Economic Profile on the Oil and Gas Industry
The oil and gas industry is one of the most talked about industries today, at least in my town it is. Everywhere I go I hear people talking about the rise or fall in gas prices or how the cost of a barrel of crude oil has just gone up or down .10 cents. I also hear about how the current hurricane season could pose a threat to the oil industry, as it did last year with hurricane Katrina, putting oil refineries under water or causing extreme damage to them. In this essay I am going to discuss the shifts and price elasticity of supply and demand in the oil and gas industry. I am also going to discuss the oil and gas industry’s positive and negative ...view middle of the document...
Traditionally, gasoline use in the U.S. rises about 1.5% each year. But in three of the six months from September -- immediately following the Gulf Coast hurricanes -- through February, gasoline consumption fell compared with a year earlier, according to data from the U.S. Energy Information Administration. In the three months in which it grew, it never rose by more than 0.4%. Yet in March, as gasoline prices soared, demand appeared to return to more-robust levels, growing by 1%, according to preliminary data. (Whitehead, 2006)
In the case of price elasticity of supply, it is the affect of the price of a good on the quantity supplied. If the quantity supplied is substantially affected by the price it is said to be elastic. On the other hand, if the quantity supplied is not affected much by the price it is said to be inelastic. I would have to say that the oil and gas industry is elastic because when the price changes the oil and gas industry is forced to produce their products with the demand and the demand changes with the price. “…as the U.S. gasoline market winds down from a summer of record breaking prices — as ever-growing demand reached the limits of the country’s refining capacity. As tight inventories and fears of supply interruptions sent prices soaring this spring, U.S. refiners stepped on the gas pedal”(Schoen, 2004).
Positive and Negative Externalities
“Externalities are the costs and benefits of an industry to those outside the industry” (Institute of Petroleum). In the oil and gas industry there are both positive and negative externalities as there are with most other industries. The positive externalities of the oil and gas industry are support of local communities that they are associated with and, obviously, producing a product that almost everyone uses. The negative externalities of the oil and gas industry are the air pollutants and the water pollutants.
For example, by employing more than a thousand people, Coryton refinery has a positive benefit on local businesses where employees spend their incomes. It is estimated that the refinery supports indirectly about 2300 jobs in the local community and puts about £50 million a year into the local economy. The principal negative externality is air pollution. The Environment Agency issues licenses for the refinery to release given amounts of gases to the atmosphere each year and does spot checks to ensure that these are adhered to. By far the largest waste gas in carbon dioxide. Tall chimneys help to disperse waste gases rapidly. Details on these emissions are available at www.environment-agency.gov.uk. Coryton also has two water outfalls. However, water pollution is prevented by a refinery moat system that collects all surface runoff for treatment prior to discharge into the Thames and by the treatment of all cooling water before it is discharged into Holehaven Creek.
(Institute of Petroleum)
The income inequality in the oil and gas industry is increasing...