Although much attention of late has been devoted to the effects of Hurricanes Katrina and Rita on the US energy infrastructure, these price spikes are effects, not causes, of the fundamental supply/demand imbalance in the global energy market. Strong economic growth in the US and developing countries has increased the demand for energy. Production capacity, long neglected in many oil-producing nations, has expanded much less quickly. Global oil consumption is now hovering near production capacity, making crude oil prices much more sensitive to supply shocks. The domestic natural gas market is even tighter, as the high cost of liquification and transportation has discouraged the construction of LNG import terminals in the US, forcing the US to rely on domestically produced natural gas to meet its growing demand. This has made natural gas prices even more sensitive to supply shocks than crude oil, exemplified by the doubling of winter natural gas prices from late 2004 to late 2005. Read the full article at:
http://aede.osu.edu/people/roberts.628/extension/index.htm and click on “Energy Market Outlook (updated 30 Sept 2005).”