Demand And Supply Of Gas In Australian Local Marketâ€Free Samples

Question: Discuss About The Supply Of Gas In Australian Local Market? Answer: Introduction The article titled Australia curbs LNG exports amid domestic gas shortage by Jamie Smyth on 27th April 2017 talks about the shortage of gas in Australias domestic market and the measures being taken to curb the situation. There are discrepancies between the supply and demand of gas in the local market. The demand for liquefied natural gas in the domestic market has grown, and yet the supply is insufficient to check on the escalating demand. The aftermath of this situation has been shortages and price increases for domestic consumers. The government is concerned about the deficit as the local industry will be disrupted significantly. According to the Australias Prime Minister, Malcolm Turnbull, it is unacceptable for Australia to be one of the largest global exporters of liquefied natural gas and yet the Australian businesses and households are experiencing a shortage. As a result, the government has introduced Gas Security Mechanism to protect the interests of local homes and businesses. Under this arrangement, the leadership will be in a position to restrict the exportation of gas in case of scarcity in the domestic market.[1] This regulation has raised concerns among the producers and analysts who argue that the scheme will increase uncertainty in the industry and could further interrupt the domestic supply. Economic Analysis Demand for Gas Liquefied natural gas is a valuable resource to households and business community in Australia. Therefore, as the incomes of Australians rise, the demand for gas increases considerably. The need to adopt cleaner energy has also increased the demand for this resource among the firms. Additionally, as more enterprises are being set up, the need for the liquefied natural gas has increased.[2] The increase in the use of the gas in the local market has made the prices to increase. Graph 1: Increase in Demand for Gas The rise in the use of liquefied natural gas by Australian households and the firms is shown by the shift in demand curve from D0 to D1. This situation has increased the quantity of gas demanded and also a hike in the price. The amount of gas supplied by the producer is Qe while the quantity demanded is Q2. The gap between Q2 and Q1 depicts the shortage. The price has increased from P1 to P2. The Supply of Gas The increase in the price of gas in Australia also results from disruptions in the provision of this resource. Studies reveal that several factors are impeding the provision of gas to domestic consumers. Foremost, the firms involved in exploration and production of gas have concentrated in generating for exports thus creating a shortage in the local market.[3] Some policies by states are also hindering the capacity of companies to deliver sufficient gas to the Australians. For example, states like Victoria and Northern Territory have regulations restricting the extraction of new gas reserves. Furthermore, lack of adequate infrastructures is limiting the efforts by producers to provide adequate gas to the local users.[4] These factors among others have contributed to the tightening local gas provisions resulting in a sharp rise in prices. Graph 2: Decline in domestic Gas Supplies The drop in supply of gas in the domestic market is shown by the change in supply curve from S1 to S2. This shift results in a decline in the amount of gas provided to the market from Qe to Q1. On the other hand, the prices increase from Pe to P1. Recommendations The shortage of gas is detrimental to the Australian local industry. As the prices increases, the cost of doing business in this country is rising and thus denying the domestic companies a competitive advantage. Some corporations may be forced to close their businesses while others shift their operations to foreign markets and thus job loss. Restricting the exportation of gas will obstruct the established investments and also negate Australias net export income. Therefore, the government should concentrate on those plans that will increase the provision of gas to local industry to ensure long-term certainty. Some of these schemes include the following. Relax Laws Hampering the Exploration of New Gas Reserves Foremost, the territories with restrictions on the exploration of new gas reserves should relax such limiting regulations to accelerate the supply of gas to the consumers. The removal of bans will enable the exploration of additional gas to facilitate Australias goal of being a net exporter and at the same time meet the demand of local consumers. Boost Competition Moreover, the Australian Competition Commission has a critical role to play in enhancing the functioning of Australias gas industry. This body should put measures in place to boost competition in the gas sector by availing timely, reliable and sufficient information to both producers and consumers. Healthcare competition is instrumental in lowering the costs and attracting new firms to the industry to increase the supply of this resource.[5] Provide an Enabling Environment Ultimately, the government should provide a conducive environment to companies involved in exploration and extraction of natural gas. For instance, the leadership of this country should develop key infrastructures such as roads and pipelines. Better roads and pipelines will enable easier and fast movement of gas to the market and also lower the costs involved in transportation. Increasing access to credit and finances is also another way the government can support the activities of producers to supply sufficient gas to local and foreign market. Conclusion The domestic market in Australia is encountering shortages in liquefied natural gas. While the demand for this resource among the local businesses and households is on the rise, the supply is insufficient to deal with the escalating demand. The aftermath of this scenario has been an increase in the price, and the government has responded by restricting the exportation to curb on shortages. This move by the government will only provide a short term solution, and therefore there is a need for a permanent way out. Some of the ways Australia can use to ensure long-term certainty in this sector include relaxing laws hampering gas exploration, boosting competition and providing an enabling environment to the business community. References Clark, Robert Graham, And Mark Thomson. Transport Fuels From Australia's Gas Resources : Advancing The Nation's Energy Security. Sydney: Unsw Press, 2014. Grafton, R. Quentin, And N. Ross Lambie. "Australia's Liquefied Natural Gas Sector: Past Developments, Current Challenges And Ways Forward." Australian Economic Review, 2014: 509-522. Haslam Mckenzie, Fiona. "Delivering Enduring Benefits From A Gas Development: Governance And Planning Challenges In Remote Western Australia." Australian Geographer, 2013: 341-358. Mokhatab, Saeid, John Y Mak, Jaleel V Valappil, And David A Wood. Handbook Of Liquefied Natural Gas. Burlington : Elsevier Science, 2013. Smyth, Jamie. Australia Curbs Lng Exports Amid Domestic Gas Shortage. April 27th, 2017Answer:. Https://Www.Ft.Com/Content/6411b380-2b01-11e7-9ec8-168383da43b7 (Accessed August 24th, 2017) [1] Smyth, Jamie. Australia Curbs Lng Exports Amid Domestic Gas Shortage. April 27th, 2017. Https://Www.Ft.Com/Content/6411b380-2b01-11e7-9ec8-168383da43b7 Management (Accessed August 24th, 2017). [2] Grafton, R. Quentin, And N. Ross Lambie. "Australia's Liquefied Natural Gas Sector: Past Developments, Current Challenges And Ways Forward." Australian Economic Review, 2014: 509-522. [3] Mokhatab, Saeid, John Y Mak, Jaleel V Valappil, And David A Wood. Handbook Of Liquefied Natural Gas. Burlington : Elsevier Science, 2013. [4] Clark, Robert Graham, And Mark Thomson. Transport Fuels From Australia's Gas Resources : Advancing The Nation's Energy Security. Sydney: Unsw Press, 2014. [5] Haslam Mckenzie, Fiona. "Delivering Enduring Benefits From A Gas Development: Governance And Planning Challenges In Remote Western Australia." Australian Geographer, 2013: 341-358.