MAJOR and social tensions in the Middle East

MAJOR GLOBAL AND LOCAL FACTORS THAT AFFECT THE PRICE OF NATURAL GASNatural gas is one of the most important sources of energy that can be harnessed for industrial production purposes and for household use, and its price can have a great impact on the economic development of a country, including total production and inflation. Natural gas prices are largely dependent on market supply and demand.Various factors from the supply side affect the price of natural gas in different ways. One may look at the production levels and associated resource costs like machine upkeep, as well as labour costs at major sites in countries like United States of America, Russia and Iran. Increases in output accompanied by the introduction of more efficient, cost effective drilling techniques such as the production of natural gas from shale formations dampen the price of natural gas. However, as a consequence of the reduced prices, producers are demotivated and they are likely to reduce drilling thus reduction in output, which may eventually drive up prices.In addition, seasonal weather changes such as the outbreak of hurricanes can force offshore rigs and refineries to slow down or shut down production as they pose an operational threat to workers and facilities. The reduced productions will in-turn drive up prices. During such periods, countries and individual firms will likely have to resort to their storage facilities. The cost of maintaining storage facilities itself influences the end price for the consumer in that sudden rise in the fees associated with storage levels can cause increases in the price of natural gas. It is also worth noting that a lower demand for natural gas means more storage time, which causes storage-level linked costs to rise. For countries like the United Kingdom (UK), where imports make up the majority of natural gas supply, prices tend to be high. This is because money has to be paid for the pipelines and the takers used for transportation. An online article by Reuters back in 2015 revealed that the current UK domestic supply is inadequate to meet demand; the gap is met through imports with expenditure reaching as high as $11 billion.  To remain competitive, the importations are passed onto consumers through price hikes.Political and social tensions in the Middle East also drive up prices of fuel. How so? From the supply side, a lot of uncertainty comes from the possibility of war crippling global export prospects for oil and natural gas. From the demand side, economic growth is highly correlated with the prices of natural gas. As an economy grows, so does the price of natural gas. In an economy like the UK’s, having unprecedented growth of the commercial and industrial markets, demand for natural gas continues to spike and rise. Companies continually experience increased demand for the various products they offer, which in turn increases their consumption of natural gas. This can be either through using it as a power source in production and/or as a feedstock for those that are in the fertilizer and pharmaceutical industries. This has the overall effect of raising the price of natural gas.In addition, the use of fuels for industrial operations depends largely on price and availability. Companies always look to leverage the cheapest natural fuel source because cost cutting and efficiency have become paramount in the corporate sector. Due to the inter-related nature of the fuel markets, a swing in interest to any particular fuel source tends to drive down the price of the others. In this case, if the one in favour is natural gas, its price will go up. Although most of the switching occurs between natural gas and oil, natural gas and coal markets can also interact when the price of natural gas falls significantly. In extension, electricity generation using natural gas can become attractive relative to coal-fired electricity generation in some areas of the country when the price of gas on an energy equivalent basis becomes less than that of of coal. Also with natural gas, the power station does not have to be large scale; it can be a small microturbine (relevance?). However, switching may not always be possible as sometimes upfront capital investment may be required, which may be prohibitive in some situations.With more people becoming environmentally conscious, the low risk profile associated with natural gas make it attractive. It gives out less carbon dioxide and it is cleaner burning than any other fossil fuel (really?). This in turn means a positive outlook in consumer demand in countries like UK where there are strict regulations and policies like the “Low Carbon Transition Plan”, which encourages the use of environmentally friendly energy sources. Furthermore, the concept of energy efficiency is continually being addressed in government and being vouched for by consumer advocacy groups across the globe. While the basic advantages to investing in energy efficient appliances are well known in both residential and commercial settings, current regulations do not take into account the total energy efficiency measured directly from the source. Natural gas processing and combustion is extremely efficient, losing very little of its energy value as it reaches its point of end use. Electricity, on the other hand, measured from the point of generation to the wall socket, is much less efficient. Increasingly strict regulations regarding total energy efficiency may therefore make natural gas the more desirable efficient energy source for residential and commercial appliances. In conclusion, the natural gas market is affected by four primary factors: weather, natural gas inventory, natural gas production and what is occurring in the market place with other fuels – primarily oil. Changing supply/demand fundamentals, unpredictable weather, the emergence of a global liquid natural gas market and dynamic natural gas storage data have all contributed to the recent increase in natural gas price volatility. The market ebbs and flows much like the formidable stock market, with various fragilities in the core and in the periphery. Any one of these factors can have great influence on how natural gas is priced.