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Energy Journal Issue

The Energy Journal
Volume 12, Number 3

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Political and Economic Changes in the USSR: Energy Implications

Alexander A. Arbatov

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-1
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The Soviet Union has played an important role in the European energy scene for more than two decades. The USSR is the largest oil and natural gas producer in the world and the largest coal producer in Europe. The USSR is also one of the largest oil and gas exporters. The main part of Soviet oil and gas is directed to Europe. Despite the drop of oil production and exports during the last two years the USSR still remains a significant oil supplier and the largest supplier of natural gas to Europe (see tables 1 and 2).

Environmental Issues in the Future Development of the USSR Energy Systems

V. M. Yudin and O.K. Makarov

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-2
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With today's scientific and technological breakthroughs, the wellbeing of any society is strongly dependent on the scale of its provision of energy resources and on the state of its environment. These issues, both currently and in the long run, have become the most urgent ones demanding a joint endeavour from all the countries on the globe.

Market Barriers to Energy-Efficiency Investments

Ronald J. Sutherland

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-3
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The conservation literature argues that numerous cost-effective conservation measures could be undertaken, but they are not because market barriers discourage such investments. A review of these barriers indicates that in genera{ they do not discourage investment and they are not market failures. A conventional investment model suggests that business investments in energy efficiency are made with the same decision rules as any other investments. Consumers who invest in energy efficiency require higher rates of return when the investments are illiquid and they are unable to diversify away the risk The high discount rates required by consumers for energy-eficiency investments reflect real costs in a competitive market, not artificial market barriers. Policies that encourage the dissemination of information, such as appliance labelling, may promote energy efficiency and overall economic efficiency. Policies, such as appliance standards, that require consumers to invest according to lower discount rates, reduce consumers' overall economic wellbeing. Two market failures that illuminate the need for government support of conservation policies are the external costs of energy consumption and production and the lack of aggregate insurance against energy-related risks.

Horizontal Oil and Gas Wells: The Engineering and Economic Nexus

John Lohrenz

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-4
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Horizontal oil and gas well drilling is booming while, overall, development drilling is declining. The engineering parameters and how they affect the economics of horizontal drilling compared to vertical drilling are examined here. As a new applied technology, horizontal drilling can promise economic advantages over vertical drilling but with incremental risks that must be weighed carefully. In the long term, horizontal drilling will merge into the ever-growing inventory of technologies that create the economics that extend the lives of and yield more reserves from, oil and gas fields that would otherwise decline. The result is the persisting pattern of fields yielding more production than early estimates even as it remains impossible to count which particular new technology gave rise to so much more production.

A Risk Analysis of Oil Development in the Arctic National Wildlife Refuge

Stephen G. Powell

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-5
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The Arctic National Wildlife Refuge (ANWR) in Alaska is simultaneously the most promising onshore area for oil exploration and one of the wildest areas remaining in the USA. The conflict between the need to develop energy resources and the desire to preserve wild areas has led to a prolonged debate over the merits of programs to lease the region for oil exploration and development.

Predicting the Discoveries and Finding Costs of Natural Gas: the Example of the Scotian Shelf

M. Power and J. D. Fuller

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-6
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Predicting the discovery rate and marginal finding costs of natural gas resources requires a well-documented and long statistical history. For partially explored basins, the statistical history is often inadequate. Attempts at avoiding the problem have been made using probabilistic modelling approaches. These are used to estimate the parent population of pools available for discovery and the probable discovery rate. The phenomenon of economic truncation, however, calls into question the precision and utility of such estimates. Furthermore, the exploration process is known to be biased toward larger pools, but no method of determining the extent of the bias has been discussed in the literature to date. To avoid these defciencies, this paper employs the pool size distribution estimates routinely produced by geologists to drive a probabilistic modelling framework taking explicit account of the physical laws of resource depletion. The methodology is discussed and applied to Canada's Scotian Shelf. In order to put the predicted costs for the Scotian Shelf in perspective, the results are then compared to forecasts for Alberta.

Is the World Oil Market "One Great Pool"?

Robert J. Weiner

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-7
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Is there one, global market for crude oil? This appears to be the assumption made by most petroleum economists, stated succinctly by Adelman in a recent issue of The Energy Journak "The world oil market, like the world ocean, is one great pool" (July 1984, p. 5). Policymakers have often implicitly held the opposite assumption - that the world market is fragmented - as evidenced by the efforts of many importing-country governments to seek special arrangements for "secure supply" from exporters in the 1970s and early 1980s. Likewise, oil exporters have sought "secure outlets" for their crude in the late 1980s and early 1990s. These arrangements make no sense if the world crude oil market is integrated. In a similar fashion, a policy of diversifying suppliers, which is practised by many importers now, is senseless in a globally unified market.

The Value of Commodity Purchase Contracts With Limited Price Risk

Elizabeth Olmsted Teisberg and Thomas J. Teisberg

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-8
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This paper describes and demonstrates the equilibrium market valuation of commodity purchase contracts with price ceilings or price floors or both. These contracts, which we call "limited price risk" contracts, are significantly easier for buyers and sellers to agree upon than fixed price contracts when price uncertainty is high and buyers and sellers have inconsistent price expectations. Analysis of an actual natural gas contract as well as the existence of many brokers promoting limited price risk gas contracts, suggest that these contracts may be priced inefficiently in practice. Our example application should help managers to make use of modem financial techniques in assessing the value of these types of contracts.

Complementarity-Substitution Relationshipsin the Demand for Time-Differentiated Inputs under Time-of-Use Pricing

Asher Tishler

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-9
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In this paper we incorporate the non-synchronic responses of different inputs to changes in relative factor prices and develop sufficient conditions under which time-differentiated (over the day) electricity inputs are complements or substitutes. Similar sufficient conditions are developed for time-differentiated labour inputs. We also examine the strong and sometimes one-directional, relationships between the distributions over the day of the demands for labour and electricity. These relationships depend, among other factors, on the objective function of the fine (profit maximization, cost minimization) and on the specific time-of-use (TO U) schedules (of labour, electricity, etc.). Our results are also dependent on the assumption that firms can adjust inputs to changes in input prices on an hourly basis; more specifically, the underlying technology is assumed to be given by an hourly production function. Two issues are emphasized in the analysis. First, we show that short-run cost minimization may be an inappropriate procedure for cost-benefit analysis. Second, under the model developed in this paper, the commonly used weak separability assumption (between electricity and other inputs) implies radically different relationships among the time-differentiated inputs under profit maximization and cost minimization.