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Evolution of the price of gas

In deregulated markets, the price of gas depends on 2 fundamental variables: supply and demand. The price of gas varies on a regular basis. Here we analyses the fluctuations in the price of gas.

What factors affect the price of gas

The price of gas depends on the law of supply and demand. The price of gas varies on a regular basis. More specifically, the factors which may affect the price of gas are:

  • The availability of gas. All types of fuels, fossil fuels, nuclear fuel, and other types of fuel (including natural gas) have a certain cost of extraction. This will influence the price of the fuel: If the availability is low, then the gas will be more expensive.
  • Transportation. The transportation of the gas from the point of exploitation to the consumer is done through the transmission and distributions pipelines, and this has a cost. The farther away the source of gas is from the point of demand, the more expensive the transportation will cost.
  • Regulation. In the US, some energy markets are regulated and some are deregulated. In regulated markets, the price of gas is decided by the state's PSC (Public Service Commission). If a resource becomes more less available, rendering the gas more expensive to produce, utility companies must make a request to the state's PSC to increase the price of gas, or else they may face bankruptcy.

Seasonal changes strongly affect gas prices

Gas prices for residential customers in the US change by more than 50% between winter and summer. Contrarily to popular thought, gas prices in the US are highest in summer and lowest in winter.

 

Here we see that the residential price of gas peaks in between the months of June and September, and is the lowest towards the month on January.

Gas prices with or without inflation

Did you know?
Energy prices tend to increase every year, but this is due to inflation. This means that it is not only the price of energy that increases each year. The price of any good for sale will increase due to inflation. In order to make a proper analysis of the energy prices increase, one must use inflation stabilized data.

 

The red curve shows the actual variation of gas prices in comparison with previous years. It has actually stayed rather stable over the past 20 years, taking inflation into account.