Demand And Supply For Energy

Question: Discuss about theDemand And Supply For Energy. Answer: Introduction: The quest for sustainable economic development has attributed to the elevation of particular segments of the economy. This is due to their significance in determining the performance of other sectors and the economy entirely. The energy demand is broadly distributed into four sectors: industrial, transportation, commercial and residential. Transportation has been the highest consumer of energy due to the continued global expansion of the automobile industry. The necessity for a better life has also driven up energy use particularly oil and natural gas. This situation has led to large scale consumption of energy creating an increase in demand while there is a dwindling supply in the foreseeable future (Annual Energy Review, 2008). Primarily, reliance on coal, natural gas and oil has contributed to remarkable prosperity to much of the world in the last couple of years (Bush, 2008). The microeconomic concepts of demand and supply have been evident in the energy sector. For instance, the US has had a huge reduction in its cost of renewable energy in the last 10 years. More so, the economic growth has led to structural changes that have strongly contributed to increase in the energy consumption. Development of these structures has been coupled with the improvement in their living standards of the people who require more energy use (Colin Laherre, 1998). The imbalance in the demand and supply of energy has contributed to governmental intervention in terms of policies geared towards a better energy production, distribution and its utility which forms the foundation for sustainability of the economic growth and development. Formulation of these policies is down to the understanding of the key concepts and theoretical frameworks that have impacted on this energy imbalance. Microeconomic concepts of demand and supply illustrate the dynamism in the energy sector in the following ways; Demand Substitution Among Energy Commodities Essentially, some existing energy services can be provided by different energy commodities. Basic energy consumption in homes can be in terms of electricity, oil, wood and natural gas. Wood can be converted into thermal energy. Cooking demands the use of electricity, natural gas, charcoal, wood as well as propane. This alludes to the existence of energy sources as substitutes of each other implying that the demand for one specific energy commodity is basically an accumulative function for prices of other energy commodities (The Guardian, 2015). It brings the interdependence concept of the energy. Such interdependence means that its demand and supply are uniform in terms of market movements. The aspect of substitutability of energy is down to the limited availability of the energy conversion technologies. One particular conversion can only be used by a single energy commodity. For instance, home heating cannot use either of the electricity, oil and wood. This puts a lot of pressure on the particular energy source increasing its demand as a result. Sparingly, short run substitutions occur when several energy conversion technologies are simultaneously available to consumers at a single time. For instance, some homes might have a central natural gas heating system with a portable heating unit. In this case, energy commodities can therefore be viewed as imperfect substitutes for one another giving much of its substitution ability in the long run instead. Consequently, there will be an increase in demand for the commodities in the long run. An increased back log in the demand as energy is stored for future use. Demand for Energy as a Derived Demand The demand for energy is propelled by the wishes to use energy for a particular services. Its derivation is thus not down to the preference of energy commodity itself. This implies that the demand for energy is influenced by the desire for a particular service provided by the energy and not the energy commodity itself. Furthermore, the energy conversion technologies, its subsequent technologies used for the energy conversion as well as the cost of the energy underline its demand. In essence, the demand for gasoline is derived from consumer choices basing on energy conversion efficiencies. An increase in the demand for energy that has outstripped its supply is a universal issue. Population explosion especially in the third world countries has put a lot of pressure in the available energy resources. The increase in demand for energy services necessitates development of mechanisms that help fast-track its consumption so as to achieve a demand that meets the n Energy dependence It relates to the human reliance on either primary or secondary energy sources for energy consumption. Energy dependency also alludes to one particular country reliance on other countries forms of energy use. This may be done by the use of imports to meet energy needs. Such dependence means that countries are not able to effect measures that develop their own energy sources. It then puts a lot of pressure on the existing energy resources. There will be a resulting increase in demand. Energy output is not able to support this demand meaning there is a marked reduction in the supply. The Middle East is generally a sought after place for oil and natural gas. Overdependence on these countries has created a market instability that is common with price fluctuations in the market implying demand outstripping supply. This has also posed a huge security risk due to huge trade conflicts that have resulted in the reduction in the supply as well (International Energy Review, 2007). Respective Energy Policies for Demand and Supply First, removal of market monopolies; evidently, most world economies have the energy docket exclusively reserved for the respective governments. This has perpetuated substandard energy development and subsequent distribution. Such cases have resulted in higher energy demands which has put in pressure in on the already limited resources. There is need for a free market by removing small barriers. This will open up the market for investors input such that competition will help push the need to diversify on other untapped energy sources which ultimately prompts expansion of the industry hence increasing market supply. In essence, private-public partnerships should be instituted to promote efficacy of energy sourcing (International Energy Review, 2009). Fiscal policies; governments ought to factor in policies geared towards increasing energy supply in the economy. Fiscal policies could be in terms of minimal taxation especially to energy production activities. This should be in line with the prevailing market conditions to avoid polarizing it (Wood, Long David, 2004). Subsidies should be adopted to spur investors who are willing to increase production capacities. Above all, governments should increase their spending on the energy development initiatives to cover more areas particularly in developing countries where the issue of energy outreach is not fully developed. Conclusion In conclusion, the 21st century is riddled with huge demand for energy consumption that has led to the common notion of demand-supply energy crisis. An increase in the world population has subsequently led to a rise in the energy demand. As a result, governments need development of clear-cut policies to address this shortage since its inhibiting economic growth and development. The present energy shortfall is can be conceptualized in terms of its substitution demand. An increase in the need for energy is due to the limited energy conversion mechanisms. Expansion of the capacity is crucial in cutting back on the level of supply inefficiencies. This information is adapted from the article energy supply and demand environmental report card www.mfe.govt.nz/more/environmental-reporting/reporting-act/energy/energy-demand-indicator/energy-supply-and-demand which reports the balancing act between energy production that is the supply and energy consumption which implies demand. the interplay of these components establishes the equilibrium energy production capacity. References Annual Energy Review, (2008). 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