Gas price Research Paper Example | Topics and Well Written Essays - 1250 words

Gas price - Research Paper Example 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 â€Å"price spikes† or â€Å"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 addit ion, 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 secto r 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 pri ce 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