The Cost Of High Transportation Costs

The fluctuation of gas prices occurs because of a number of factors; the price of crude oil, the price of manufacturing, the price of corn is all tied to the price of oil and the price we see at the pump for gas.

However, other vehicles are being made such as hybrids that use less gas as well as natural gas or biodiesel, which may change how inelastic this commodity is. There are substitutes but the primary infrastructure is designed with fossil fuel delivery in mind. Almost all vehicles run on gas it is needed with little to no substitute

While oil and natural gas are fossil fuels that release harmful greenhouse gases into the atmosphere, these energy sources are cleaner than coal, which is on the decline as fracking expands. Indeed, coal production fell thirteen percent from 2007 to 2012, as did nitrogen dioxide and sulfur dioxide production. Moreover, pipeline transportation of oil and natural gas is significantly safer than traditional freight methods, which have devastated many communities around the world and cost millions of dollars.

The state adopted a new regulation on the quality of fuel, thus raising prices of production of the good. Among other things a great amount of additional environmental guidelines have all contributed to sky-high prices. As a result in 2006 gas was 23 cents higher in the state of California than the national average. Other control within the government has contributed to the shut down of many small refineries in the state only 14 refineries remain. Since there are so few refineries in the state, an issue at one refinery will significantly affect the gas

United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping. There are signs, however, that production is falling in the United States and some other oil-producing countries because of the drop in exploration investments. But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects comes online. On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.

Another type of refining is called polymerization, which is the opposite of cracking in that it combines the smaller molecules into bigger ones that then could be used as liquid fuels.

The cost factor of a good also plays a roll with the gas prices. The higher the price per barrel,

Of the three forms of transportation, rail has the highest fixed costs, motor carriers the greatest variable costs, and air transport, the greatest variable costs of service and logistics optimization. Starting with rail, the cost structure has the highest fixed cost components, driven by infrastructure and terminal costs. Rail is therefore the most difficult to negotiate a lower transportation cost for, as the fixed costs form an inflexible pricing structure for retail service providers. The quality of rail service varies significantly across nations and regions as well, leading to greater variability in costs when a shipment moves across national and regional boundaries. Given the highly fixed cost structure of rail systems, there is significant room for improvement from an efficiency standpoint. The use of containerization is continually adding to greater efficiencies to this mode of transport (Jennings, Holcomb, 1996).

World oil demand is increasing as emerging economies need more energy to increase their living standards. Estimates, shown below, are that by 2030, China and India as emerging markets will import over 70% to 90% of their fossil fuel needs (1) . Coupled to a continued high and growing demand for oil, makes this a robust market for the next 30 years.

Elasticity of supply is measured as the percentage change in quantity supply divided by the percentage change in price .

Faster transportation has transformed the distribution of goods in allowing a greater selection of cargo to travel further than it was previously capable of. So what about the costs? "The container made shipping cheap" (Levinson, 2006, p.10). Just after McLean’s idea, it was thought that the costs of shipping were 11 percent of the value of United States exports, and could be as high as twenty-five percent. By contrast, shipping costs in comparison to product price have fallen sharply. (Asteris, 2009). It is not just the use of containers and ships that is responsible for the transportation costs, the larger normal routes, the increasing competition between the major container ship operators, such as Maesrk and Evergreen, the investment in modernising crane handling equipment and the logistics, have all had an impact.

It turns out that the market for natural gas is a very competitive one and that there is in fact a shortage in supply that is causing the price to increase. Natural gas must be drilled for and there are only a certain number of active companies that drill and they all have a set amount of capital. In the short run the supply of natural gas is very inelastic because they cannot just produce more gas. They would need

Natural gas is one of many energy resources being sought out as an alternative to some of the more pollutant geologic resources used abundantly today. Natural gas is being raved about due to how much cleaner it burns than other traditional fossil fuels, and it is becoming one of the more popular forms of energy because of this trait. It is a colorless, odorless fossil fuel, also known as methane. Today's uses for this resource are heating, cooling, production of electricity, and many uses in industry. It is being combined with other fossil fuels to improve environmental performance and decrease pollution. Overall, natural gas is becoming popular because it is an abundant, alternative

Sour crude is considered unstable and must be stabilized by removing hydrogen sulphide gas from the oil before transporting in oil tankers. Usually crude oil is processed and refined to form heavy oil such as diesel and fuel oil to reduce processing cost (Investopedia US, A Division of IAC 2014).

Gas Prices affected by Geopolitics and Supply problems Along with the demand for oil rising, many disruptions to the supply have created bottlenecks. For example, the war in Iraq has resulted in reducing oil production there, as has also happened in Nigeria due to rebel activity. The continuing nuclear weapons wrangle with Iran, the government increasing its control over industry in Russia, and the oil companies being nationalized in Venezuela has given rise to misgivings about future supplies.In recent years, refining crude oil in the US has also become more expensive, with experts citing two main reasons for this: congressional mandates resulting in shifting towards the production of more environmentally clean gasoline blends, and the oil refineries on the Gulf Coast being devastated by Hurricanes Katrina and Rita in the year 2005. In addition, the production of crude oil in America has also become costlier since the places that have been easiest to drill have largely gone dry.This means that oil companies have to go increasingly into offshore oil producing areas such as the Gulf of Mexico, which cost much more to drill in. With oil companies having to access harder to reach locations, which makes it costlier to produce oil, and simultaneously them being forced to reduce their