As Natural Gas Prices Rise, So Do the Costs of Things Made of Chemicals
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The hurricanes that hit the gulf region have had a devastating impact on gas prices across the nation. The gulf coast has many natural gas rigs offshore and when Katrina hit it disrupted the flow of gas and knocked some of them out of commission. This disruption in the flow of gas is felt all over the country as gas prices soared.
In 2000 natural gas was selling for around $2 per million British thermal units and with diminishing supply and increased demand the price of gas has consistently increased. The Friday before Katrina hit gas was selling for $8 per million B.T.U.s and when Katrina hit the price went to $12, the highest in the world. The most obvious place we see the cost of gas is at the pump, but the underlying effects can be even more costly.
This year gas and oil accounted for 43 percent of Dows costs whereas in 2002 it was 29 percent. The increase in natural gas price increases the cost of production in almost every industry thus raising the cost of the product. This goes double for chemical companies because gas is not only their major source of fuel but also their major raw material, the starting point for the basic chemicals from which the fibers and compounds in items such as shirts and eyeglasses are derived. Every company uses these chemicals; even a completely organic bushel of tomatoes is sold to you in a plastic bag.
To keep up with profit the chemical industry must pass along the growing cost of production and it will continue to do so for what seems like a long time now. Jeff Worden, a spokesman for PPG Industries, which makes chemicals, glass and paints, said, “We use between 60 trillion and 70 trillion B.T.U.s of natural gas a year, so if the price goes up one dollar, our costs are up $60 or $70 million”. This 60 to 70 million will no doubt be passed onto the consumer because no company is willing to stomach a 70 million dollar cost. Consumers will have to pay more for everything from medicines to computers to auto parts to a bottle of shampoo. Winters cause gas prices to climb even further which will further increase the cost of production and the costs will inevitably trickle down to the consumer.
These hurricanes will impact our economy in many ways aside from the destruction they caused. Natural gas prices will climb and with that the price of everything that natural gas is used to produce. The chemical companies will be forced to raise price more drastically