. Here, just like in the 1980s, the automakers have failed to heed the suggestions of most analysts who note that the oil prices are bound to remain high for the longest time ever due to factors associated with both the demand and supply sides. Moreover, studies show that most Americans are cutting down on the number of miles driven, and thus, this has occasioned the $ 4 per gallon gas price. As a result, it is certain that most American drivers have either reached or are headed to a tipping point (Strategic Management par. 6).
Conversely, many American automakers have not learned from past experience regarding the increase in oil prices. Here, it is worth noting that in the 1980s, American automakers were producing powerful fuel guzzlers at a time when gas prices were high. At the same time, these automakers were under stiff competition from their European and Asian counterparts who were producing energy-efficient models into markets that were already experiencing high gas prices compared to the American auto markets.
Certainly, one expects that American automakers having experienced the impact of high oil prices in the past would obviously be more careful with the current market conditions (Strategic Management par. 7). However, since the light trucks were fetching huge profits, it was hard for these automakers to shift from the production of profitable models to newer energy-efficient models that were infamous to most American auto consumers then. Thus, the major mistake committed by American automakers was to rely on short-term high-profit margins from light trucks at the expense of long-term issues regarding changing market demands and increasing oil prices.
The way-forward
Instead of wasting efforts to look at what the American automakers should have done better in the past, most analysts suggest that resources should be directed towards addressing the current market conditions and developing new strategies. Accordingly, market analysts recommend that the way forward for all American automakers is to develop new strategies regarding the production of competitive new technologies, including hybrid engines and hydrogen cars, to avert overdependence on oil and oil products whose prices are causing a stir in most global marketplaces. Certainly, investments in the new technologies should start now so that energy-efficient models are made available in the American auto markets in the next 15-20 years (Strategic Management par. 8).
Conversely, more short-term strategies should be aimed at achieving fuel efficiency for the current models through an incremental approach in order to prepare consumers in moving from consumption of light trucks to purchasing more energy-efficient vehicles. Therefore, instead of closing down on some branches producing light trucks such as SUVs in the hope that consumers will switch to new technologies almost immediately, automakers should instead strategize on different ways of using the available resources to generate more money that will be pumped into designing the new technology vehicles.
And more certainly, the American automakers should see the need to strike partnerships with each other or their international counterparts in sharing various costs implicated in developing new energy-efficient technologies (Strategic Management par. 15). However, analysts warn that consumers should not count on these new technologies as yet because the infrastructural costs involved are very high compared to the financial standing of most automakers.
Conclusion
Oil and oil products form an integral part of almost every economic sector in the world. However, due to various factors regarding the supply and demand for this valuable commodity, the prices of oil have been increasing unexpectedly. In this essay, we have discussed the impact of the high gas prices on the American auto industry relative to the mistakes committed by many automakers in their response to high fuel prices and changing consumer demands. From the foregoing discussions, it is obvious that most American automakers have not learned from their past experience in regard to the high oil prices in the 1980s. And come the year 2008, they are still repeating the same mistakes committed earlier. As a result, it is recommended that these automakers should gradually change from producing fuel guzzlers, which attract huge short-term profits to new technology models, which despite attracting limited profit margins, will result in enormous benefits in the long run.
The United States recently saw a significant increase in retail gasoline prices. According to the official data, the previous decline was conditional upon the response to the pandemic, which caused lower demand as well as low crude oil costs combined with critical supply constraints ( The Week in Petroleum ). Therefore, this event positively correlates with the efficiency of measures implemented against COVID-19 and the elimination of travel restrictions.
The comparison of indicators before the spread of COVID-19 and over the following year shows the dependency of supply and demand on external factors. Thus, the former shifting indicators were affected by cold weather outages throughout the country, which was followed by rising imports, whereas the latter was determined by the low mobility of citizens ( The Week in Petroleum ). In this way, the environment was the principal aspect, which allowed for predicting changes in this field.
At present, the ongoing recovery defines the gas prices in the United States, which are gradually increasing. By now, regular retail rates were reported to be on average 92 cents higher compared to the previous year ( The Week in Petroleum ). This tendency also corresponds to the considerations of evolving supply and demand, which fluctuate depending on seasons or regions ( The Week in Petroleum ). Therefore, the decline in inventories alongside the increasing mobility of people allows for predicting further growth of these indicators.
In conclusion, the described trends in gasoline prices are aligned with changes in demand and supply. Due to the pandemic, the presence of large inventories and unfavorable conditions for their realization was combined with travel restrictions. As a result, the retail rates were low, and a dramatic change happened as soon as the latter barriers were lifted. Thus, the consideration of profits alongside the growing needs of people in gasoline confirms new patterns of price formation in the United States in the long run.
In the recent past, there has always been news or reports on the rising gas and oil prices. In the recent past, prices have risen from a little over a dollar per gallon to at least $3.47 per gallon. This is according to Forbes (2008), a congressman of the Virginia fourth congressional district.
There have been reports that this trend would continue for some time even to a price of 30 more cents per gallon. These increases in prices have been an issue since they have been straining most of the families budgets. Forbes says that he has been receiving emails and letters from his constituents regarding the issue seeking to know why the prices are rising at that rate.
If this situation continues for a while, it could have much effect on the worlds economy as it would impact strongly on the families and businesses as well. The following paper seeks to find out the effects of these fluctuating prices on the environment and the economy and the effects of going green with/without the oil and gas.
According to Forbes (2008), the rising gas prices in the past couple of years could have been caused by several factors that have had individual pressure on the energy system.
They either influence the price of crude oil or production and marketing of gasoline and the interaction of these in a single market affect the overall gas prices. Some of them include; crude oil prices their prices are determined by the demand and supply in the world.
The OPEC countries are the determining factors since they decide on what to produce and export. This means that the more they produce, the less the prices will be. However, due to the fact that oil is traded in the world market, whatever happens on the ground in these countries could greatly have an effect on the amount of oil produced at a particular time of the year.
Some example of such events that have affected oil prices in the past include; the OPEC cartel decided to raise production quotas despite the fact that they had previously reduce them in the year 2002. The increasing population in china, India and developing worlds has seen most of the people in these countries have access to automobiles hence increasing the demand for gas and oil in these countries.
There have been disruptions in countries that produce a lot of oil like Nigeria and Venezuela. Another reason for the increased oil/gas prices is the refinery imbalances the rising economic growth in the US has created some imbalances in the refining industries since the demand for gasoline is increasing daily and with the declining refining capacity, a lot of constraint has been put on the available oil forcing them to increase prices.
Seasonal changes are another factor that has caused the fluctuating gasoline prices. This relates to the time of the year and in this case, gas prices are higher during summer and holiday seasons as many people in America are traveling and hence the demand is high.
Forbes (2008) explains that not only crude oil production that impacts on the fluctuating prices rather there are factors such as environmental programs, competition in the local market and proximity of supply. In this case, people living in areas far from the Gulf Coast which is the area where gasoline is produced are likely to pay higher prices since the total price will cover the transportation expenses.
Prices also vary according to the competition in a particular area. For instance, the rural areas might experience higher prices since there are not many stations offering such services and on the other hand, those areas with several stations will have fairer prices due to competition.
According to Forbes (2008), the increasing prices have had impact in various sectors in the US. In farming, farmers use energy in processes like fertilization, and due to the increased prices in energy, they have been forced to cut down the amount of produce in a year. This in turn has increased the prices in the amount of food stuff and burden is left on the consumers. Reports by US department of Agriculture said that between 2000 and 2005, the fuel cost on farming rose by 10%.
In manufacturing, manufacturers are also not left out as the increased cost on energy used to produce goods forces them to increase the prices of the goods produced and at times they are forced to lower their workers salaries. This in turn puts pressure on consumers and workers and strains the economy. The tourism department has also been affected since airlines and bus lines need fuel for them to be fully operational.
Some families have been forced to cut short or reduce their travel due to the increased oil prices and due to this, cities that highly depend on tourism have had heir economy affected. Other than the overall economic effect, individuals have also felt a pinch as they are forced to readjust their budgets to pay for the high prices (Forbes, 2008).
There are many man-made machines that rely on oil and gas such as air crafts, motor vehicles and many other industrial machines for them to function. Much as they are useful, they also have some consequences that are experienced by both human beings and the environment at large.
For instance, coal and oil have molecules that have byproducts of carbon, nitrogen and sulfur when they are burnt. Apart from this, they also produce some form of particles that do not burn and hence released to the environment and cause pollution (NaruralGas.org, 2004). The environmental issue that has been on discussion currently, the green house effect, is due to the high levels of gases that are being emitted by these green houses.
Naturally, there are gases in the environment that regulate the amount of heat that is emitted on the atmosphere. Researches show that increased emission of green house gases could lead to high temperatures on the earth surface and eventually have disastrous effects on the environment. Motor vehicle and aircraft emissions, paints and emissions from industries contribute to smog which is a product of carbon monoxide, nitrogen oxides and heat from the sun.
When these products combine, they form a smoggy layer on the environment and can also cause respiratory problems such as lung damages if inhaled by both human beings and animals. Chemicals such as sulfur and nitrogen dioxides react with water vapor to form acid rain which also pollutes the environment, damages crops and causes respiratory illnesses in human beings (NaruralGas.org, 2004).
Apart from being environmental pollutants, gas/oils have several benefits. For instance, natural gas is the cleanest fuel since its combustion process produces little byproducts that may pollute the environment. It does not leave any soot or odors and if inhaled in small amounts, it does not affect human beings.
Natural gas is also economical since it is piped directly to the consumer and the system is not easily affected by weather changes hence enhancing safety. When using gas and oil, they are easy to transport hence quite efficient. Oil extraction, refining and selling has also created jobs for many people in the producing countries and also improved the economy of the country though exports.
Going green is a term that has been in use currently referring to the methods in our daily lives that can be used to help save the environment. According to Save the World (2009), green living entails reduction in the use of oil based energy and using only organic and chemical free products.
One can also decide to go green at home by applying healthy farming practices through the use of organic and chemical free farm products. It also means people trying to save water by always turning off taps after use and switching off lights when they are not needed. Some people are also trying to save the world by deciding to use bicycle or walk on foot for the short distances instead of using vehicles that use a lot of gas and oils while emitting harmful gases on the environment (Save the World, 2009).
All these practices are aimed at saving the environment and creating a healthier earth and in turn reduce diseases and provide healthy individuals who will be involved in developing the world. However, this move does not come without its negative effects as well. McRae (n.d) argues that as much as we are trying to save the world by using organic products, it is quite clear that such products are quite expensive than traditional ones.
This also applies to the hybrid vehicles and use of solar panels which seem to be quite expensive. In this world where all are not equal, not every one is in a position to purchases such products and this means that if they cant afford the big changes; they may not be part of the change at all. Use of fluorescent bulbs is said to save energy as they last longer and use less energy.
However, there is evidence that they contain mercury and if no properly disposed, they could contaminate soil or water. Therefore, they must be recycled and this means that one has to store the used bulbs until they are collected by people concerned (McRae, n.d).
In conclusion the fluctuating oil and gas prices have had an impact on the economy ranging from tourism, manufacturing and farming. At the same time, use of these products in our daily live helps us a great deal as they speed up our operations in various operations.
However, they also have negative impacts as they pollute the environment through emission of gases and particles and thus causing disease. This leads to use of a lot of money for treatment purpose and as such it means that unless we try to devise ways of reducing these effects, the little we get from our businesses will always be used to offset hospital bills.
Going green is a strategy being adopted by many in the world to help save the planet by reducing the use of oil based energy and organic products. Much as it is a good way of conserving our environment, it has its own disadvantages which must be looked into such as the expenses which of course are not affordable to all.
Reference List
McRae, S. Negative Effects of Going Green. Web.
Save The World. (2009). Going Green: What Does Going Green Mean? Web.
Forbes, R. J. (2008). FAQs: Gas Prices. Web.
NaturalGas. (2004). Natural Gas and the Environment. Web.
Economics is regarded as the social science that is concerned with the distribution, production as well as usage of goods and services. In economics, demand and supply are those factors that are said to decide price, producers would like to sell at a specific price i.e. supply, and customers will be able to buy the product by determining the price of the particular commodity. Supply refers according to the varying amount of commodities that producers will supply at various costs i.e. a more price yields a more noteworthy supply. Whereas, demand refers to the quantity of good that is demanded by consumers according to their price. As indicated by the law of demand, there is inverse relationship between demand and price as the demand increases when price decreases. However, according to law of supply, there is positive relationship between price and supply, whenever price increases the supply automatically starts to rise.
‘P’ denotes to Price and ‘Q’ denotes the Quantity of the product. The upward curve indicates the supply (S) and downward curve indicates the demand (D). The demand curve always shifts in a downward trend while the supply side goes in an upward trend. Surplus is the situation where the quantity supplied is greater than the quantity demanded.
Energy consumption supports all parts of current society. Late supply interruptions and cost increments have focused on a production which is frequently underestimated. Australia’s vitality framework is more difficult and various now than at any past time in mankind’s history. The vitality area in Australia makes a significant commitment to the country’s total national output, export earnings and work. A safe supply of reasonable, dependable and ecologically practical vitality is basic to Australia’s future monetary development and success. Australia has a wealth and assorted variety of energy resources that supports domestic utilization and substantial fossil fuel energy trades far and wide. Australia keeps on having the world’s biggest known financial uranium resources, the fourth biggest coal (dark and darker) assets and generous traditional and whimsical gas assets. There is great potential for further development of the non-inexhaustible asset base through new revelations. Recognized assets of crude oil, condensate and liquefied petroleum gas are progressively restricted and Australia is progressively dependent on imports for transport fuels. Australia additionally has plentiful and broadly conveyed breeze, sunlight based, geothermal, wave and tidal assets. Hydro energy resources have been broadly created, and wind, sunlight based and bio energy resources are progressively being misused for power age. Advances in renewable energy generation and storage technologies and better mapping of resource potential will be important for continued uptake, and so will technologies and policies for grid integration, sunlight based high temp water has bit by bit expanded, the other sustainable power source assets remain to a great extent undiscovered for power age. The usage of sustainable power source will keep on expanding altogether to around 2020, reflecting government arrangements (for example the Renewable Energy Target) and falling installing costs. Advances in renewable energy generation and storage technologies and better mapping of resource potential will be significant for proceeded with take-up and innovations and arrangements for grid integration. Geosciences Australia and the Economics Branch of the Department of the Environment and Energy, with help from the Australian Renewable Energy Agency, have created this incorporated logical and financial appraisal of Australia’s non-renewable and renewable power resources. This production gives a preview so as to empower a correlation crosswise over vitality assets. This arrival of the Australian Energy Resource Assessment (AERA) is the first to be distributed in a web conveyed group. This new arrangement offers upgraded usefulness and simpler route. This change from print to computerized production is a piece of the progressing advancement of AERA to guarantee it keeps on giving important data to partners.
There are three main components of typical energy that affects price rise in Australia:
Wholesale cost: it covers electricity being generated or extraction of gas.
Network charges: paying for the consistent delivery of energy by the power lines or gas pipelines.
Retail margin: paying for meter reading and other services.
The relationship between energy use and economic output can be described in terms of the energy intensity, or inversely, the energy productivity, of the Australian economy. Energy intensity measures the amount of energy used to produce a unit of economic output (energy consumption/GDP), while energy productivity estimates the amount of economic output produced per unit of energy input (GDP/energy consumption).
The rate of price increments for gas is relied upon to direct in many states and regions throughout the following couple of years after a time of critical incline. The government can straightforwardly impact just a little piece of value results. Intergovernmental understandings and activity by state and territory governments are the most significant arrangement switches to check future cost increments. Gasoline Prices in Australia increased to 0.98 USD/Liter in July from 0.97 USD/Liter in June of 2019. Gasoline Prices in Australia averaged 1.01 USD/Liter from 1998 until 2019, reaching an all-time high of 1.67 USD/Liter in March of 2013 and a record low of 0.46 USD/Liter in December of 1998.
The given figure depicts the price of gas in Australia ranges from 2008 to 2019 time period. We can clearly see that the price of gas in 2008 was almost 0.6 USD/liter that increased dramatically to 2013 (1.4 USD/liter) because the demand for gas was high in this year and then reached to the peak experiencing 1.67 USD/liter in between 2012 to 2014. Then after, the price of gas started decreasing as the demand decreased in a fluctuating trend till 2016 at 0.46 USD/liter (least price) during the given time period. The current price of gas is 0.98 USD/liter. There is an absence of supply and generation which have antagonistically influenced the estimating list of the gas because the price of gas is inclining quickly year by year. Australia is the nation that has probably the big industries which is generating gas absolutely from its own resources. The administration of Australia has taken the inception in their very own hands on the most proficient method to decrease the costs of the gas and satisfy the need of the individuals with the suitable supply.
According to the media report 2018, they are saying that price of gas in Australia has been the severe problem due to the many households especially in South Australia. They are arguing over ‘Does South Australia have the highest energy prices’ in the nation and ‘the minimum reliable grid?’.
There are three major components of a typical energy bill wholesale costs (covering electricity being generated or gas being extracted); network charges (paying for the reliable delivery of energy via power lines or gas pipelines); and a retail margin (paying for meter reading and other services).
Overall, energy has a noteworthy impact in Australians’ lives, with two family units and organizations depending on different sorts of energy for warming, cooling, cooking, transport and machinery activity. Development in Australia’s economy has prompted increments in vitality use, especially in extending ventures, for example, the mining business. Other variables, including a growing population, and the resulting increment in the quantity of family units requiring force and warming, have additionally added to this expansion. Australian Government intervention to straightforwardly influence price outcome is to a great extent limited to the effect of the carbon cost just as other renewable energy and vitality proficiency measures. Changes to energy prices from correcting these measures which would require administrative activity should course through, somewhat, to end clients. Australian Government activity can also be aimed at achieving intergovernmental participation to change administrative results and impact government-owned energy suppliers. One current policy discussion is about the benefits of a gas reservation approach to address value issues that are related with LNG exports on the east coast. There are various intergovernmental forms, especially through the Council of Australian Governments and the two key controllers, the Australian Energy Market Commission and Australian Energy Regulator. They have to address a portion of these difficulties. In any case, it stays to be seen whether they will be viable in containing increase of price in the medium term.
According to an article published on the 23 May 2019 on a website called ‘Moneyweb’, it was stated that fuel prices took majority blame for the increase in the cost of living. The article speaks about how the fuels prices have had an effect on transporting, goods and services as well as many other aspects in different industries. Statistics have been collected from ‘Stats SA’ or commonly known as Statistics SA’s Consumer Price Index (CPI).
Analysis
In April 2019, the inflation rate was 4.4% which was stable. However, since the 12% increase in fuel prices, aspects such as transport have resulted in an increase of 7.4%. This was an increase in the cost of transporting. This then affects the prices of goods and services that require transportation. This plays a huge role in the inflation rate because certain business require transportation to deliver their products to a retailer to be sold to a consumer.
According to Stats SA, CPI prices on admissions, such as gas prices, increased by 8.3% since last year. The article states that if administration prices were avoided the CPI would’ve only increased by 3.7% which could’ve been a massive deal for consumers. Not only have administration prices increased but also the price of cooldrinks. The price increased by 9.4% over the past year because of the new rates on the cost of transportation. Companies such as Coca-Cola, transport 600 cases, which contains 24 bottles each. Since the amount being transported is high the selling price would also be high for the consumer. This also takes the sugar tax into consideration.
However, petrol stations try their best to lower their prices on goods to gain competitive advantage. To do so, the different petrol stations come up with growth strategies. For example, garages such as Shell and Engen who share a joint venture with steers would introduce a ‘Wacky Wednesday’ deal where you can buy two burgers and get the other free.
Since there’s been a 9.4% increase in cooldrinks and sugar tax has also increased most garages have been promotions into place. Shell has 3 promotional deals. The first promotion includes a Nestle chocolate bar, Pringles and the consumers choice of either a 5ooml Coke or 750ml Bonaqua pump for only R19.90. This not only gives consumers a choice but also a cheaper option. Shell also has many ‘open road essentials’ such as 2x cans of 330ml Liqui Fruit for the price of R19.90. Shell currently sells petrol 95 ULP for 34.8 cents a liter and diesel 71.25 cents per liter. Although these prices are high-priced, Shell has put reward programs in place.
Consumers get the option to either get their price discounted using a Clicks Clubcard or Discovery insure. With the Clicks Clubcard, 10 cents per liter of fuel is equivalent to 50% of fuel spend back. Discovery insure gives back 50% of fuel spend for the number of points earned.
Conclusion
In conclusion, the people of South Africa are aware of how fuel prices have an effect on many others things that consumers or businesses buy on a daily basis. With an unemployment rate of 29% the cost of living affects those without jobs. They have no means of income and makes it hard for them to provide for themselves or their families.
References
Hilton Tarrant. (2018). Fuel Rewards Programmes Compared. Available: https://citizen.co.za/business/1973735/fuel-rewards-programmes-compared/ Last accessed 4 August 2019.
Bradley Prior. (2019). Petrol Prices Increase in South Africa. Available: https://mybroadband.co.za/news/motoring/314773-petrol-price-increase-for-south-africa.html Last accessed 4 August 2019.
Shell. (2019). Petrol Price Update. Available: https://www.shell.co.za/motorists/shell-fuels/petrol-price.html Last accessed 4 August 2019.
Gasoline has been around for over a century and will continue to stay around for a while. It is used for almost any common motorized machine. Before this gasoline product was patented in Massachusetts back in the 18th century, its very close relatives kerosene and petroleum were commonly used. Currently in today’s pandemic gasoline prices have been cheaper and dropping due to a couple of factors that will be discussed in this paper.
The different market structures play a big part in the price and demand of gasoline. Many of the top gasoline producers have a relatively equal price per barrel of gasoline. Thus in the wholesale market, the market is perfectly competitive. Meaning that when one company raises or lowers gasoline prices then the other top competitors must follow suit. This gives gasoline that usual average price that we see every day.
With gasoline being inelastic too, the prices usually don’t get crazy high or crazy low because the demand will always be there unless drastic changes in the demand occur which can play a little factor in the price level. It is a little different from a retail perspective, though. If we are in a global pandemic, which we see right now, it makes demand go a little down because not many people are working and need gasoline, therefore the prices drop. Rather than prices dropping, when demand increased like when we had a big hurricane a couple of years back and everyone was stocking up on gas, the prices were higher than normal.
Not exclusively does an enormous circumstance influence the gas costs, but, a ton of things figure out what the costs will be on an ordinary day. The expense of crude oil is the central supporter of the general augmentation in retail gas costs since the start of 2009. Generally, a $10 increase in oil costs implies a quarter of a dollar increase in retail gas costs. Steep oil costs depend upon a couple of factors including generally speaking effortlessly and solicitation, steadfastness of the scattering association, the estimation of the U.S. dollar, and worth theory.
An article written by a Wiley author talked about how the United States devours more oil and refined items than most other countries on the planet. The interest in unrefined petroleum in China, India, and other creating nations, has ascended with their populaces, expanded exchange, developing inside and business sectors. Creating countries are relied upon to represent about a portion of the worldwide interest by 2015, up from 36 percent in 1996. Expanding requests prompt more significant expenses.
With the demand side briefly being talked about, more towards the supply side now. Some demand factor that can affect gasoline prices could be the season itself. In summer more people are out and driving which makes gasoline prices rise. Not only this but the price of gas also rises during the summer months because it is slightly harder to make gasoline, according to the Energy Information Administration. They also stated that in the first week of February the gas prices are at the usual lowest of the year and mostly get the highest during the week before memorial day.
Economic growth will also be a factor in the demand side of gasoline prices. When the economy is at a low usually people will have less money to spend but this has the least amount of effect because big corporations use a lot of gasoline to work their machines. During economic growth, most companies produce more goods, and this will in turn use more gasoline. The major oil companies will
Economics is regarded as the social science that is concerned with the distribution, production as well as usage of goods and services. In economics, demand and supply are those factors that are said to decide price, producers would like to sell at a specific price i.e. supply, and customers will be able to buy the product by determining the price of the particular commodity. Supply refers according to the varying amount of commodities that producers will supply at various costs i.e. a more price yields a more noteworthy supply. Whereas, demand refers to the quantity of good that is demanded by consumers according to their price. As indicated by the law of demand, there is inverse relationship between demand and price as the demand increases when price decreases. However, according to law of supply, there is positive relationship between price and supply, whenever price increases the supply automatically starts to rise.
‘P’ denotes to Price and ‘Q’ denotes the Quantity of the product. The upward curve indicates the supply (S) and downward curve indicates the demand (D). The demand curve always shifts in a downward trend while the supply side goes in an upward trend. Surplus is the situation where the quantity supplied is greater than the quantity demanded.
Energy consumption supports all parts of current society. Late supply interruptions and cost increments have focused on a production which is frequently underestimated. Australia’s vitality framework is more difficult and various now than at any past time in mankind’s history. The vitality area in Australia makes a significant commitment to the country’s total national output, export earnings and work. A safe supply of reasonable, dependable and ecologically practical vitality is basic to Australia’s future monetary development and success. Australia has a wealth and assorted variety of energy resources that supports domestic utilization and substantial fossil fuel energy trades far and wide. Australia keeps on having the world’s biggest known financial uranium resources, the fourth biggest coal (dark and darker) assets and generous traditional and whimsical gas assets. There is great potential for further development of the non-inexhaustible asset base through new revelations. Recognized assets of crude oil, condensate and liquefied petroleum gas are progressively restricted and Australia is progressively dependent on imports for transport fuels. Australia additionally has plentiful and broadly conveyed breeze, sunlight based, geothermal, wave and tidal assets. Hydro energy resources have been broadly created, and wind, sunlight based and bio energy resources are progressively being misused for power age. Advances in renewable energy generation and storage technologies and better mapping of resource potential will be important for continued uptake, and so will technologies and policies for grid integration, sunlight based high temp water has bit by bit expanded, the other sustainable power source assets remain to a great extent undiscovered for power age. The usage of sustainable power source will keep on expanding altogether to around 2020, reflecting government arrangements (for example the Renewable Energy Target) and falling installing costs. Advances in renewable energy generation and storage technologies and better mapping of resource potential will be significant for proceeded with take-up and innovations and arrangements for grid integration. Geosciences Australia and the Economics Branch of the Department of the Environment and Energy, with help from the Australian Renewable Energy Agency, have created this incorporated logical and financial appraisal of Australia’s non-renewable and renewable power resources. This production gives a preview so as to empower a correlation crosswise over vitality assets. This arrival of the Australian Energy Resource Assessment (AERA) is the first to be distributed in a web conveyed group. This new arrangement offers upgraded usefulness and simpler route. This change from print to computerized production is a piece of the progressing advancement of AERA to guarantee it keeps on giving important data to partners.
There are three main components of typical energy that affects price rise in Australia:
Wholesale cost: it covers electricity being generated or extraction of gas.
Network charges: paying for the consistent delivery of energy by the power lines or gas pipelines.
Retail margin: paying for meter reading and other services.
The relationship between energy use and economic output can be described in terms of the energy intensity, or inversely, the energy productivity, of the Australian economy. Energy intensity measures the amount of energy used to produce a unit of economic output (energy consumption/GDP), while energy productivity estimates the amount of economic output produced per unit of energy input (GDP/energy consumption).
The rate of price increments for gas is relied upon to direct in many states and regions throughout the following couple of years after a time of critical incline. The government can straightforwardly impact just a little piece of value results. Intergovernmental understandings and activity by state and territory governments are the most significant arrangement switches to check future cost increments. Gasoline Prices in Australia increased to 0.98 USD/Liter in July from 0.97 USD/Liter in June of 2019. Gasoline Prices in Australia averaged 1.01 USD/Liter from 1998 until 2019, reaching an all-time high of 1.67 USD/Liter in March of 2013 and a record low of 0.46 USD/Liter in December of 1998.
The given figure depicts the price of gas in Australia ranges from 2008 to 2019 time period. We can clearly see that the price of gas in 2008 was almost 0.6 USD/liter that increased dramatically to 2013 (1.4 USD/liter) because the demand for gas was high in this year and then reached to the peak experiencing 1.67 USD/liter in between 2012 to 2014. Then after, the price of gas started decreasing as the demand decreased in a fluctuating trend till 2016 at 0.46 USD/liter (least price) during the given time period. The current price of gas is 0.98 USD/liter. There is an absence of supply and generation which have antagonistically influenced the estimating list of the gas because the price of gas is inclining quickly year by year. Australia is the nation that has probably the big industries which is generating gas absolutely from its own resources. The administration of Australia has taken the inception in their very own hands on the most proficient method to decrease the costs of the gas and satisfy the need of the individuals with the suitable supply.
According to the media report 2018, they are saying that price of gas in Australia has been the severe problem due to the many households especially in South Australia. They are arguing over ‘Does South Australia have the highest energy prices’ in the nation and ‘the minimum reliable grid?’.
There are three major components of a typical energy bill wholesale costs (covering electricity being generated or gas being extracted); network charges (paying for the reliable delivery of energy via power lines or gas pipelines); and a retail margin (paying for meter reading and other services).
Overall, energy has a noteworthy impact in Australians’ lives, with two family units and organizations depending on different sorts of energy for warming, cooling, cooking, transport and machinery activity. Development in Australia’s economy has prompted increments in vitality use, especially in extending ventures, for example, the mining business. Other variables, including a growing population, and the resulting increment in the quantity of family units requiring force and warming, have additionally added to this expansion. Australian Government intervention to straightforwardly influence price outcome is to a great extent limited to the effect of the carbon cost just as other renewable energy and vitality proficiency measures. Changes to energy prices from correcting these measures which would require administrative activity should course through, somewhat, to end clients. Australian Government activity can also be aimed at achieving intergovernmental participation to change administrative results and impact government-owned energy suppliers. One current policy discussion is about the benefits of a gas reservation approach to address value issues that are related with LNG exports on the east coast. There are various intergovernmental forms, especially through the Council of Australian Governments and the two key controllers, the Australian Energy Market Commission and Australian Energy Regulator. They have to address a portion of these difficulties. In any case, it stays to be seen whether they will be viable in containing increase of price in the medium term.
According to an article published on the 23 May 2019 on a website called ‘Moneyweb’, it was stated that fuel prices took majority blame for the increase in the cost of living. The article speaks about how the fuels prices have had an effect on transporting, goods and services as well as many other aspects in different industries. Statistics have been collected from ‘Stats SA’ or commonly known as Statistics SA’s Consumer Price Index (CPI).
Analysis
In April 2019, the inflation rate was 4.4% which was stable. However, since the 12% increase in fuel prices, aspects such as transport have resulted in an increase of 7.4%. This was an increase in the cost of transporting. This then affects the prices of goods and services that require transportation. This plays a huge role in the inflation rate because certain business require transportation to deliver their products to a retailer to be sold to a consumer.
According to Stats SA, CPI prices on admissions, such as gas prices, increased by 8.3% since last year. The article states that if administration prices were avoided the CPI would’ve only increased by 3.7% which could’ve been a massive deal for consumers. Not only have administration prices increased but also the price of cooldrinks. The price increased by 9.4% over the past year because of the new rates on the cost of transportation. Companies such as Coca-Cola, transport 600 cases, which contains 24 bottles each. Since the amount being transported is high the selling price would also be high for the consumer. This also takes the sugar tax into consideration.
However, petrol stations try their best to lower their prices on goods to gain competitive advantage. To do so, the different petrol stations come up with growth strategies. For example, garages such as Shell and Engen who share a joint venture with steers would introduce a ‘Wacky Wednesday’ deal where you can buy two burgers and get the other free.
Since there’s been a 9.4% increase in cooldrinks and sugar tax has also increased most garages have been promotions into place. Shell has 3 promotional deals. The first promotion includes a Nestle chocolate bar, Pringles and the consumers choice of either a 5ooml Coke or 750ml Bonaqua pump for only R19.90. This not only gives consumers a choice but also a cheaper option. Shell also has many ‘open road essentials’ such as 2x cans of 330ml Liqui Fruit for the price of R19.90. Shell currently sells petrol 95 ULP for 34.8 cents a liter and diesel 71.25 cents per liter. Although these prices are high-priced, Shell has put reward programs in place.
Consumers get the option to either get their price discounted using a Clicks Clubcard or Discovery insure. With the Clicks Clubcard, 10 cents per liter of fuel is equivalent to 50% of fuel spend back. Discovery insure gives back 50% of fuel spend for the number of points earned.
Conclusion
In conclusion, the people of South Africa are aware of how fuel prices have an effect on many others things that consumers or businesses buy on a daily basis. With an unemployment rate of 29% the cost of living affects those without jobs. They have no means of income and makes it hard for them to provide for themselves or their families.
References
Hilton Tarrant. (2018). Fuel Rewards Programmes Compared. Available: https://citizen.co.za/business/1973735/fuel-rewards-programmes-compared/ Last accessed 4 August 2019.
Bradley Prior. (2019). Petrol Prices Increase in South Africa. Available: https://mybroadband.co.za/news/motoring/314773-petrol-price-increase-for-south-africa.html Last accessed 4 August 2019.
Shell. (2019). Petrol Price Update. Available: https://www.shell.co.za/motorists/shell-fuels/petrol-price.html Last accessed 4 August 2019.
Gasoline has been around for over a century and will continue to stay around for a while. It is used for almost any common motorized machine. Before this gasoline product was patented in Massachusetts back in the 18th century, its very close relatives kerosene and petroleum were commonly used. Currently in today’s pandemic gasoline prices have been cheaper and dropping due to a couple of factors that will be discussed in this paper.
The different market structures play a big part in the price and demand of gasoline. Many of the top gasoline producers have a relatively equal price per barrel of gasoline. Thus in the wholesale market, the market is perfectly competitive. Meaning that when one company raises or lowers gasoline prices then the other top competitors must follow suit. This gives gasoline that usual average price that we see every day.
With gasoline being inelastic too, the prices usually don’t get crazy high or crazy low because the demand will always be there unless drastic changes in the demand occur which can play a little factor in the price level. It is a little different from a retail perspective, though. If we are in a global pandemic, which we see right now, it makes demand go a little down because not many people are working and need gasoline, therefore the prices drop. Rather than prices dropping, when demand increased like when we had a big hurricane a couple of years back and everyone was stocking up on gas, the prices were higher than normal.
Not exclusively does an enormous circumstance influence the gas costs, but, a ton of things figure out what the costs will be on an ordinary day. The expense of crude oil is the central supporter of the general augmentation in retail gas costs since the start of 2009. Generally, a $10 increase in oil costs implies a quarter of a dollar increase in retail gas costs. Steep oil costs depend upon a couple of factors including generally speaking effortlessly and solicitation, steadfastness of the scattering association, the estimation of the U.S. dollar, and worth theory.
An article written by a Wiley author talked about how the United States devours more oil and refined items than most other countries on the planet. The interest in unrefined petroleum in China, India, and other creating nations, has ascended with their populaces, expanded exchange, developing inside and business sectors. Creating countries are relied upon to represent about a portion of the worldwide interest by 2015, up from 36 percent in 1996. Expanding requests prompt more significant expenses.
With the demand side briefly being talked about, more towards the supply side now. Some demand factor that can affect gasoline prices could be the season itself. In summer more people are out and driving which makes gasoline prices rise. Not only this but the price of gas also rises during the summer months because it is slightly harder to make gasoline, according to the Energy Information Administration. They also stated that in the first week of February the gas prices are at the usual lowest of the year and mostly get the highest during the week before memorial day.
Economic growth will also be a factor in the demand side of gasoline prices. When the economy is at a low usually people will have less money to spend but this has the least amount of effect because big corporations use a lot of gasoline to work their machines. During economic growth, most companies produce more goods, and this will in turn use more gasoline. The major oil companies will
The National Energy Board (NEB) was established through the National Energy Board Act to make sure that long-run supply of natural gas in Canada will be adequate enough to meet the needs of the country before any export license could be issued. Towards this end, a Market-Based Procedure (MBP) was adopted by the Board in the year 1987. This procedure is based on the argument that market conditions would ensure the competitiveness and efficiency of the natural gas industry and subsequently fair market prices for consumers. For this to be realized however, it was expected that no abuse of market power or barriers to entry would exist as is the case in monopoly markets. The MBP was implemented immediately after the Government of Canada and the governments of the three gas-producing provinces – British Columbia and Saskatchewan – entered into a treaty to deregulate the natural gas industry. This treaty, known as the Agreement on Natural Gas Prices and Markets was signed on 31 October 1985 (National Energy Board (a) 1). The policy has had a significant impact on the natural gas industry as well as on the entire Canadian economy.
The Agreement resulted in a landmark alteration of the Canadian natural gas market by permitting the buyers of the gas to enter into direct supply contracts with producers, marketers and other agents involved in the distribution of the gas at prices which have been freely negotiated by the parties concerned. Before the Agreement was signed, the price of the natural gas distributed between provinces was under stringent regulations by the federal government and the government of Alberta. In addition, consumers of gas from non-producing provinces could only purchase the commodity from a pipeline company at a bundled price which incorporated the price of the commodity itself, the cost of production as well as the cost of transporting the commodity from the point of production. This bundled price was much higher thereby making the natural gas too costly for most consumers. The deregulation of the natural gas industry was therefore a blessing to consumers because it increased competition in the industry forcing the market players to bring the commodity closer to the consumers at relatively fair prices. However, did not affect the deregulation policy the pipeline transmission segment of the industry due to its monopoly features. One of the prerequisites for creating a competitive natural gas market was the provision of a transparent non-discriminatory access to all distributors of gas across provincial borders. Despite the deregulation, the industry is still closely monitored by the Board to ensure that the prevailing market conditions reign in the industry (National Energy Board (a) 1-2).
The formation of natural gas price in Canada
The price of natural gas that is paid by the final consumers such as residential or commercial consumers has three components namely: the gas commodity price, transportation costs and distribution fees. This price is dependent on the quantity of gas bought. Whereas the price of the gas commodity itself is not regulated, the transportation costs and distribution charges are regulated by different authorities. In Canada, the interprovincial and international transportation cost – that is, the cost of moving the commodity by a pipeline from the production points to final distribution points – is regulated by the National Energy Board. On the other hand, interstate and international transportation costs in the United States are regulated by the Federal Energy Regulatory Commission (FERC). The importance of mentioning the U.S. in this case is because of the integration of the Canadian and American natural gas markets which formed the North American gas pipeline. In the two countries, distribution fees are controlled by the respective provincial, territorial and state government officials (NEB (b) 4).
The structure of transactions in Canadian natural gas market
The purchase and sale of natural gas continue to be an evolving process which is detected by the prevailing market conditions. Presently, the commodity can be purchased or sold on either short-term or long-term basis depending on the preferences of the consumers. Such prices are established in particular sites, referred to as trading hubs. Trading hubs are the locations where the natural gas is physically traded. The price of natural gas purchased and sold can be established “on a daily, weekly, monthly, seasonal, annual, or longer-term basis” (NEB (b) 5) and varies from one trading hub to another. Whereas a longer-term contractual sale of natural gas is allowed, the actual price is normally determined by a monthly reference price of a trading hub other than the hub in which the contract is being made. Market liquidity of the natural gas market is affected by the length of the long-term contract. That is, a longer contract decreases the market liquidity while a shorter contract increases the market liquidity. The majority of the contracts are between one and three months. These contracts also witness the trade of the greatest volume of the commodity. This trend is evidenced by the increase in the short-term export orders and a decrease in the long-term export orders.
Integration of the North American market
The deregulation of the Canadian natural gas industry brought about significant changes in the industry, one of them being the integration of the Canadian and the U.S. gas markets into the North American gas market. The deregulation resulted in the elimination of numerous barriers which in turn created a conducive business environment for the market integration. Indeed, the integration began immediately after the agreement came into effect in 1985. The market integration implies that the purchase and sale of the commodity can be done freely from the two countries’ numerous market centers. This is realized through the North American pipeline grid. As a result of the integration, the natural gas industry is subject to market forces of demand and supply operating in the North American region. Such market forces affect not only the price of the commodity but also the flow of the commodity in Canada and within the North American region. For instance, if the price of natural gas in Canada increases relative to the price in the U.S., natural gas sellers would prefer to sell the commodity in Canada where they are assured of fetching higher revenues. On the other hand, the supply of the commodity in the U.S. would fall. As more and more suppliers shift to Canada relative to the U.S., market forces would put a downward pressure on the price of the commodity in Canada and it will start to fall. On the other hand, the scarcity of the commodity in the U.S. would put an upward pressure on the price of the commodity in the U.S. and the price of the commodity would start to rise. This process would continue until equilibrium in the market is restored (National Energy Board (b) 6).
Other economic effects of the deregulation policy
The deregulation of the price of natural gas in Canada means that such prices are determined by the market forces. This policy has significant economic effects on the Canadian economy some of which are: demand, supply, and market psychology.
Demand for natural gas following the deregulation policy
High demand for energy is determined by a strong economy. During the 1990s, the North American economy was very strong as evidenced by the economic boom particularly of the housing and construction sectors. The growth of these sectors significantly increased the demand for natural gas. National Energy Board (b) states that “from 1991-1999, two-thirds of the new homes and 57 percent of the new multi-family buildings constructed were heated with natural gas,” (9). The demand for natural gas was also high in the commercial and industrial sectors. The high demand has been partly due to the increased efficiency in the production of the commodity as well as relatively fair prices resulting from stiff competition in the market following the deregulation policy.
Closely linked to the increased demand is the increase in the volume of natural gas sales. Before the implementation of the policy, all direct sales of the commodity were carried out in Alberta. The direct sales volume at that time represented a mere nine percent of the total gas sales volume. By the year 1995 however, the direct sales volume of gas had increased by fifty percent to fifty-nine percent of total sales volume. The deregulation policy enabled commercial and industrial consumers to take complete advantage of the opportunity to buy the commodity directly from the suppliers as well as the stiff competition between suppliers.
Competing fuel prices
National Energy Board (b) states that, “fuel switching is a temporary change from one fuel to another fuel at a particular facility and acts to limit gas price increases,” (10). Consumers often make decisions concerning the type of fuel to use at any particular time. Such decisions are usually based on different factors such as relative prices of the fuels, availability of the fuel, and fuel efficiency. Unfortunately, the ability of consumers to switch from one fuel to another is not well developed in Canada as compared to her neighboring U.S. This inability is partly as a result of unavailability of alternative fuels and partly due to underdeveloped infrastructure necessary for the fuels’ distribution. Nevertheless, the prices of natural gas are closely related to the prices of oil. Hence, if the price of oil increases due to conditions in the world market, the prices of natural gas will also increase and vice versa.
An illustration is the increase in oil price that happened in the late winter of 2001/2002. During this time, oil price increased from US $20/bbl to US $28/bbl within a span of few weeks. Following suit, the price of natural gas also increased from US $2.50/MMBtu to US $3.40/MMBtu within the same period of time (NEB (b) 10). Such price fluctuations often cause great supply and demand problems in an economy. The situation is worsened when suppliers take advantage of the situation and hike the prices well above the market prices. The only option for consumers in such situations is to switch fuels at least until normalcy returns. Consumers who lack alternative fuels suffer the most because they are forced to consume the commodity at those exorbitant prices (Don and Frank 254). Lack of regulation in such a market therefore harms consumers because the government lacks the ability to control the high prices charged by suppliers and producers. This is one of the greatest disadvantages of the deregulation policy adopted by the Canadian governments in relation to the natural gas industry.
Natural gas storage
Storage of natural gas is important in ensuring that high demands for the commodity during peak seasons are met. In Canada, the peak season for natural gas normally lasts between November and March of the following year. The other months are normally considered to be the non-heating season. It is the season which gas suppliers use to build their stock of supplies in preparation for the peak season. Besides addressing increased demands during the peak seasons, gas storage is also used to physically cushion the market against price fluctuations. The volume of gas stored in the storage facilities is a great determining factor of the prices of natural gas. If the stored gas is not adequate enough to meet the needs of consumers, the demand for the commodity will be higher than the supply and thus the prices would rise significantly, and vice versa.
The increased competition in the Canadian natural gas industry as a result of the deregulation policy ensures that the commodity’s suppliers have adequate storage of the commodity to meet consumers’ needs (NEB (b) 10-11). Suppliers who do not store adequate gas supply are likely to lose out on consumers and revenues too. The deregulation policy therefore provides a great advantage to consumers in this respect. On the other hand, the stored gas may not be adequate enough to meet consumers’ needs particularly in situations of increased demands. When this happens and the utilization capacity of the stored gas approaches optimal levels, it is only natural for prices of gas to skyrocket. Lack of regulation in this scenario is harmful to the consumers because the government cannot protect the consumers from exploitative behaviors of suppliers (Don and Frank 254).
Market psychology
Deregulation of prices and the subsequent high competition in the market create what Economists term as “market psychology”. This phrase refers to the behaviors of suppliers and consumers when they anticipate the occurrence of certain events that are likely to alter the prevailing market conditions. For instance, when suppliers anticipate that there will be shortage of commodity in the commodity, they are more likely to hoard the commodity at the present so that they can sell it in the future at inflated prices. The reversed scenario is also possible. For instance, suppliers may anticipate increased supply of a commodity and therefore they will lower the commodity’s price. Natural gas as a natural resource is very sensitive not only to the world market conditions but also to natural and political occurrences. As a result, anticipation of any future event by suppliers will affect the supply/demand equilibrium as well as the gas prices. Without regulation of the commodity’s prices by the government, consumers are more likely to suffer from exploitation (NEB (b) 11).
LDC purchasing practices
Immediately after the deregulation policy was instituted, the commodity price in the local distribution companies’ (LDC) gas purchase agreements was bargained on a yearly or bi-annual terms, without any room for price alterations afterwards. At the present, majority of LDC gas purchase agreements are based on the market forces where prices are determined by index-based devices which change on a monthly basis. For instance, from 1993 the pricing mechanisms of long-term agreements between LDCs in Ontario and Manitoba and TransCanada Gas Services have been done using an index-based mechanism that uses the prices listed on the New York Mercantile Exchange (NYMEX). In addition, the companies have been able to implement risk management strategies that have enabled them to cushion themselves against price volatility (NEB (a) 30).
Summary
Advantages of the deregulation of gas prices in Canada
Increased competition in the market – the policy enhanced competition in the gas market which in turn has enhanced the efficiency with which the commodity is produced and sold, and the supply of the commodity.
No abuse of market power – the deregulation policy led to the elimination of the possibility of market power abuse due to stiff competition in the industry. Abuse of market power is only possible in monopoly markets.
Direct contact between the consumers and suppliers – the policy has enabled consumers to purchase the commodity directly from suppliers thereby lowering the price of the commodity significantly.
Increased sales volume – the deregulation policy has increased the volume of gas sales in the country. This is because consumers can make use of the direct sale contracts that the policy introduced.
Market integration – the policy led to the integration of the Canadian and U.S. natural gas markets. This integration provides many economic opportunities for the two countries.
Disadvantages of the deregulation of gas prices in Canada
Potential for exploitation of consumers by suppliers – deregulation of the natural gas fails to protect consumers from exploitation by suppliers for instance when demand surpasses the supply.
Problem with market integration – the market integration that was made possible by the deregulation policy poses significant vulnerabilities for the Canadian gas industry. Any market condition that negatively affects the gas industry in the U.S. will also affect the Canadian gas industry.
Competing fuel prices – the deregulation policy also cannot protect consumers from exploitation that results from competing fuel prices. If oil prices increase, the gas prices will also increase. Due to lack of regulation in the market, suppliers can easily take advantage of the situation and exploit the consumers.
Market psychology – the determination of gas prices through the market forces creates market psychology among suppliers and consumers. Anticipation of future events has significant impact not only on the supply/mechanism interactions but also on the price of the commodity.
Conclusion
The deregulation policy of the Canadian natural gas industry was introduced in 1985 with the signing of the Agreement on Natural Gas Prices and Markets by the Canadian governments. The price deregulation affected only the commodity price and not the transportation costs or distribution fees involved. The policy still exists today. Since then, many changes have taken place in the gas industry. On the one hand, the policy has increased the potential for suppliers to exploit consumers in certain situations. On the other hand, the policy has had significant positive effects on the Canadian economy such as increased competition, enhanced efficiency, increased sales volume and market integration with the U.S. natural gas market. Indeed, the Canadian economy, particularly the natural gas sector, has grown tremendously since the deregulation policy came into effect.
Works Cited
Don, Anderson, and Finn Frank. “Regulation and deregulation of the supply of bulk liquid petroleum gas in Queensland: A case study.” Economic Record, 70.210(1994): 253-261.
National Energy Board. Natural gas market assessment 10 years after deregulation. Calgary, Alberta: Regulatory Support Office National Energy Board, 1996.
National Energy Board. Canadian natural gas market. Dynamics and pricing: An update. Calgary, Alberta: The Publications Office National Energy Board, 2002.