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 as well price volatility implications to the oil and gas companies and industry. Supply and demand factors play a major role in shaping natural gas prices in addition to other factors such as war, environments and OPEC. Value-at-Risk (VaR) as a tool to manage risk and quantify market risk is used in this industry to understand causes and implications for corrective actions to be put in place. Introduction The global economy is driven by energy markets. Energy does not only play a significant role in consumer products…show more content…
Evaluation of risk levels using the standard Historical Simulation method with a confidence level of 95% will used to calculate expected loss and effects of data set discussed. 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 points that recent changes in natural gas market are attributed to market forces and organizations that operate within the industry. As 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 such as house cooling and heating, and business composition determinants and cost of goods and service; its pricing is fundamental for correct and efficient choice of appropriate energy source. (Davis L. W. and Muehlegger E. 2010). As Energy Information Administration-EIA 2014 puts it, total natural gas consumption within industrial and electric power sectors in the U.S. was expected to grow from the 25.6 trillion cubic feet (Tcf) in 2012 to 31.6Tcf in 2040. The use of this energy source 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
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