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Costs of Aggregate Hydrocarbon Reserve Additions

`Oil Equivalence' is widely used to measure total hydrocarbon activity. Natural gas is converted to oil using a fixed factor, usually based on thermal measurement. In turn, expenditures on oil and gas are divided by such `oil equivalence' volumes to define unit costs, especially of reserve additions. This approach lacks economic content. We show its implicit assumptions and constraints, and develop an alternative aggregation method using index numbers, with an example.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q48: Energy: Government Policy, Q35: Hydrocarbon Resources, C43: Index Numbers and Aggregation; Leading indicators, Q38: Nonrenewable Resources and Conservation: Government Policy

Keywords: Oil reserve additions, Division finding costs, Oil exploration

DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-3

Published in Volume 25, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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