Economics Oil and Gas in Australia

Question: Discuss about theEconomicsfor Oil and Gas in Australia. Answer: Demand and Supply of Oil and gas in Australia and Factors other than price which affect Demand and Supply: Introduction: Demand and supply are considered as the most significant tools of micro economic analysis. The term demand refers to the quantity demanded for the desired product and purchased by the buyer at a given level of price which represents the supply of the product with the quantity demanded for the product which a market can offer at a given price level. The current report is based on the Australias oil and gas markets by taking into the considerations the factors effecting the demand and supply. The eastern Australian gas market is irrevocably connected to the global gas market. The LNG market in Australia is facing excess supply capacity with increasing uncertainty. Domestic prices is determined by a combination of factors which consists of short run netbacks, cost of new supply and competition. Investment in new supply and production capacity is essential to support the eastern Australian industry (Bowen and Sosa 2014). Crude oil demand is increasing and will keep on increasing in the coming years despite the rise in price hence increasing consumer demand for petroleum products annually is due to the rise and demand of the non-availability of cheap alternatives. Thus, consumer and business are anticipated to be acting in their own self-interest. Discussion: Demand supply of a product largely depends upon the several different factors. Demand and supply of Oil and gas industry depends upon the price of the product (Px), price of related commodities, consumer income, population or number of consumer, test and preference. On the other hand, supply of oil and gas is dependent upon the price of product such as cost of production, price of factors of productions, future anticipations concerning the price level etc. Before considering the demand and supply of oil and gas industry in Australia and factors other than price affecting the demand and supply a detailed analysis is conducted on the mechanism of demand and supply in macro-economic analysis (Edler and Yeow 2016). In Australia, there exists a several resources such as natural resources, mining resources and agricultural resources however, the demand-supply analysis for these resources are more or less considered identical. There exists a noteworthy difference between the two aspects with prevailing circumstances of exogenous factors of the economy, which introduces different result in demand and supply analysis of oil, and gas (Rao 2016). For instance, taking into the consideration the illustrations of Eastern Australian Gas market there prevails an asymmetry of options in demand and supply theory. Figure 1: Demand and supply curve of LNG growth in new markets (Source: Obizhaeva and Wang 2013) During the early years of 1990s, the demand in the Australian Natural Gas market was not high due to international market pressure and not due to the price level. After the period of 1990s, with huge development made in large scale export of oil and natural gas both the demand and supply of Eastern Australian Gas market have increased with the passage of time. For example, if we take into the consideration the case of Bowen Surat gas fields in Australia it is observed that in the upcoming twelve years the supply of LNG from the gas field was not entirely available in the Australian domestic market (Soderbery 2015). However, there were no common reasons for fall in supply of LNG and such situation occurred entirely due to the external reason. During this phase of twelve years all gases produced from this oil field in Australia contracted to LNG export. Even though there was enough gas to meet the supply of the eastern reserve with no shortage of demand zone however, there was deficit in the supply of gases in the market. Figure 2: Market Demand curve for LNG (Source: Roberts and Schlenkera 2013) The drivers of the domestic gas price is anticipated to change in the production phase with domestic price of gas are anticipated to be disconnected from the long run LNG netback prices. On the other hand, in the short run netback, cost of supply and competitive conditions in the supply of gas to LNG manufacturers and domestic market are predicted to set the domestic prices. The macro-economic demand side factors, which influence the price and supply of Oil and natural resources, will create an impact on the quantity demanded for the given product and each of these factors will cause the demand curve to shift. With the law of demand coming into play if a demand factor causes demand to increases, the demand curve will shift to right and alternatively if a demand factor leads to decrease in demand the demand curve will shift to the left side (Jain, Tantri and Thirumalai 2016). Some of the most important significant factor, which affects the demand for goods and service, consists of disposable income, price of substitute, changes in interest rate and growth in populations forms the most important determinant demand and supply. Figure 3: Supply curve representing supply of LNG (Source: Soderbery 2015) A growing population will significantly need more energy to consume and it is not surprising that the consumption for natural resources will increase every year. Only few substitutes may be used instead of the product in question and it is worth remembering that one of the prime reasons for the downward sloping of demand curve is only when the price of natural resources increases. Several studies have illustrated that breadth of possible future energy demand concerning the long-term outlook seems to be uncertain but natural gas holds the best possible prospect amongst other non-renewable resources (Obizhaeva and Wang 2013). It is assumed that the consumption of gas will continue at similar rates, which may force consumers to shift to alternatives such as coal and oil. Considering that substitute becoming cheaper with projections that demand will fall leading to shift in the demand curve as consumers have relatively shifted to cheaper mode of energy consumption. Conclusion: To conclude with it is understood that the demand and supply of any commodity not only remain dependents on the price of the commodity but also some endogenous and exogenous factors affecting the demand. It is often noticed that several treasurers have boasted that Australia have experienced continuous economic growth for the last 25 years however, such series of economic reforms have required real investment and activities to occur. Thus, it should be noted that introducing new export markets for Australian gas has contributed to current economic upward trend. Reference List: Bowen, W.G. and Sosa, J.A., 2014.Prospects for faculty in the arts and sciences: A study of factors affecting demand and supply, 1987 to 2012. Princeton University Press. Edler, J. and Yeow, J., 2016. Connecting demand and supply: The role of intermediation in public procurement of innovation.Research Policy,45(2), pp.414-426. Jain, A., Tantri, P.L. and Thirumalai, R.S., 2016. Downward Sloping Demand Curve, Price Pressure, or Slow Moving Capital?: Evidence from an Exogenous Supply Shock.Price Pressure, or Slow Moving Capital. Obizhaeva, A.A. and Wang, J., 2013. Optimal trading strategy and supply/demand dynamics.Journal of Financial Markets,16(1), pp.1-32. Rao, B.B. ed., 2016.Aggregate demand and supply: a critique of orthodox macroeconomic modelling. Springer. Roberts, M.J. and Schlenkera, W., 2013. Identifying supply and demand elasticities of agricultural commodities: Implications for the US ethanol mandate.The American Economic Review,103(6), pp.2265-2295. Soderbery, A., 2015. Estimating import supply and demand elasticities: Analysis and implications.Journal of International Economics,96(1), pp.1-17. Varian, H.R., 2014.Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton Company.