Energy Price Volatility With Regards Natural Gas

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Executive Summary
In this paper, energy price volatility with regards natural gas will be expounded on the essentials of market requisites. The report explains a number of factors that lead to price differences in the market and price volatility implications to oil and gas companies and industry. Supply and demand factors play a major role in shaping natural gas prices but factors such as war, environment and OPEC contribute to price differentials. Value-at-Risk (VaR) evaluates and quantifies risk for the industry as a risk management tool.
Introduction
Global economy is driven by energy markets. Energy does not only play a significant role in consumer products but also an important input in nearly all the industries. (Efimova O. and
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Finally, recommendations and a conclusion made on natural gas price volatility based on the analysis and information discussed in this report.
Overview
Huntington H. G. 2009 mentions that recent changes in natural gas market are attributed to market forces and organizations operating in the industry. As the industry develops into new end –user markets and producers, prices adjust according to the changes in the market.
Due to the key roles of energy influence on global economic welfare, pricing is fundamental for correct and efficient choice of appropriate energy source. (Davis L. W. and Muehlegger E. 2010). Energy Information Administration-(EIA) 2014 says the total gas consumption within industrial and electric power sectors in the U.S. will improve from 25.6 trillion cubic feet (Tcf) in 2012 to 31.6Tcf in 2040. Natural gas usage escalates in all sectors apart from residential due to population movement to warmer areas (EIA 2014) figure 1. For instance, in 2010 approximately 25% of energy consumed in the U.S. came from natural gas (Lv X. and Shan X. 2013). This indicates prices may adjust to demand changes accompanying its usage.
Figure 1 Natural gas consumption in various sectors, 1990-2040 Source: EIA.2014
The World Market Intelligence 2015, points out that natural gas levels of production and consumption in the U.S. are
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