Economics For Business: Gas Retailers Assessment Answer

Answer:

Introduction


The gas supply industry in Australia mainly consists of the gas retailers who purchase as well as sell the gas. The gas supply industry also consists of the distributors of the gas. Gas distributor mainly operates in the distribution network and they distribute the gas to the end-users. The operations of the retailers and the distributors have been increasingly disaggregated with the help of the successive privatization schemes. Along with the strong demand in the gas industry, the supply of the gas industry is also increasing at a rapid manner (Cochran 2015).

 As per the reports, the export of gas in Australia has increased over 60 million tones. The gas supply in Qatar and Malaysia is also liable to be overtaken by the Australian gas supply industry. The gas supply industry is becoming more disjointed with the increase in the number of the importing and exporting countries. The consequence for Australia is a more miscellaneous and more unstable market. The gas supply industry in Australia operates in the monopoly market structure that leads to large transportation of the pipeline as well as the distribution companies (Vickas et al. 2015).

Through the gas distribution main, the gas supply industry distributes the natural gas to the customers. The firms in turn distribute the contrived town gas or the LPG that is the liquefied petroleum gas. The participants in the industry also retail the gas to both the trade and the customers. The gas supply industry in Australia mainly faces the monopoly competition in the market. The main reason is that a single supplier mainly distributes the gas that in turn leads to the monopoly competition. The suppliers are the price makers in this case (ZENG and CHEN 2015).

Under the monopoly market structure, the gas suppliers will generally charge the prices, which will be in excess of the production costs. This will help the company to generate higher profits. The output of the gas supply industry will become substantially smaller as the prices under the monopoly market structure will be comparatively higher. The demand for the gas will be inversely related to the price (Williams 2016).

The gas supply industry in Australia is mainly undergoing a noteworthy structural change. The profitable and the industrial businesses, which are gradually competing against exporters for gas, are finding it hard to bargain supply contracts. The supply contracts are on the other hand set at a privileged price. The households are also, on the other hand paying more for gas than they should and as a result, the gas supply industries are enjoying the monopoly competition.

Australia has become a home to the largest gas deposits in the world. Australia has become a biggest exporter as it involves an investment of around $200 billion in liquefaction as well as the distribution facilities. As per the reports, the suppliers have taken the advantage of the uncertainty in the supply and the potential shortfalls in order to raise the prices.

A gas retailer needs to continue to supply gas to the customers in all exceptional situations. The three largest energy companies in Australia are the AGL Energy Limited, Origin Energy Limited and Energy Australia Holdings that mainly dominates the eastern seaboard. It also provides the customers with the bundled gas and the electricity packages (Dibden 2012).

The gas supply industries are mainly characterized by the higher prices as well as shorter duration. These in turn are likely to decrease industry margin. This in turn will increase the wholesale price of gas and lead to the increased household bills. The future supply viewpoint thus becomes uncertain. The gas supplies are considered competitive and as a result, the distributions of the gas supply remain strongly regulated. The pipeline and the conduction firm at the wellhead, in turn buy the gas for delivery (Abbott 2016).

In the gas supply industry in Australia, the pipeline operators have a persistent market power. As a result, the pipeline operators are not effectively restraint by the competitive forces, which includes the current regulatory structure. The pipeline operators are also engaged in the monopoly pricing and as a result, they obtain the return that is comparatively higher as compared to the competitive market (Miravete et al. 2014).

This in turn gives rise to a privileged delivered prices of gas and is known to give rise to an unfavorable economic effect. The information irregularity limits the ability of the shippers in order to identify the exercise of the market power.

As per the reports, the state gas suppliers as well as the pipeline operators abuses the monopoly pricing in order to measure the higher prices out of the domestics consumers (Saaskilahti 2015).

It has been recommended by the ACCC not to put in place a domestic reservation policy as it acts as a discouragement to investment. The ACCC also advises a new test in the regulations of the pipeline of the gas in order to put off the exercise of monopoly.

Conclusion

The gas supply industry in Australia mainly faces the monopoly competition in the market. The main reason is that a single supplier mainly distributes the gas. It has been concluded that the pipeline operators are also engaged in the monopoly pricing and as a result, they obtain the return that is comparatively higher as compared to the competitive market. As a result, the information irregularity limits the ability of the shippers in order to identify the exercise of the market power.

References

Abbott, M., 2016. The Economics of the Gas Supply Industry. Routledge.

Cochran, M., 2015. Conventional and alternative transport fuels in Australia.Energy News, 33(4), p.4.

Dibden, J., 2012. Proponent: AGL Energy Limited Local Government Area: Bogan Shire Council.

Miravete, E.J., Seim, K. and Thurk, J., 2014. Complexity, efficiency, and fairness of multi-product monopoly pricing.

Sääskilahti, P., 2015. Monopoly pricing of social goods. International Journal of the Economics of Business, 22(3), pp.429-448.

Vickas, M., Mcmanus, P. and Dey, C., 2015. From the Seam to the Stove: greenhouse gas assessment and the coal seam gas industry in Australia.Australian Geographer, 46(1), pp.73-90.

Williams, J., 2016. Economic insights on market structure and competition.Addiction.

ZENG, F.H. and CHEN, J.J., 2015. Literature Review and Comment of Technical Monopoly Competition. Accounting and Finance, 1, p.017.

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