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The Long-Run Evolutions of Energy Prices

Robert S. Pindyck

Year: 1999
Volume: Volume20
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No2-1
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Abstract:
In this paper I examine the long-run behavior of oil, coal, and natural gas prices, using up to 127 years of data, and address the following questions: Mat does over a century of data tell us about the stochastic dynamics of price evolution, and how it should be modelled? Can models of reversion to stochastically fluctuating trend lines help us forecast prices over horizons of 20 years or more? And what do the answers to these questions tell us about investment decisions that are dependent on prices and their stochastic evolution ?



The Impact of Stochastic Extraction Cost on the Value of an Exhaustible Resource: An Application to the Alberta Oil Sands

Abdullah Almansour and Margaret Insley

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.aalm
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Abstract:
The optimal management of a non-renewable resource extraction project is studied when input and output prices follow correlated stochastic processes. The decision problem is specified by two Bellman equations describing the project when it is currently operating or mothballed. Solutions are determined numerically using the Least Squares Monte Carlo methodology. The analysis is applied to an oil sands project which uses natural gas during extracting and upgrading. The paper takes into account the co-movement between crude oil and natural gas prices and proposes two price models: one incorporates a long-run link between the two while the other has no such link. Incorporating a long-run relationship between oil and natural gas prices has a significant effect on the value of the project and its optimal operation and reduces the sensitivity of the project to the natural gas price process.



The Informational Efficiency of European Natural Gas Hubs: Price Formation and Intertemporal Arbitrage

Sebastian Nick

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.snic
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Abstract:
In this study, the informational efficiency of the European natural gas market is analyzed by empirically investigating price formation and arbitrage efficiency between spot and futures markets. Econometric approaches accounting for nonlinearities induced by the low liquidity-framework and by technical constraints of the considered gas hubs are specified. The empirical results reveal that price discovery generally takes place on the futures market. Thus, the futures market seems to be more informationally efficient than the spot market. The theory of storage seems to hold at all hubs in the long run. There is empirical evidence of significant market frictions hampering intertemporal arbitrage. UK's NBP and Austria's CEGH seem to be the hubs at which arbitrage opportunities are exhausted most efficiently, although there is convergence in the degree of intertemporal arbitrage efficiency over time at the hubs investigated.





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