Production Cost Of Production Costs

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Production costs. According to Wagner (2008) oil is grated by its viscosity (light to heavy) and by the amount of impurities it contains (sweet to sour). The heavy/sour crude is more available, but less preferred as it contains impurities and needs more processing to refine into gas. The cost of processing heavy/sour crude oil is high; this is why the price of sweet/light crude oil is much higher than heavy/sour crude oil. So, high production costs of gas make the supply elasticity lower. Transportation costs. States that are farther from the source of supply will have higher prices because of high transportation cost. State or companies have to invest in technology as tankers, pipelines, blending terminals etc.
Technology. Getting out of ground and processing crude oil need high capital investment in technology. Investing in new technology would result in easier and faster production i.e. in elastic supply, but the high cost of it makes the supply less elastic.
2.2 The factors that affect gas demand
Elasticity of demand explains buyer behavior in response to price changes. An elastic gas demand is when buyers can easily buy less when the price is higher and more when the price is low. But when the demand is not elastic, they can because air pollution and stimulate alternative energy, it is better for the consumer to substitute gas with other energy sources that are environment friendly. This confusion leads to an inelastic gas demand in the short-term, but elastic in the

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