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Analyzing Oil Production in Developing Countries: A Case Study of Egypt

Nazli Choucri, Christopher Heye and Michael Lynch

Year: 1990
Volume: Volume 11
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No3-5
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Abstract:
This article presents a detailed simulation analysis of the domestic oil sector in Egypt; a near-typical, non-OPEC, oil-producing developing country. Egypt is a small producer by international standards, yet significant enough that its oil production is important for the country's economy and under certain conditions, for the international oil market as well. A dynamic computer simulation model that depicts significant characteristics of the country's oil sector is utilized to explore the implications of alternative scenarios for government policies, world oil prices, and geological parameters on patterns of production, exports, and export earnings.



After the Natural Gas Bubble: An Economic Evaluation of the Recent U.S. National Petroleum Council Study

Ken Costello, Hillard G. Huntington, and James F. Wilson

Year: 2005
Volume: Volume 26
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No2-5
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Abstract:
This perspective paper reviews and critiques the policy analysis and modeling of future natural gas markets in the National Petroleum Council�s 2003 natural gas study (NPC Study). The NPC Study provided an important and timely review of long-term natural gas supply, demand and potential policies to increase supply or suppress demand. However, its long-term scenarios used assumptions and simplifications that led to understating likely longer-term market reactions to higher natural gas prices, which results in exaggeration of the potential benefits of the policies recommended by the NPC. In addition, the narrow scope of the NPC Study did not address many important considerations in natural gas policy, such as the costs of recommended policies, or their impacts on taxpayers, resource owners, or the environment. Overall, the study does not provide the evidence needed to justify major natural gas policies, especially in view of the current uncertain market environment.



Is the Strategic Petroleum Reserve our Ace in the Hole?

Timothy J. Considine

Year: 2006
Volume: Volume 27
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No3-6
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Abstract:
The Strategic Petroleum Reserve (SPR) is often touted as a vital asset in mitigating the adverse effects of oil supply disruptions on the economy. The importance of SPR, however, largely depends upon the effect of stock sales on market prices. To address this question, this study develops a monthly econometric model of the world crude oil market. Inventories, consumption, production, and prices for crude oil are determined within a dominant producer pricing framework in which Saudi Arabia adjusts output based upon market demand and competitive fringe supply. The estimation results provide additional support for the dominant producer pricing model for world oil markets and reasonable estimates of short-run supply and demand elasticities. Several model simulations are conducted to assess the impacts of SPR policies. For example, the gradual build-up of the SPR by the Bush Administration resulted in a very small, almost imperceptible increase in world prices. Similarly, the Clinton sale from SPR had minor impacts on market prices. Another simulation indicates that while SPR sales can lower world prices during a supply shock, the required drawdown would be so substantial the reserve would be significantly depleted after just a few months. These findings suggest that once played, the SPR card has modest impacts on world prices and could be easily trumped by actions of other players, including output adjustments by world oil producers.



Do Prices for Petroleum Products Converge in a Unified Europe with Non-Harmonized Tax Rates?

Axel Dreher and Tim Krieger

Year: 2008
Volume: Volume 29
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-4
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Abstract:
The paper presents panel unit root tests for price convergence of different petroleum products over the last decade. We distinguish consumer and producer price convergence and test for the absolute versus relative version of the law of one price. Comparing the speed of convergence as well as its development over time indicates that price arbitrage in the common EU markets is not sufficiently strong to level the price differentials, mainly caused by different excise taxation. We show that taxation alone leads to market segmentation and that discretionary national tax policy by EU member states is not (yet) threatened by the observable level of cross-border shopping.



Rule-Based Resource Revenue Stabilization Funds: A Welfare Comparison

Stuart Landon and Constance Smith

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.6
View Abstract

Abstract:
Resource prices, and petroleum prices in particular, are volatile and difficult to predict, so government revenue in resource-producing regions is also uncertain and volatile. Adjusting government expenditure in response to these revenue movements involves economic, social and political costs. Many jurisdictions have established rule-based revenue stabilization funds to address revenue volatility, but there is little evidence on whether these funds improve welfare or if some fund designs increase welfare more than others. Using Monte Carlo techniques, we provide a quantitative welfare comparison of several types of rule-based stabilization funds for a petroleum-producing jurisdiction. We find large potential gains from the use of a fund to stabilize revenue, but some fund types reduce welfare, particularly those that accumulate large stocks of assets or debt. A fund that performs well, and is generally robust to changes in the simulation parameters, has a fixed deposit rate out of resource revenue and a fixed withdrawal rate out of assets.



Volatility Spillovers Across Petroleum Markets

Jozef Baruník, Evzen Kocenda and Lukáš Vácha

Year: 2015
Volume: Volume 36
Number: Number 3
DOI: 10.5547/01956574.36.3.jbar
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Abstract:
By using our newly defined measure, we detect and quantify asymmetries in the volatility spillovers of petroleum commodities: crude oil, gasoline, and heating oil. The increase in volatility spillovers after 2001 correlates with the progressive financialization of the commodities. Further, increasing spillovers from volatility among petroleum commodities substantially change their pattern after 2008 (the financial crisis and advent of tight oil production). After 2008, asymmetries in spillovers markedly declined in terms of total as well as directional spillovers. In terms of asymmetries we also show that overall volatility spillovers due to negative (price) returns materialize to a greater degree than volatility spillovers due to positive returns. An analysis of directional spillovers reveals that no petroleum commodity dominates other commodities in terms of general spillover transmission.



Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices

Atle Oglend, Morten E. Lindbäck, and Petter Osmundsen

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.aogl
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Abstract:
Liquefied petroleum gases (LPGs) together with other natural gas liquids (NGLs) have played an important role in the current U.S. shale gas boom. Depressed gas prices in recent years have made pure natural gas operations less profitable. The result is that liquids components in gas production have become increasingly important in ensuring the profitability of shale gas operations. In this paper we investigate whether the shale gas expansion, which has led to an increase in associated LPG production, has also affected the historically strong relationship between LPG and oil prices. Revealing the strength and stability of the LPG/oil relationship is relevant when it comes to the future profitability and development of the U.S. natural gas sector. Our results suggest that the LPG/oil relationship has weakened in recent years with a move towards cheaper liquids relative to oil. This is consistent with developments in the natural gas sector with increased liquids production. A consequence is that U.S. natural gas operations cannot automatically rely on high liquids prices to ensure profitability.



Concentration Trends in the Gulf of Mexico Oil and Gas Industry

Charles F. Mason

Year: 2016
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.cmas
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Abstract:
In this paper, I evaluate patterns of concentration in the Gulf of Mexico oil and gas industry, one of the most important sectors for US production over the past few decades. In the 1990s, production in the Gulf was quite concentrated, and was dominated by large oil companies. But over the past decade or so this concentration has eroded, with recent levels consistent with an unconcentrated industry. These patterns apply for drilling and leasing as well, and are relevant to both shallow and deep water. The overall picture is an industry with strong competition for leases, drilling and production.



Petroleum Taxation Contingent on Counter-Factual Investment Behaviour

Petter Osmundsen, Magne Emhjellen, Thore Johnsen, Alexander Kemp and Christian Riis

Year: 2015
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.posm
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Abstract:
Petroleum administration can be regarded as a principal-agent problem. The government allocates exploration and production rights to petroleum companies on behalf of the population. The government is the principal and the companies are agents. With the aim of capturing revenue for the state, the government devises a petroleum tax system which takes account of the investment decisions made by the companies, while acknowledging for the fact that the companies may report strategically to the government. An important issue is how tax deductions are to be treated in investment analysis. A discrepancy arises here between assumptions made in some areas of tax theory and the actual investment analyses conducted by the companies. Tax theory has given rise to discussion and controversial tax proposals for the petroleum sector in Norway, Denmark and Australia. It led, for example, to reductions in tax-related depreciation for the Norwegian petroleum industry in May 2013. The article reviews this tax debate and analyses the implications of basing tax design on counter-factual investment behaviour.



Valuing Barrels of Oil Equivalent

James L. Smith

Year: 2015
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.jsmi
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Abstract:
By convention, the petroleum industry relies on thermal equivalence to summarize the results of upstream oil and gas operations - measuring outputs in terms of barrels of "oil equivalent." This despite the fact that the two commodities trade at nothing like thermal parity. Drawing on a well-known exponential production model of petroleum reserves, we demonstrate the potential for thermal equivalence to substantially distort common measures of exploration and development success. Drawing on a recent survey of actual upstream results, and relative to a proposed measure based on economic equivalence, we show that the extent of bias in estimates of value, cost, and profitability is indeed large.




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