U.S. Natural Gas Market Essay

Paper Type:  Essay
Pages:  8
Wordcount:  2002 Words
Date:  2022-05-17

By 2015 the U.S was the leading producer of natural gas which sums up to 20%-25% of the world's total oil supply. Natural gas and oils amounts to about 50% of total America's energy. Technological advancements of oil extraction methods and high demand in the international market have increased the production of natural gas in the U.S. Advancements in horizontal drifting and hydraulic fracturing has made the production process more economic. Natural gas is common commodity in all US households. We probably use natural gases or oils in our everyday lives from cooking to fuelling our cars. The increased supply of gas has also directly reduced prices to its consumers than in other oil-producing countries. The oil industry divided into three phases; the upstream that includes extraction and production, the second phase that involves transportation and refining and the last stage that is marketing and distribution. This gas is drilled in wells as crude oil, processed and impurities are removed and separating it with products natural gas liquids (NGLs). Then it is then transported in a high-pressure pipeline system that directs it to storage and distribution stores. These stores then distribute it to consumers. In this paper, I will discuss on how the oil market works and the role of U.S. in the international market.

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In recent years the natural gas market has been evolving rapidly due to the revolutionary Shane in the U.S and high demands of LNG in the international markets. There was an increased natural gas production over the decade by about 50%. Therefore leading to an excess supply of oil in the U.S local market hence the need to look for, potential international customers to meet their supply. Several factors influence the pricing of oil in the market. In the year 2016-2017 natural gas prices production reduced by almost 2-3 Bcf. Therefore, the consumer prices for oil rose up. The forward curve model projects the prices of oil to stick at $3 for the next decade. For the need to control oil market prices there should be serious attention on demand elements for example; continued natural gas exports demands and energy industries.

An increase in production of any commodity will lead to its excess in the market. Therefore, lowering the prices is the only solution that will have the market shift back at equilibrium since it will be affordable for many consumers. The supply of oil surpassed the demand rates, therefore, having consumers paying smaller quantities than other oil-producing countries. From 2000-2009 the demand for industrial natural gas reduced but in turn, the demand for natural gas rose up. Since this period the demand has been on a positive note though slowly growing.

The state also can interfere with prices to make sure there is a fair play for both the seller and the buyer. The government may sometimes set regulations or change its taxing on the natural oil products thus affect its market price. The gas retailers always shift their costs regularly in response to any new legal restriction. The assurance of having the market demand for your product in the future years has an indirect impact on price (Moniz 2011). The continued rise of industries, residential and commercial heating, cooking and lighting all need natural gas for their operations, with the currently small costs is a good reason for every consumer to consider switching to use this form of energy. This assurance gives the oil investors a hope that there will be no depreciation in oil prices they will continue to rise in the next coming years.

Competition from alternative products was weak. Coal was competing against natural gases in the market, but coal is expensive and still pollutes the environment more than natural gases. The need to have a sustainable environment in the year 2030 makes the existence of coal industries at risk of insolvency (Kilian 2009). Therefore the low competition from other competitive products gives a chance for more natural gas supply to the market.

Weather also affects the prices of oil for example during winter seasons. For example, when the storage amounts are low during autumn to meet demand expectations during winter, the companies will have to exaggerate the prices so only a few can afford and make it easy for them to supply during the entire winter season continually. In freezing winters, seasons will make it hard for extraction and production processes to go through therefore the prices of oil might rise.

Some producers have the abilities and the structures to distribute directly to consumers or large companies who need large quantities of the natural gas while others buy from these production companies and then distribute to consumers. Natural gas is traded on a spot market basis where long duration contracts are signed at fixed prices or based on market indexed price system. The market ensures both the customers and sellers meet at one point to ensure effective negotiating and settling upon a fixed price for all. Financial instruments can also be used when trading upon exchange to mitigate your financial risk due to price volatility. The Henry Hub can be defined as the standard unit price for the North American natural gas. Its strategic positioning with well-connected pipelines from 13 different producers makes Henry Hub the central delivery point of the New York Mercantile Exchange's (NYMEX) futures contract. Apart from this trading market, they are other trading points in Ontario, Chicago, Alberta, Citygate, and others. NYMEX futures contract requires the sellers and buyers to have a contractual agreement that the seller will deliver the oil to the buyer at the future specified time indicated by the deal after payment of the agreed amount. Factors affecting demand and supply also makes the prices of oil change regularly; so it's better to be always updated before doing any transactions. Most of the natural gasses customers' purchases are made via telephones or through the internet. After agreeing on a price, the buyer says the location he wants the delivery to be made. The last week of the month is the bid week for all those who want to trade within that month. In this week both parties agree on the price to pay while the delivery will be done in the following week. Due to high returns investments, many customers prefer to trade in longer-term contracts. That will provide oil for a specified period. These longer terms contracts don't have fixed prices, but their prices were related to the index market prices traded at the moment. If you are a risk-averse investor in this industry, you are advised to lock the price; you should only purchase when the price favors you on the market for deliveries to be done at a specified future date to avoid fluctuation of prices risk. Future markets also predict the future expectations and how they will affect oil prices.

I appreciate the way the market works for now since coal is degrading the environment and still more costly than natural gas. Therefore, it will be even easier to convince other countries to buy more of these gases in the campaign to take the world in attaining a sustainable environment and these will, in turn, will bring more revenues to the state. LNG exports from the West and East coast of the United States to countries like Japan, China, and South Korea prices are not related to oil prices (Moniz 2011). Therefore making the US receiving good returns from this exports too. LNG U.S. exports are a significant challenge in maintaining the global gas market since the Henry Hub does not affect its pricing in the market. To increase the productivity of a country, therefore, all companies need supply of source of energy continuously. The increased of natural gasses production and lower cost associated with it, has helped companies afford more units of electricity and run in longer hours.

As the price of a given product increases, consumers will be able to look around for lower prices. This is a fundamental microeconomic law that applies to natural gas consumers as well as any other consumer product. Fracking ensures that the distribution of natural gas grows therefore increasing the available supply to consumers. In 2014, it was indicated by the Energy Information Administration that fracking was the main reason for the decline in the prices of natural gas. Fracking will help create a significant domestic supply source which will help to reduce the dependence on foreign markets and also help in lowering the overall prices of natural gas. It has improved the overall production of natural gas in many basins of the United States which include Haynesville, Woodford Barnett, Utica, as well as Marcellus shale formation (Jackson 1). Increasing the overall supply of natural gas has helped lower the prices. This is evident in Barrack Obama's energy plan which indicates that oil production in 2010 reached the highest level from 2003. Natural gas also reached a 30-year high, leading to lower prices.

Lowering the demand is also another method in reducing the cost of natural gas in the long run. 70% of the country's natural gas supply is consumed through transportation. Therefore, finding ways of reducing driving help in lowering demand and eventually the prices of gas. Mass production of vehicles running from alternative sources of energy could also reduce the fuel prices in the long haul.

It is clear that increasing the domestic supply is one of the best methods of improving the prices in future. On the other hand, lowering demand through introducing alternative energy sources as well as finding stable international suppliers can also help. Through these methods, the impact, on the short term will be minimal, but over time it will help the United States to lower prices.

Careers in the petroleum industry are varied in skill level as well as in educational attainment. It is therefore important to have adequate knowledge in this field if you want to pursue a career in petroleum technology. Petroleum engineers are always at the forefront of making sure that we all have an abundance of the supply levels of gas and oil in an environmentally sustainable and safe manner. As I pursue my career in petroleum technology, knowing natural gas demand, supply and pricing will help me a lot. By attending conferences and seminars relating to natural gas as well as petroleum, I will gain a deeper understanding of the current rate of gas supply, its demand and also the pricing which will be crucial details in the process of my career.

In the pursuance of my career, I will be able to determine the factors that cause the prices of natural gas to shift. I will be able to know that an increase in supply pulls prices down and vice versa. On the demand side, I will be able to identify the factors that cause the shift in the prices of natural gas such as economic conditions, weather patterns as well as the prices of petroleum. In industries such as the shale oil industry and shale gas industry, the employers are always looking for skilled personnel to join them in the organization. I believe that the knowledge I gain as I pursue my career will land me in the Shale Gas industry or its equivalent. Knowledge in the industry will make me see the endless opportunities and make me move along my career path displaying good work ethics as well as showing initiative. Hard work and time, I will be able to move up quickly along my career path.


When I get employed in a petroleum or natural gas related field, the knowledge gained from the classroom will be of crucial help as I apply it in my field of employment. With this knowledge, I can be able to identify how the market works and give my input on when to increase the supply and when to reduce the demand.

Being an employee in the sector will also put me at the forefront of coming up with many different ways of improving the prices of n...

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U.S. Natural Gas Market Essay. (2022, May 17). Retrieved from https://proessays.net/essays/us-natural-gas-market-essay

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