The recent surge in oil prices has made many consumers around the world happy. In the United States, however, the sudden increase in the cost of natural gas has created added expenses for homes and businesses that use the fuel to heat their homes or operate their businesses.
At $7 per million BTU, natural gas has become the second-most expensive fuel in the world after oil. As a result, many households and businesses are being hit with added costs from the increase in the cost of natural gas.
The increased price of natural gas has several causes. The main one is the extraction of shale gas, which is found in the U.S. and other parts of North America. Shale gas is natural gas that is trapped in the ground for a period of time, often because it is contained in tight shale formations.
This process of hydraulic fracturing, or fracking, is what has caused the current increase in natural gas prices.
Read on to learn more about the impact of natural gas price spikes on inflation and how they could impact the economy in the future.
What is Shale Gas?
Shale gas is natural gas trapped in the earth’s subsurface. The natural gas in shale formations is very tight and very difficult to extract. It can be found in the United States and parts of Western Europe. Unlike other types of natural gas, which are obtained through the combustion of fossil fuels, shale gas is produced by extracting otherwise inaccessible shale formations. The process of shale gas extraction is similar to the process used to produce oil and gas.
Natural Gas Prices and Inflation
The most obvious effect of increased gas prices is on inflation. Higher gas prices tend to raise prices throughout the economy. This means that while the cost of living will rise, the government’s overall spending will rise less as people start to adjust their spending to higher prices.
When it comes to the inflation effect of natural gas, there are a few things to keep in mind. The first is that consumers will face higher costs. The second is that manufacturers will face stiffer competition, which will lead to higher costs for them as well. However, manufacturers are less able to pass these costs onto consumers, so the overall price effect on consumers is relatively small.
Some people worry that higher gas prices will lead to higher inflation because the cost of living is rising even though personal income is rising. However, personal income is determined by many factors including employment and business sales, so it is important to separate this effect from the inflationary impact of higher gas prices.
Shale Gas and the Increase in Natural Gas Prices
The main reason natural gas prices have increased as they have is because of the fracking process. The fracking process is what makes natural gas profitable, and it is what makes natural gas expensive. As more areas adopt this method of extracting gas, the price of natural gas will rise because more areas will be able to profit from the same amount of natural gas.
However, there are many other factors that have led to the current rise in natural gas prices. The main one is the extraction of shale gas, which is very profitable now but which will become less profitable as new sources are discovered and exploited.
Other less tangible reasons include changes in the global economy, changes in energy taxation, and increased demand for electricity as people start to use natural gas as an alternative fuel for their cars.
Shale Gas Explained
Shale is a type of sedimentary rock that is typically found in mid- to higher elevations in the northern part of the United States. It is harvested for its energy source, shale gas. The shale formation that contains the commercially valuable shale gas is located in the Marcellus Formation, which is part of the Utqiaġvik geologic province of the Appalachian Mountains. The formation is named after the city of Utqiaġvik in the eastern part of the country.
Implications of Natural Gas Price Spikes
As natural gas prices increase, it will become more expensive to transport the fuel and more expensive to store and sell. As a result, companies will face higher production costs which will affect their business operations.
Some people worry that higher gas prices will lead to higher inflation because the cost of living is rising even though personal income is rising. However, personal income is determined by many factors including employment and business sales, so it is important to separate this effect from the inflationary impact of higher gas prices.
Shale Gas and the Consumer Spending Outlook
The main reason consumers purchase gas is to heat their homes. Since the price of natural gas is increasing, consumers should expect to pay more for the fuel in the future. Because of these price spikes, consumers should expect to spend a bit more money on their monthly bills as well.
However, the main reason people will increase their spending on other goods and services is due to the fact that they will be more aware of the price increase and they will be able to budget for it. This means that people will spend more money and spend longer hours at the stores.
Shale Gas and the Retail Sales Outlook
Also, as consumers spend more money at the gas pump, they will be more inclined to buy other products that use gas. This will drive total retail sales and spending at brick-and-mortar stores up.
When people drive more and use more gas, we can expect sales at gas stations and at other places where people fill up their cars, like the grocery store, to be higher.
The overall impact of this is that total retail sales will increase and people will spend more money overall.
This effect is likely to be the most significant impact of all as it will be the one that people are the most aware of.
Shale Gas and the Future of Natural Gas Prices
With the rise of natural gas as an energy source comes a rise in the price of energy products. The price of gasoline is one example, however, and it shows how price affects almost all goods and services.
When the price of a good or service goes up, people’s spending increases as well. Since people will spend more money when they are more aware of a price increase, we can expect the price of natural gas to go up as well.
Preparing for the Rise in Natural Gas Prices
One way to prepare for an increase in natural gas prices is to look at what other countries are doing. Norway, for example, has found a way to lower its gas prices using renewable energy. Another way to prepare is to look at your bills and see where you can cut back on energy bills.
Another way to prepare is to use aero- Engines and Electric Vehicles
Bottom line – Should You Be Worried About Natural Gas Prices?
The main reason people should be worried about the rising cost of natural gas is that it is one of the main sources of energy for many homes and businesses. The price increase will result in higher energy bills, and this will tend to decrease consumer spending.
The price increase will also reduce the supply of natural gas and will reduce theortunate of the American people, who will end up paying more for the same amount of energy.
