1 / 60

Energy Economics in the 21 st Century

Energy Economics in the 21 st Century. Bill Pike 21 April 2010. Points to Remember as We Discuss Energy Economics The global oil and gas industry is the world’s largest private sector enterprise, generating approximately $4.5 - $5 trillion in gross revenue yearly.

cecile
Download Presentation

Energy Economics in the 21 st Century

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. Energy Economics in the 21st Century Bill Pike 21 April 2010

  2. Points to Remember as We Discuss Energy Economics • The global oil and gas industry is the world’s largest private sector enterprise, generating approximately $4.5 - $5 trillion in gross revenue yearly. • Oil and gas are commodities. Oil is a global commodity but gas remains, mostly, a regional commodity subject to local economic factors. • Simple supply and demand economics should explain supply, demand and pricing of oil and gas, but most often do not. • Despite the rising level of political rhetoric, carbon-based energy sources (oil, gas and coal) will remain our primary energy sources through 2035, at the very least.

  3. The Basics Bill Pike 21 April 2010

  4. Supply and Demand Economics • (Groan) • Demand – The Law of Demand holds that, other things being equal, as the price of a good rises, demand for that good will fall, and vice versa.

  5. The Demand Curve Unit Price Equilibrium Point Quantity in the Market

  6. Supply and Demand Economics • Few of us have experience with the supply side of the market. Supply is derived from producer’s desire to maximize profits. • Supply – The Law of Supply holds that, other things being equal, as the price of a good rises, its quantity supplied will rise, and vice versa.

  7. The Supply Curve Supply Curve Demand Curve Unit Price Equilibrium Point Quantity in the Market

  8. The Supply/Demand Model Price and Supply at Equilibrium Unit Price Equilibrium Point Quantity in the Market

  9. World Demand for Energy Will Continue to Grow Source: EIA, International Energy Outlook

  10. By The Numbers • Primary Energy Demand (1015 btu) • 2010201520202025 • Petroleum 185 204 224 245 • Natural Gas 108 122 139 156 • Coal 108 117 127 140 • Nuclear 30 31 32 30 • Other 39 43 47 50 • Source: Energy Information Administration, U.S.Department of Energy

  11. Petroleum Consumption in Developing Nations Will Exceed Developed Countries by 2025

  12. Global Energy Demand by sector, billions barrels of oil equivalent

  13. Energy Demand and GDP (1980 – 2002)Primary energy demand per capita (Gigajoules)

  14. Energy and Well Being

  15. But What About Supply? • We Know Where There is Enough Oil • Mature Fields • Unconventional Assets • Ultra-Deepwater • Arctic Regions

  16. But What About Supply? • We Know Where There is Enough Gas • Shale Gas • Tight Gas • CBM • Methane Hydrates to Fuel the World’s Economy and Society for Many Decades.

  17. So, We Should Be Set to Let Supply and Demand Economics End This Global Price Roller Coaster Ride? If You Believe This, See Me Later for a Really Good Deal on a Bridge.

  18. Factors Skewing Supply and Demand Fundamentals • Political and/or economic instability in major producing areas

  19. War – The Ultimate Instability

  20. Factors Skewing Supply and Demand Fundamentals • Political and/or economic instability in major producing areas • Speculation in the market place

  21. Canada USA Azerbaijan Algeria Libya Australia Norway Mexico Kazakhstan Malaysia Nigeria Indonesia Brazil UK Turkmen Angola India Oman Egypt OPERATED BY: NOC Non-NOC Instability and Worldwide Oil & Gas Reserves Russia Nationalizing China Venezuela Unstable Unstable Saudi Arabia Iran Unstable Unstable Iraq Unstable Qatar Kuwait UAE • Oil & Gas Reserves combined • Source: BP Statistical Review • of World Energy 2004

  22. Speculation in the Market Place • Hedging: The spot and futures markets • Fear that wars, political maneuvering and/or nationalizations will disrupt oil and gas supplies leads market traders to buy and hedge upwards to guarantee supply • This probably accounts for as much as $15 of the price of a barrel of oil today • Most producers would be happy with an oil price of $75 to $85 per barrel

  23. Factors Skewing Supply and Demand Fundamentals • Political and/or economic instability in major producing areas • Speculation in the market place • Artificial pricing through subsidies and taxes

  24. Artificial Pricing Through Subsidies • 2007 U.S. Energy Subsidies: $ millions • Coal 932 • Refined Coal 2,370 • Natural Gas/Petroleum Liquids 2,149 • Nuclear 1,267 • Renewables 4,875 • Total 11,593

  25. Types of Subsidies/Market Intervention • Direct Subsidies • Royalty Relief • Tax Credits • Investment Credits • Depletion Allowance • Research and Development Funding • Grants • Accelerated Depreciation • Import/Export Restrictions • Price Controls

  26. Linkage – Subsidies and Prices In the aggregate, subsidies throughout the world to any particular form of energy will tend to depress prices and encourage consumption, and overconsumption, of the resource. However, that does not always apply. Many subsidies to domestic producers, and many import restrictions, for example, keep these producers competitive with less expensive imports and/or options. Removal of subsidies will save taxpayers billion of dollars.

  27. Factors Skewing Supply and Demand Fundamentals • Political and/or economic instability in major producing areas • Speculation in the market place • Artificial pricing through subsidies • Cost variations – reserve types and recovery costs

  28. Cost Variations: Price Sensitivity for Development Source: Martin Wolf, “Coal and open markets are the best hope for energy security,” The Financial Times, 5 July 2006, p 13.

  29. Cost Variations: Processing Costs • Cost to process a barrel of oil for the refinery gate • 160 various types of crude produced worldwide • a price differential of $15 barrel, or higher • depending on the composition of the oil, processing cost can vary widely

  30. The Role of Taxes Company profit on a $3 per gallon gasoline at the pump is about 10 cents a gallon.

  31. Factors Skewing Supply and Demand Fundamentals • Political and/or economic instability in major producing areas • Speculation in the market place • Artificial pricing through subsidies • Cost variations – reserve types and recovery costs • Regulatory restrictions - Macondo

  32. Regulation and Prices • Macondo • Delays due to moratoria and complex permitting and development regulations will result in the loss of 82,000 barrels of oil per day in the Gulf of Mexico next year • Moratoria in other areas, such as the Arctic, will forestall or prevent development of incremental production

  33. What is the story for the U.S.? • We have significant amounts of mature and unconventional resources to moderate declines in domestic oil production. • However, they won’t be enough to end our dependency on imported oil.

  34. U.S. Primary Energy Consumption by Fuel, 1980-2035 (quadrillion Btu) Annual Energy Outlook 2011

  35. “I am recommending a plan to make us invulnerable to cutoffs of foreign oil. … [a] new stand-by emergency programs to achieve the independence we want…”- President Gerald Ford (January 15, 1975)

  36. U.S. Petroleum Supply, Consumption, and Net Imports, 1960-2030 (million barrels per day) History Projections 62% Consumption Net Imports 58% Domestic Supply Annual Energy Outlook Annual Energy Outlook

  37. Canada USA Azerbaijan Algeria Libya Australia Norway Mexico Kazakhstan Malaysia Nigeria Indonesia Brazil UK Turkmen Angola India Oman Egypt OPERATED BY: NOC Non-NOC Instability and Worldwide Oil & Gas Reserves Russia Nationalizing China Venezuela Unstable Unstable Saudi Arabia Iran Unstable Unstable Iraq Unstable Qatar Kuwait UAE • Oil & Gas Reserves combined • Source: BP Statistical Review • of World Energy 2004

  38. What is the story for the U.S.? • We have more gas than we know what to do with. • We are set to become a net exporter of natural gas at current resource development rates. • However, basic economics may hinder development of these resources in the near and mid term.

  39. U.S. Natural Gas Production, Consumption, and Net Imports, 1960-2030 (trillion cubic feet) History Projections Cancelled Consumption Net Imports 21% 15% Production Natural Gas Net Imports, 2004, 2025, and 2030 (trillion cubic feet) Annual Energy Outlook 2005 and 2006

  40. Unconventional Gas to the Rescue

  41. Energy Economics in the 21st Century Renewable Energies

  42. Renewable Energy Consumption in the Nation’s Energy Supply, 2008 Source: http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/rea_prereport.html The British thermal unit (BTU or Btu) is a traditional unit of energy. It is approximately the amount of energy needed to heat one pound of water one degree Fahrenheit.

More Related