Natural gas industry falls within the Utility sector of the United States. The industry provides natural gas distribution services and trading in natural gas as a commodity. The components of the market are establishments that fundamentally operate gas distribution systems such as mains and meters. Gas markets that buy gas from wells and sell to distribution system also form part of the industry participants. Another component involves known gas brokers or agents tasked with arranging the sale of gas over the distribution system. Lastly, an establishment exists within the industry that mainly transmits and distributes gas to final consumers.
The Natural Gas Market structure
The majority of natural gas resources in the U.S are private sector owned. The U.S natural gas industry is an exceptionally critical participant in the economy as it provides one of the safest and cleanest forms of fuel. The industry offers valuable commerce to the U.S economy. The structural tenets of a market include the vertical integration of the industry, the number of firms, the nature of cost, the extent of product differentiation, the market share of the largest firm, and the structure of buyers in the industry. The natural gas industry of the United States consists of 21 major companies with an average market capitalization of 7,419,734,796USD out of about 6, 300 producers with over five hundred processing plants.
Figure 1: Top nine Major companies in the Oil and Gas Industry, data source ("Global equity screener - FT.com", 2018).
The largest firm, BP PLCBP in the industry has a market share of at least 106.98bn billion USD as reported in 2018.
The natural gas market prices are moderately differentiated based on seasonal patterns. In the state of Pennsylvania for example, the retail price of natural gas and products is determined by seasonal variations. The result is a narrowing of the prices in winter months and spread during summer, defined by forces of demand. The prices also depend on the pipeline capacity an area or a region possesses. The variation in prices depends on the capacity produced by the two main hubs supplying the United States; the Appalachian and the Henry Hub. Government regulation on natural gas prices also ensures there is a limited opportunity for highly differentiated prices of natural gas by companies.
The ownership and control stages of product supply chain in the natural gas industry, vertical integration, takes place in stages such as upstream, midstream, and downstream. The exploration as well as production, involving well drilling exists at the upstream supply chain of the natural gas and oil products. Initial processing of crude oil at field production sites to remove gas, as well as oil refining, is a midstream level while storage of refined products and transportation refer to downstream.
The buyer structure entangles within the emergence of the natural gas market with the trading of natural gas as a commodity and the transport market that trades on transportation services. Competitions, as well as open entry, are critical areas of operations in both the markets. The regulations and decentralization increase in the industry eliminates chances of monopoly as competition increases with an efficient allocation of contracts (Apergis, Bowden, and Payne, 2015, p. 84). The world economy also experiences a steady increase in gas demand; the gas prices will rise steadily as a consequence. As early as 2015, the contribution of this industry the U.S economy was 1.3 trillion, accounting 7.6 percent of GDP (Api.org, 2018). The American Petroleum Institute, API (2018) further maintains that the Natural Gas industry is responsible for more than ten million jobs.
Microeconomic Impacts and Government Possible Influence
In microeconomic terms, the oil and gas industry in the U.S supports about 2.8 million directly or indirectly to the economy. Economists believe that the importance and impact of the Natural gas industry rely on the potential of Shale gas reservoirs accessible through hydraulic fracturing. Economists predict that this reservoir alone will be responsible for 3.2 trillion USD in cumulative investments between the years 2010 and 2035. Shale has the potential to contribute to more than three hundred and thirty billion USD to the GDP of the U.S by the end of this period (Schwartz, 2012). According to the U.S census bureau (2012, p. 591), the natural gas export by the United States was about 3.8 quadrillion of Btu.
Table 1: Summary of Microeconomic Relevance and impacts of the Natural Gas Industry in U.S source; API, U.S Census Bureau, and Dunn and McClelland (2013)
% of GDP
Jobs in the economy
Cumulative investment projection
Predicted revenue by 2035
Natural Gas
7.6
10.3
3.2 trillion
232bn USD
Even though the U.S government currently lacks a national energy policy, tangential state policies on energy and environment such as automobile fuel efficiency guidelines and standards influence this industry. Various U.S states also specify policy objectives, commonly referred to as regulation to protect the environment and prevent waste with a focus on promoting the highest level of recovery of the domestic gas and oil from within the respective states.
References
Apergis, N., Bowden, N., " Payne, J. E. (2015). Downstream integration of natural gas prices across US states: Evidence from deregulation regime shifts. Energy Economics, 49, 82-92.
Global equity screener - FT.com. (2018). Retrieved from https://markets.ft.com/data/equities/results
Schwartz, S. (2012). Can the Natural Gas Sector Save the US Economy?. Retrieved from https://www.cnbc.com/id/47280026
Api.org. (2018). New Report Highlights U.S. Natural Gas Industry’s Leadership in Protecting America’s Critical Infrastructure from Cyberattacks. Retrieved from https://www.api.org/news-policy-and-issues/news/2018/10/31/new-report-highlights-industry-leadership-in-protecting-americas-infrastructure
United States Census Bureau. (2012). Statistical Abstract of the United States 2012, Section 19: Energy and Utilities. Retrieved from https://www2.census.gov/library/publications/2011/compendia/statab/131ed/tables/energy.pdf
Dunn, D. H., " McClelland, M. J. (2013). Shale gas and the revival of American power: debunking decline?. International Affairs, 89(6), 1411-1428.
