Demand And Supply Of Oil and Gas In Australia

Question: Discuss about the Demand and Supply of Oil and gas in Australia. Answer: Introduction: One of the most significant theory of the micro economic analysis is the demand and supply. Demand is defined as the willingness of the consumers to pay for the available goods and services at the specified price and supply on the other hand is the quantity of goods and services, which the producers are willing to supply in the market at the prevailing price. The market is attained to be ta equilibrium when the demand for the product and services are equal to the supply, which is the rare condition in the economy. The report is presented considering the oil and gas market as the product and the factors affecting the demand and supply of the gas and oil in Australia (Cashin et al. 2014). Australia is known for the production of resources such as oil and natural gas. The market of gas in Australia has irrevocable connection with the global gas market. There seems to be strong future growth of the oil and gas industry in Australia. There are several factors determining the domestic demand of oil and gas in Australia such as competition prevailing in the economy and short run netbacks and the cost incurred by the firms in increasing the supply (Varian 2014). In spite the rising price of crude oil, the demand of the crude oil in increasing and the oil and gas sector in Australia is among the six core sectors. Discussion: There are several factors influencing the demand and supply of gas and oil in Australia. The demand of oil and gas depends upon the several factors such as the prevailing price, price of related commodities, price of its substitutes, income of economy, population and the taste and preference pattern of the consumers. On the other hand, the supply of the product depend upon the cost of factors of production, cost of production, future anticipation about the prices and many more. The oil and gas industry in Australia is impacted by factors such as subsidies on oil and gas products, environmental issues, requirement of advanced technology for the upstream segment (Psacharopoulos 2014). The demand of the natural gas oil in Australia is mainly affected by the price affordability and the lower availability, limited gas import facilities and distribution infrastructure and inadequate transmission. The demand of oil and gas in India has been forecasted to rise because it is regarded as the most important source of energy to meet the growing demand (Gntner 2014). If we consider the law of demand, which states that the price and the quantity demanded of oil and gas varies inversely. The customer experience a fall in the quantity demanded due to higher price and vice versa. Figure 1: Market demand curve of oil and gas (Source: created by author) The supply of gas and oil varies directly that the price and demand flows in the same direction. If the price of oil and gas rises, the producers are willing to supply more at the prevailing prices and vice versa (Rios et al. 2013). If the supply changes due to factors other than price, then there will be shift in the supply curve. Figure 2: Supply curve representing the supply of oil and gas (Source: created by author) Figure 3: Long-term energy outlook of Australia (Source: industry.gov.au 2016) The graph indicate the possible future energy demand over the next twenty years. The consumption gas would continue to grow at the similar rates in the past. The domestic supply of gas in Australia is under enormous pressure and the country is facing huge demand both internationally and nationally. The country has suffered tyranny of distance from demand but there exist the substantial opportunity to supply the growing international demand of oil and gas. Figure 4: Investment made by Australia despite the fall in demand of oil(Source: industry.gov.au 2016) Australia has the largest capacity of oil and gas supply and despite of this fact, the exports would be lower than anticipated. The macro economic factors affecting the supply of the gas and oil industry in Australia would create an impact on the quantity demanded which will cause the shift in the curve towards the right. Australia is adding 60 million tons of LNG exports and in terms of supply; the country will exceed the other major oils producing company. The demand growth of LNG will be strong and it will be outweighed by the upcoming additions made to supply. The existence of lower price and the excess supply will make it difficult to underwrite more investment. Figure 5: Demand and supply curve of LNG growth in new markets (Source: industry.gov.au 2016) It can be seen from the above graph that the demand of the Australian market of oil and gas was not high and the factor was mainly attributable to the international market pressure rather the price. This trend was observed in the early 1990. Prior to 1990, the supply and demand of the Eastern Australian gas market increased and a huge development was made in the export of oil and gas. Considering the case of Brown Surat gas fields it was observed that the supply of the LNG from the gas field in the upcoming twelve years was not entirely available in the Australian domestic market. The fall in the supply of LNG was attributable to some external reasons. The country faced a deficit in supply of gas in the market, even though there was enough gas to meet the eastern reserve supply and there was also no shortage of demand. Conclusion: It can be concluded that the demand and supply of oil and gas in Australia is not only dependent on the price but also on the several exogenous and endogenous factors. There is the excellent opportunity for Australia in the industry if oil and gas. The price of gas has increased three fold in the last five years. If Australia introduce new exports markets, then it will contribute towards the upward trend in the economic growth. References: Anderson, D.R., Sweeney, D.J., Williams, T.A., Camm, J.D. and Cochran, J.J., 2016.Statistics for business economics. Nelson Education. Bridge, G. and Le Billon, P., 2013.Oil. John Wiley Sons. Cashin, P., Mohaddes, K., Raissi, M. and Raissi, M., 2014. The differential effects of oil demand and supply shocks on the global economy.Energy Economics,44, pp.113-134. Gntner, J.H., 2014. How do international stock markets respond to oil demand and supply shocks?.Macroeconomic Dynamics,18(08), pp.1657-1682. Gntner, J.H., 2014. 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