Despite the fact that many politicians would like to take credit for lower gas prices while blaming their opponents for higher costs, gas prices are mostly determined by market factors. Gas prices are influenced by legislation and policy, but no single person or entity has authority over them. And the effects can be seen across the board. In the face of a 500 percent price increase in just one year, some of the world’s largest LNG importers are now cutting orders, raising fears among LNG’s major producers about potential long-term demand disruption.
Implications of a Spike in Gas Prices
Because it burns cleaner than oil and coal, natural gas is seen as more acceptable as fossil fuels go, as developing nations such as India, Pakistan, and China attempt to decrease carbon emissions. However, rising natural gas costs are forcing power companies to switch to coal and fuel oil, and new investments in LNG in Southeast Asia, which was supposed to be the epicenter of LNG demand growth, are being reconsidered.
In the United States, global gas prices can have a direct impact on the economy. In fact, many industry experts believe that a spike in gas prices has the potential to have a big influence on the economy. When customers spend more or less on gasoline, they have less money to spend on other products and services, which can have an impact on overall demand. Furthermore, gasoline prices are determined by the price of crude oil, and variations in crude oil prices can impact inflation. Crude oil price increases frequently precede recessions.
Factors that Cause Gas Prices to Spike
The cost of gas normally rises during the vacation driving season, which runs from April through September. Since transportation expenses and production costs are reduced in the winter, prices tend to decline. Few people know this, but in the US, the reduction in gas prices during this season even compensates for an increase in home heating oil use in northern parts of the United States throughout the winter.
Also, whenever the supply increases, gas prices tend to fall. This may happen in a variety of ways, such as OPEC decided to release more oil, or shale oil companies discovering a new big resource or even the adoption of new cutting-edge technologies being introduced in the oil and gas sector can result in a dip in gas prices due to the use of more efficient extraction processes.
Reducing Gas Prices
So, the next obvious question is, how do we reduce gas prices? The most immediate thing we can do is cut our gas use by driving less or improving our fuel economy. We saw that during the 2020 lockdown due to the coronavirus pandemic, gas prices plummeted because of more people staying at home and lockdown restrictions across the world and several US states.
But, come March 2021 and the lifting of those lockdown restrictions, gas prices once again started to climb, fueled by more people getting out of their homes and driving again. So, it’s safe to say that our lifestyle can have a direct impact on fuel prices.
That being said, there are also some other steps that consumers can take to help bring down their monthly fuel costs. For instance, maintaining proper tires is a simple method to increase fuel economy. It is also a known fact that maintaining correct engine tuning may save you up to $0.13 per gallon. Another way of reducing gas prices is to make good use of public transport.
The good news is, in the US and many other countries in the developed world, public transportation is available to those living in the city. People are reducing the burden of fuel prices on their budget by simply relocating closer to their place of employment to cut down on commute time. The truth is that we can reduce our reliance on oil and gas in the long run by moving to electric cars. As the demand for gas falls, so will its price.
Tension in the US Oil and Gas Sector
As the United States and many other countries limp forward while battling a global pandemic, export terminal operators in the US showed a sigh of relief at the beginning of 2020. Initially, higher prices were welcomed by large US export terminal operators. However, cost volatility made it increasingly difficult to sign new long-term contracts, which is frustrating because they know they will only be able to increase incremental export capacity in the coming year.
It’s a similar situation on the other side of the Atlantic. Natural gas prices in the United Kingdom and Europe soared earlier in the year, trading at over ten times their start-of-year levels, which sent the energy sector and stock prices into a flurry. However, the skyrocketing gas prices dramatically reversed course just hours after Russia’s President Putin hinted that the country’s major gas exporter, Gazprom, would be raising its supply to help Europe escape a full-fledged energy crisis. This news couldn’t have come sooner for residents in the UK, who have witnessed one of the biggest fuel shortages in decades, and are still struggling to get all of their fuel stations up and running due to the shortage.
At the end of the day, the consumer needs to be aware of the global changes and challenges that have an impact on gas prices. However, that being said, it is also true that the price that you pay for gas in the US also depends on where you live. For instance, it is no secret that folks who live in states such as Nevada, California, and Hawaii pay the highest average gas prices in the US, while other states such as Mississippi, Louisiana, and Texas paying the lowest prices.