Can anyone explain why the Gas companies can justify the increase in prices due to the high cost of oil.?

Question

Relatively little oil is used in gas production (drive gas rig, power gasline pumps, etc). Are the Gas/Oil producers suddenly switching from gas to oil production when the price of oil is high, if so then supply and demand would by default lower the price of oil. No, I think it is just another excuse that the government is allowing for price hikes. I wonder where the politicians have their investments? We used to have the lowest costed petrol and diesel in the original E.C., what happened now we are producers, we the public pay for the privilage?

Answer 1

did you hear a while ago about large foreign companies buying our gas and selling it back at silly prices?

This is because although we produce lots of off shore gas...we dont have the storage capacity during the summer months..so sell it to over seas comapanies..like europeans who have MASSIVE stores...when we run low..we go back to them...cap in hand and say...

"please can we buy back the gas we sold you"

the companies then add on lots of cash to the sale for the trouble!

the govenment should not only temper climate and energy issues...but also make it a requirement that these big firms make nough storage for ourselves instead of once AGAIN..we get hung drawn and quatered by those european ideots!

as with oil..the americans have such a high usage of oil that the markets are flooded with demand from them. the arabs can sell it off at any price to them as the americans need it to fuel industry.

I belive that the arabs and americans are working together to keep prices high. The russians also have a massive stock of oil, but are reluctant to sell up..

Answer 2

Gas and oil are, to some extent, substitutable goods: they're both fossil-based fluids that store energy. So, in theory, if gas were a lot cheaper than oil (for the same amount of energy), people would convert cars, oil-fired heating systems, power stations, etc to run on gas. This would raise the demand for gas and reduce the demand for oil, raising gas prices relative to oil prices.

Rather than let this happen through market forces, the gas companies preemptively raise their prices in line with oil. This maintains the status quo. They do it because they know they can justify it economically and get away with it.

Answer 3

I assume you mean natural gas not gasoline for cars which is made from oil. All energy sources are substitutes for some uses,  so when the price of oil increases people and industries that can, switch to natural gas increasing the demand. This will increase the price of natural gas also.

Europe has much higher  taxes than the US on oil which discourages it's use by making prices higher. This means they are more energy efficient so they use less and their economy is being hurt much less by the current price increases

Answer 4

This question has been asked many times in many different ways. Please search for an answer before you post.

There are many explanations for the increase of gas prices.

1.The Producer Price Index is increasing meaning that products are becoming more expensive for companies to produce.

2. High demand, limited supply.

3. Price inelasticity

4. Government legislation requiring additives to be placed in gasoline to improve air quality increase costs of fuel and can complicate supply b/c different regions of the US use different additives.

http://www.gao.gov/new.items/d05421.pdf

Answer 5

As far as natural gas is concerned, there is some switching between energy sources when the price of one is higher than the other.  One barrel of oil contains about the same amount of energy as 6 MCF (thousand standard cubic feet) of gas.  So, on an energy content basis, at $10/MCF, natural gas has an equivalent cost of about $60/barrel.  That is, gas is half as expensive as oil; gas is thus the preferred energy source for those that have the flexibility to switch.  

However, increasing demand for gas (as a substitute for oil) is only a small part of the equation.  Consider that in drilling for oil and for gas, these industries are highly related -- they compete for the same resources:  Drilling rigs and services, geologists, engineers and other qualified personnel, steel and pipelines, construction materials etc, not to mention capital investment dollars.  All of these resources are in tight supply and costs are going through the roof.  With oil costing more than gas and potentially being the more profitable commodity, the tendency is for more resources necessary for exploration and production to be pulled towards oil.  Fewer resources dedicated to exploration and production of gas results in decreasing gas production, and rising prices.

Answer 6

How else do you expect the big oil CEO's to pay the mortgage on their 4th 15,000 sq ft mansion?  The poor fellows :-p

Please answer my question here

http://answers.yahoo.com/question/index;...

Answer 7

Probably the chairman's car is getting more expensive to refuel ;-)

Answer 8

this was a desition made some years ago by the e u to cap the price of oil and gas together so that people or rather companies would not use to much cheap gas