How Rising Gas Prices Fuel Inflation

How Rising Gas Prices Fuel Inflation

Years ago, when it came to selecting a natural gas supplier, most consumers didn’t have an option on which supplier to use.  This is because they were stuck receiving services from the local New York gas company that they were assigned to in their area.  Under this situation, the gas companies had the ability to markup their product by as much as 500% without repercussions or loss of customers.  Times have changed since then, as the states have now made it possible for consumers to select their energy supplier.  In the financial industry, this would normally mean that the price of energy would go down due the increase of competition; however, in order for competition to work, the customers would need to call around in order to find the best rate.  Since many customers did not do this, electricity prices were greatly affected when compared to the cost of living.

Understanding Natural Gases Inflated Adjustable Price

The actual price of natural gas is referred to in economical terms as the Inflation Adjusted Price.  Since most of the costs are increasing, including food, gas, and services, it is essential that the inflation rate matches this increase.  In an ideal world, as the prices of necessities went up, so would one’s wages at an equal rate, ensuring that the cost of living remains the same.  The price of inflation is adjusted because of the fact that everything does not increase at the same rate.  This makes items or services more expensive or cheaper.

Researchers study the inflation adjusted price in order to compare it to years past and predict probable trends in the future.  According to PlymouthEnergy research recent costs of natural gas are similar to those dating 1986-2000 at $2.00 to $4.00.  This may be due in part to the increased natural gas supply with improved gas mining techniques, including ‘fracking’.

Fracking Influence on Natural Gas Supply

Fracking is a technique used by business gas suppliers to recover natural gas where it was once thought impossible or uneconomical to get.  In earlier years, most of the gas and oil was mined from underground wells and reservoirs; however, fracking allows for the retrieval of gas that is located within the small cracks of rock deep within the earth.  Also known as induced hydraulic fracturing, fracking involves injecting a mixture of sand and water into a wellbore at high pressure, creating small cracks or fractures in the rock.  After the hydraulic pressure is stopped, the small grains of sand which were mixed with the water and injected into the cracks will hold the cracks open.  This allows petroleum or gas to migrate out of the cracks and into the well.

Fracking first came into practice back in 1947; however, it has recently become popular as an efficient way to tap new gas and oil reserves.  The increasing popularity of this technique has caused natural gas prices to decrease over time.

When viewed on a chart, residential energy costs have peaks and valleys throughout the year.  While the summer shows a reduced usage of energy, the cold winter months often cause energy usage to spike.  Many energy consumers are switching to natural gas in which to use for electric utilities.  This drives up the usage of electricity during the summer months.

All of these trends and statistics go into setting the price on your utility bill.  It is important to understand just where your utility bill comes from so that you can reduce your own electricity costs.

image via Plymouth Rock Energy

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