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Economic For Business Demand And Supply Of Certain

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Question:

Discuss about the Demand and Supply of Certain Resources in Australia.
 
 

Answer:

Analysis of the news article  

The topic is selected from the ABC news which is uploaded by the Nick Harmsen on 9th March 2017. This article talks about the demand and supply of gas resource in Australian market. This article was presented by the Australian energy market operator which indicates about the shortage of gas supply in Australia (Harmsen, 2017). Gas is a major resource in the market and it can impact the several activities of small business and households. Gas market of Australia is increasing rapidly from last one decade. In this article it is stated that the lower supply of gas in the Australian market would affect the nation’s power supply. In Australian market, the equilibrium in the supply and demand of gas is not meeting. At the same time, the Australian population is increasing rapidly so it can also threaten the supply of gas in the market. Owing to this, the residential and business would be impacted by the lesser supply of gas (Austrade, 2013). Further, the New South Wales and southern Australia would be affected by this lower supply. It is stated that if the supply is not meeting up to the level of demand it resulted into the increment in the price of the gas. From this demand and supply, New South Wales and Southern Australia would be influenced and price of the gas would be increased up to the $14000 per megawatt hour (AEMO, 2016). Along with this, it is also discussed that the lower supply of gas would create a challenge for the energy sector to increase the production of gas (Industry, 2016). Further, the higher demand would influence the commercial and non- commercial people. 

The economic analysis

Australia is one of the most leading economy in the world which is growing rapidly. Oil and gas industry in Australia has a significant contribution in the economy through investment, job opportunities and revenue (Industry, 2016). Further, the contribution is expected to $67 billion by 2030. Demand and supply are the important concepts in microeconomics and these can affect the market scenario of a particular product. Demand can be defined as an ability of consumers to buy the product at specific price (Bumas, 2015). Further, price is major concern in demand of a product. The demand of gas has increased due to the lower production of the gas and the households and commercial business are demanding more gas. On the other hand, supply refers to the quantity of a product that is available in the market at a specific price and customers are ready to buy it on that price. The supply of the gas resource is less as compared to the current demand in Australian market (Energyexempler, 2014). Along with this, the consumption of the gas has increased from last five years. To meet the specific demand, it is requires to increase the supply by 363 gigawatt hours. In summer season, the demand of the electricity is more as compare to the other season.

It is stated that the demand of resources increases if the price decreased or the price of substitutes increases but some of the resources are necessary to use then the demand of these resources increases without any price movement (Erickson, 2014). The same situation arises here with the energy industry due to the high demand in market.          

Demand and supply equilibrium is a state when there is a balance between the demand and supply. It may be affected by the situation factors that lead to the unbalance between the demand and supply movement (Boys, and Melvin, 2013). Australia does not have enough gas production to satisfy the arising demand. The unbalance between demand and supply would be challenging for Australian marketers to control the short term and long term impact. Industrial processing is the important component which initiated the demand increase rapidly. Moreover, the price for the gas has also increased by 60% due to heavy consumption (ABC, 2015). It is also found out the export of the liquefied natural gas has increased it would also influence the pricing of the gas in market. Apart from this, the finance is a major problem for the gas companies to expand the business in this sector and adopt the innovative ways to meet the demand.           

Demand and supply curve

Figure: Demand and Supply

(Source: Boys and Melvin, 2013)

From the graph of demand and supply it can be reviewed that the market is pool of demand and the supply meet the same by time passing and a time when the demand and supply are equal it called equilibrium situation. On the other hand, In Australian market the situation is too critically for the supply of gas for households and commercial purpose.    

It is expected the supply of the gas in market would be 20% less from the year 2017 to next five years it would influence the energy sector negatively by reducing the revenue and the hike in the price.

 

Recommendations to the key players in Australian gas market  

Australian market would face the unbalance between the supply and demand of gas resource in perspective market so the leading companies and governments can resolve this problem through underpinning the potential demand of gas. Further, the government can support the oil and gas companies though supporting them by providing finance to develop more projects (Industry, 2014).  Along with this, government can also subsidize the energy sector those are performing well and contributing to the economy well. This economic unbalance would also impact the revenue and operations of small industry because of high cost to buy the gas. To overcome the situation there are many other sources are available which can be used as substitutes like solar power and wind power. It can be recommended to the market players that they can produce more by maintaining the cost for it.                  

On the other hand, gas can be imported if the demand is highly exceeded. Along with this, the energy market can invest in new pipelines projects to mitigating the demand and the new field for the execution of gas can be explored (ABC, 2017). Moreover, energy market can effectively execute the policies which can help the market players to increase the production. With this, companies can transport the gas from where is it cheaply produced at the different locations. New liquefied natural gas projects may also be an alternative solution for this problem and fetch the demand for long term.              

Conclusion

Australian eastern market is facing the problem of sufficient supply for gas because the high demand in the market. Demand crisis would impact the oil and gas business because of less supply, revenue would be affected. On the other hand, energy market companies and government is the major players that can draw the policies to meet the high demand of gas. Government can provide the fund for new fields and project development at low interest rate. It can be concluded that there are various source available as substitutes for the gas as production of electricity by solar and wind. Attractive investment may support the energy sector to develop the new project and increase the production of gas to satisfy the demand.

 

References:

ABC, (2015). Australian oil reserves below international standards and will cost billions to fix, energy white paper says. Retrieved from: https://www.abc.net.au/news/2015-04-08/australian-oil-reserves-substandard/6377160

ABC, (2017). South Australia's power woes expose deeper problems with nation's energy security. Retrieved from: https://www.abc.net.au/news/2017-03-09/political-leadership-needed-to-secure-future-of-energy-supply/8339116    

AEMO, (2016). NATIONAL GAS FORECASTINGREPORT. Retrieved from: https://www.aemo.com.au/-/media/Files/Gas/National_Planning_and_Forecasting/NGFR/2016/2016-National-Gas-Forecasting-Report-NGFR-Final.pdf    

Appea, (2014). Oil and gas one of Australia’s top value-adding industries. Retrieved from: https://www.appea.com.au/media_release/oil-and-gas-one-of-australias-top-value-adding-industries/ 

Austrade, (2013). INDUSTRY OVERVIEW. Retrieved from: https://www.austrade.gov.au/oil-and-gas/  

Boys, W. and Melvin, M. (2013). Fundamentals of Economics. USA: Cengage Learning. 

Bumas, (2015). Intermediate Microeconomics: Neoclassical and Factually-oriented Models.UK: Routledge.  

Energyexempler, (2014). Analysing the Demand – Supply Dynamics of the Australian South Eastern Gas Market Using PLEXOS. Retrieved from: https://energyexemplar.com/wp-content/uploads/2014/09/Analysing-the-Demand-Supply-Dynamics.pdf 
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