In macroeconomic analysis demand and supply forms the most vital tool. Demand can be defined as the quantity demanded for product or services, which is purchased by the buyer for a certain level of price. This signifies that the supply of goods with the quantity demanded for the goods in the market can be offered for a given level of price (Baumeister and Peersman 2013). The present essay is concerned with the Australian oil and gas market by denoting the factors that affect the demand and supply of oil and gas.
The eastern region of the Australian oil and gas market is irrevocable associated with the internal gas market. With increasing amount of uncertainty, the LNG market of Australia is facing excess supply capacity. Short run netbacks, aggressive competition and cost of new supply are the set of factors that determines the domestic prices. To extend support to the Australian industry making investment in new supply and production size is considered vital. Despite the growing prices of crude oil, the demand for it has been constantly increasing over the years and it will continue to increase in the coming years as well. Therefore, the annual increase in the demand of the consumer products is due to the rise in non-availability of cheap alternatives. Thus, both consumer and business are expected to be acting in their self-interest.
Several factors mainly depend upon the demand and supply of products. The demand and supply for oil and gas industry is largely dependent on the price of the commodity, income of consumers, number of customers, taste and preference and price of related commodities (Cully, Thomas and Whitelaw 2017). Simultaneously, the supply of oil and gas is reliant on the price of product such as cost of factors of production, future price expectations, cost of production etc. A detailed analysis is performed on the mechanism of the demand and supply of oil and gas industry prior to considering the demand and supply in Australia along with factors other than price affecting the demand and supply.
There are numerous resources in Australia such as mining resources, agricultural resources and natural resources but the demand and supply of these resources are regarded to be identical (Qanbari et al. 2015). There is a difference between the two components due to the exogenous factors of economy that reflects different outcome in the analysis of demand and supply of oil and gas. For example considering the illustration of Eastern oil and gas market of Australia there exists a asymmetrical choices in the theory of demand and supply.
Following the period f 1990s, huge development was made in the large-scale export of oil and gas. With the passage of time both the demand and supply of Australian gas market have increased. For instance, taking into the considerations the Bowen Surat gas fields in Australia it was noticed that the supply of LNG gas from the field was not obtainable in the Australian domestic market (Stoeglehner et al. 2016). No common reason was depicted in the declining supply of LNG and the occurrence of such situation was entirely due to the external reasons. During the phase of twelve of years gases generated from the Bowen Surat gas field in Australia contracted to LNG export. Although the resources were enough to satisfy the supply of eastern reserve with no lack of demand, the market witnessed a deficit in the supply of gases.
The drivers of domestic gas are expected to change during the stage of production as the domestic gas prices is expected to disassociate from the long run price of LNG net back. Simultaneously, in the short run netback the cost of supply and competitive circumstances are forecasted to set the domestic price of LNG manufacturers in the domestic market (Rios, McConnell and Brue 2013). The macro-economic demand factors influencing the supply and price of oil and natural resources is anticipated to affect the quantity demanded for the product. Furthermore, each of these factors is expected to cause a shift in the demand curve. Considering the law of demand, if the demand factors leads to an increase in demand then the demand curve will shift towards the right side. Alternatively, if the demand factors leads to fall in demand the it will cause the demand curve shift towards the right side (Daniel 2014.). The most significant factors affecting the demand for goods and service comprises of disposable income, price of substitute commodities, changes in rate of interest and population growth forms the most significant determinant of demand and supply.
With the growth in population, there will be significant need for energy consumption and it is not surprising that demand for natural resources will increase over the years. Only few substitute might be used in its place for the commodity in question. It is worth mentioning that downward sloping of demand curve is primarily related to the increase in the price of natural resources. Studies have indicated that the extent of likely energy demand in future concerning the long-term outlook seemed to be undefined however; natural gas forms the best possible alternative among the non-renewable resources (Makowski et al. 2017). The consumption of natural gas will continue that might force consumer to shift to alternative products such as coal and oil. This will lead to fall in demand and will ultimately lead to shift in demand curve since consumers have shifted towards economical mode of energy consumption.
Several treasurers have asserted that Australian economy has continued to experience growth over the past 25 years. The essay depicts that the demand and supply of the commodity is not dependent on the price of the commodity but also on the endogenous and exogenous factors as well. . It is noteworthy to denote that introduction of new export market for Australian oil and gas products has significantly contributed to the growth present economy. However, such series of economic reformation has required actual investment and activities to occur.
Baumeister, C. and Peersman, G., 2013. The role of time?varying price elasticities in accounting for volatility changes in the crude oil market. Journal of Applied Econometrics, 28(7), pp.1087-1109.
Cully M., Thomas N. and Whitelaw D., (2017). [online] Available at: https://industry.gov.au/Office-of-the-Chief-Economist/Events/Presentations/Documents/Factors%20influencing%20Australias%20gas%20supply%20and%20demand%20-%20speech.pdf [Accessed 24 Apr. 2017].
Daniel, V., 2014. Demand and Supply: Case study. Docs. school Publications.
Makowski, M., Piotrowski, E.W., S?adkowski, J. and Syska, J., 2017. Profit intensity and cases of non-compliance with the law of demand/supply. Physica A: Statistical Mechanics and its Applications.
Qanbari, S., Li, F., Dustdar, S. and Dai, T.S., 2015, April. An Economic Model for Utilizing Cloud Computing Resources via Pricing Elasticity of Demand and Supply. In International Conference on Cloud Computing and Services Science (pp. 47-62). Springer International Publishing.
Rios, M.C., McConnell, C.R. and Brue, S.L., 2013. Economics: Principles, problems, and policies. McGraw-Hill.
Stoeglehner, G., Narodoslawsky, M., Erker, S. and Neugebauer, G., 2016. System Interrelations Between Spatial Structures, Energy Demand, and Energy Supply. In Integrated Spatial and Energy Planning (pp. 11-34). Springer International Publishing.
Witt, U. ed., 2013. Escaping Satiation: The Demand side of economic growth. Springer Science & Business Media.
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