1 / 50

Oil and the American Way of Life: Don’t Ask, Don’t Tell

Oil and the American Way of Life: Don’t Ask, Don’t Tell. Robert K. Kaufmann Fermi National Accelerator Laboratory June 1, 2005. http://www.bu.edu/cees/people/faculty/kaufmann/index.html. Basic Facts of the Oil Market 2004. World oil demand 80.47 million barrels per day

alexia
Download Presentation

Oil and the American Way of Life: Don’t Ask, Don’t Tell

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Oil and the American Way of Life:Don’t Ask, Don’t Tell Robert K. Kaufmann Fermi National Accelerator Laboratory June 1, 2005 http://www.bu.edu/cees/people/faculty/kaufmann/index.html

  2. Basic Facts of the Oil Market 2004 World oil demand 80.47 million barrels per day OPEC produces 41 percent of the world market US Consumed 20.5 million barrels per day US imports 61 percent of its consumption

  3. General “Beliefs” About the Oil Market • A competitive market will solve all problems in a timely fashion • Higher prices will elicit increased supply • Technical change has freed us from the resource base

  4. Does The Source of US Oil Imports Matter?

  5. Reducing US Dependence on Imported Oil is a “Good Thing”

  6. The Costs of Increasing US Production

  7. A Competitive Market Prices Oil Efficiently

  8. Annual Change in Real Oil Prices Competitive Market OPEC Texas Railroad Commission Kaufmann, R.K. 1995. A model of the world oil market for Project LINK Economic Modelling 12:165-178

  9. Does the Market See the Future? Future contracts do not predict future prices better than naïve models Abosedra, S and H. Baghestani, 2004, On the predictive accuracy of crude oil futures prices, Energy Policy 32:1389-1393

  10. Does OPEC Matter?

  11. OPEC Controls Marginal Supply 1.0 0.8 0.6 0.4 0.2 1950 1960 1970 1980 1990 1973 OPEC Capacity Utilization TRC Kaufmann, R.K. 1995. A model of the world oil market for Project LINK Economic Modelling 12:165-178

  12. Why Are Prices So High? WTI near Month Contract--NYMEX

  13. The Determinants of World Oil Prices OPEC Capacity Utilization OPEC production divided by OPEC Capacity Kaufmann et al. 2004 Does OPEC Matter? An econometric analysis of oil price The Energy Journal 26(4):67-90.

  14. OPEC Capacity Utilization

  15. The Determinants of World Oil Prices OPEC Capacity Utilization OPEC production divided by OPEC Capacity OPEC Quotas Levels of production agreed on at OPEC meetings Cheating Production beyond quotas OECD Stocks Days of forward consumption Fear of Supply Disruptions Iraq, Nigeria, Russia Kaufmann et al. 2004 Does OPEC Matter? An econometric analysis of oil price The Energy Journal 26(4):67-90.

  16. Can The US Do Anything About High Oil Prices in the Short Run?

  17. Low Levels of Stocks

  18. Do Gasoline Prices Rise Faster Than They Fall?

  19. Rising Crude Oil & Motor Gasoline Prices 55 50 45 40 35 30 25 20 15 10 1 6 11 16 21 26 31

  20. Falling Crude Oil & Motor Gasoline Prices 60 50 40 30 20 10 0 1 6 11 16 21 26 31

  21. Yes…But Gasoline price rise faster than they fall in: Texas, Michigan, Pennsylvania, Florida, Illinois, Minnesota, Ohio, Louisiana, Idaho (not Washington) Effect caused by stocks and refinery utilization As demand declines, producers slow refining and sell from stocks, which slows the price drop As demand rises, refinery capacity limits supply response Kaufmann, R.K and C Laskowski, In press, Causes for an asymmetric relation between the price of crude oil and refined petroleum products, Energy Policy

  22. Will the World Run Out of Oil?

  23. 2.5 trillion barrels This Will Never Happen….But 180 160 140 120 Million barrels per Day 100 80 1 trillion barrels 60 40 20 0 1900 1920 1940 1960 1980 2000 2020 2040

  24. The Pattern of Production

  25. Dates for a Global Peak 120 100 80 Million barrels per Day 60 40 20 0 1899 1919 1939 1959 1979 1999 2019 2039 2059 2079 2099

  26. Can Hubbert’s Bell-Shaped Curve Predict The Future?

  27. The Economic, Geological, andInstitutional Determinantsof Oil Production in the Lower 48 States Prod Oil Production in the lower 48 states (billion barrels) Price Real wellhead oil prices (1982 dollars per barrel) Cost Average cost of production in the lower 48 States (1982 dollars per barrel) Ration Fraction of Texas capacity allowed to operate by the TRC (dimensionless) Kaufmann, RK and CJ Cleveland, 2001 The Economic, geological and institutional determinants of oil production in the lower 48 States, The Energy Journal 22:27-49.

  28. Oil Production in the Lower 48 States 0.3 0.2 0.1 0.0 -0.1 -0.2 1940 1950 1960 1970 1980 1990 2000 Predicted Actual Billion Barrels Hubbert Kaufmann, RK and CJ Cleveland, 2001 The Economic, geological and institutional determinants of oil production in the lower 48 States, The Energy Journal 22:27-49.

  29. Implications Results imply Hubbert was lucky Accuracy of US forecast was spurious Cannot be used for other regions Government intervention Production will not change smoothly towards depletion Prices will not increase smoothly towards choke price More government intervention that currently envisioned?

  30. Does The Peak Matter?

  31. Oil Production: Lower 48 States 3.5 50 3.0 40 2.5 30 Billion Barrels 1982 Dollar per Barrel 2.0 20 1.5 10 1940 1950 1960 1970 1980 1990 2000

  32. Energy Return on Investment From Cleveland, C.J. 2005, Net energy from the extraction of oil and gas in the United States, Energy 30( 5): 555-784

  33. Time to Plan Ahead Gever, J, R.Kaufmann, D. Skole,, C. Vorosmarty, 1986, Beyond Oil Ballinger Publishing Company, Cambridge, Ma

  34. Will Opening ANWR Solve US Supply Constraints?

  35. USGS Projections For ANWR United States Geological Survey, 1999. The oil and gas resource potential of the Arctic National Wildlife Refuge 1002 Area, Alaska, Open File Report 98-34.

  36. US Refining CapacityEnvironmental or Market Failure?

  37. US Refinery Capacity US Oil Demand US Refinery Capacity

  38. World Refinery Capacity & Demand Refinery Capacity World Oil Demand

  39. Where Will the World’s Supplyof Oil Come From?

  40. Remaining Supplies of Oil Figure From The End of Cheap Oil National Geographic 2004

  41. Will OPEC be Able and Willing to Expand Production to Maintain Prices?

  42. Political & Economic Limits On OPEC Capacity Multinational firms have the capital needed to increase OPEC capacity significantly, but…. OPEC nations currently prohibit foreign investment in productive capacity, but.. OPEC nations don’t have the capital needed to expand capacity significantly

  43. OPEC Has Little Incentive To Increase Capacity & Production? Increasing capacity leads to higher production Increasing production leads to lower prices Lower prices reduce Non-Opec production & increase demand But... Increase in OPEC demand is less than price decrease So….. Higher capacity & production reduce OPEC revenue Gately, 2004 OPEC’s Incentive for Higher Output Growth, The Energy Journal, 25(2): 75-96

  44. Do Increases in Oil Prices Matter?

  45. Real Oil Prices & US Recessions Recessions % Real Oil Prices

  46. Is the US Becoming More Energy Efficient?

  47. Decline in the US Energy/Ratio Thousand Kcal per chained 2000 dollar

  48. Determinants of the Energy/GDP Ratio Fuel Mix Coal 1km Diesel locomotive 3 km Electric locomotive 15km Household Energy Use Oil personal consumption 310,024 kcal/ 1972 $) Durable personal consumption 13,561 kcal/1972$ Product Mix Iron ore mining 65,904 kcal/$ Wholesale and retail trade 29,302 kcal/$ Energy Prices Kaufmann, R.K, 2004 The mechanisms for autonomous increases in energy efficiency: a cointegration analysis of the US energy/GDP ratio The Energy Journal 25(1): 121-144

  49. What Do Americans Need to Know? OPEC will increase its market share, but may not be willing or able to produce enough to keep oil prices low The world will not run out of oil, but it will run out of inexpensive oil in our lifetime The depletion of inexpensive oil will have important implications for the US and world economy The market will not “solve” the impending oil transition in a timely fashion There are no simple solutions to avoid these changes, but good policy can reduce the effects while ignoring these changes will make matters worse

More Related