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An Unstable World Oil Market

M. A. Adelman

Year: 1985
Volume: Volume 6
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No1-4
View Abstract

Abstract:
There is a permanent surplus because huge low-cost reserves are available for development. The cartel keeps them undeveloped to maintain the price. Their power is great, but they are a "clumsy cartel" and sometimes overreact to produce a shortage. Hence the future is cloudy and threatening, like the recent past.



Reserves and Reserve Production Ratios In Imperfect Markets

Keith C. Brown

Year: 1989
Volume: Volume 10
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-12
View Abstract

Abstract:
Recent changes in reserves or reserve/production ratios are often cited as evidence of hypothesized economic changes in petroleum markets. However, the technology of petroleum production and the fact that international petroleum markets are not perfectly competitive combine to render incorrect interpretations all too easy. Both market imperfections and technical limitations to production rates slow market adjustments to changes in expected prices or costs. This makes it difficult to use observed changes in reserve/production ratios as evidence of some hypothesized economic change, since neither of the observations used to get the observed change may have been close to the then-prevailing long run equilibrium.



The Hotelling Principle: Autobahn or Cul de Sac?

G. C. Watkins

Year: 1992
Volume: Volume 13
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-1
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Abstract:
The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling Style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.



World Oil Resources, Reserves and Production

Peter R. Odell

Year: 1994
Volume: Volume 15
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-NoSI-6
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Abstract:
Recent estimates of limited oil resources as constituting a constraint on the future of oil, lack validity. The issue is unimportant for the oil market for 50 years. Similarly, fears for the adequacy of annual additions to reserves are unfounded: the world is running into oil, not out of it.By contrast, the geography of reserves development is important. Twothirds of reserves are in the Middle East, but 85% of these are irrelevant to global production to 2010, given the potential in OECD and non-OPEC developing countries, and the maintenance of the current oil price.Thus, demand for Middle East oil will remain frustratingly modest. Efforts to expand production, necessarily in cooperation with major oil corporations, will regenerate fears elsewhere for supply security and create prospects for regionalising global oil around the three groupings of OECD countries, to which the non-Middle East OPEC members will adhere.



The Hotelling Principle and In-Ground Values of Oil Reserves: Why the Principle Over-Predicts Actual Values

Stephen L. McDonald

Year: 1994
Volume: Volume15
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No3-1
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Abstract:
Two articles previously published in this Journal (Watkins 1992 and Adelman 1993) reported that the valuation version of the Hotelling Principle over-predicts in-ground values of oil and gas reserves by a factor of approximately two. This paper shows these results are to be expected once it is understood that: (1) the Principle assumes individual operators have the effective freedom to schedule extraction rates so as to make net prices rise at the rate of discount, regardless of the course of gross (wellhead) prices; and (2) the long-prevailing system of regulating oil well spacing and extraction rates in the United States and Canada, designed to deal with the common pool problem, effectively denies operators that freedom. The discrepancy between actual in-ground values and those predicted by the Hotelling Principle suggests the benefits to be had by substituting compulsory reservoir unitization cum manager freedom for the current system of regulation.



An Integrated Model of Oil Production

John R. Moroney and M. Douglas Berg

Year: 1999
Volume: Volume20
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-6
View Abstract

Abstract:
This paper demonstrates that models which combine the physical reserves of oil with economic and regulatory variables provide better forecasts of future production than models based on either reserves or economic variables alone. Four alternative models are specified and estimated. Out-of-sample forecasts show that a model combining reserves, lagged production, and the real price of oil performs much better than models based on reserves alone or economic variables alone.



Reserve Prices and Mineral Resource Theory

M.A. Adelman and G.C. Watkins

Year: 2008
Volume: Volume 29
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-NoSI-1
View Abstract

Abstract:
NOTE. Gordon Campbell Watkins was my friend for forty years. He freed me, as the Scots poet says, from many a blunder and foolish notion. We joined forces twenty years ago, when the basic data on hydrocarbon scarcity were starting to disappear. (Adelman and Watkins, 1996). A revised updated version was given in 2002 at an IAEE session in Prague. The last paper of our last effort follows, delayed by his death and my ailments. We are indebted to the Center for Energy and Environmental Policy Research at MIT for continuing aid. Without Therese Henderson and Jeanette Ehrman, the work could not have been completed. Errors in this final revision are mine alone.



The Impact of the Fracking Boom on Arab Oil Producers

Lutz Kilian

Year: 2017
Volume: Volume 38
Number: Number 6
DOI: 10.5547/01956574.38.6.lkil
View Abstract

Abstract:
This article makes four contributions. First, it investigates the extent to which the U.S. fracking boom has caused Arab oil exports to decline since late 2008. Second, the article quantifies for the first time by how much the U.S. fracking boom has lowered the global price of oil. Using a novel econometric methodology, it is shown that in mid-2014, for example, the Brent price of crude oil was lower by $10 than it would have been in the absence of the fracking boom. Third, the article provides evidence that the decline in Saudi net foreign assets between mid2014 and August 2015 would have been reduced by 27% in the absence of the fracking boom. Finally, the article discusses the policy choices faced by Saudi Arabia and other Arab oil producers.



Remuneration of Flexibility using Operating Reserve Demand Curves: A Case Study of Belgium

Anthony Papavasiliou and Yves Smeers

Year: 2017
Volume: Volume 38
Number: Number 6
DOI: 10.5547/01956574.38.6.apap
View Abstract

Abstract:
Flexibility is becoming an increasingly important attribute of conventional generators due to the challenges imposed by the unpredictable, highly variable and non-controllable nature of renewable supply. Paradoxically, flexible units are currently being mothballed or retired in Europe due to financial losses. We investigate an energy-only market design, referred to as operating reserve demand curves, that rewards flexibility by adjusting the real-time energy price to a level that reflects the value of capacity under conditions of scarcity. We test the performance of the mechanism by developing a model of the Belgian electricity market, which is validated against the historical outcomes of the market over a study period of 21 months. We verify that (i) based on the observed market outcomes of our study period, none of the existing combined cycle gas turbines of the Belgian market can cover their investment costs, and (ii) the introduction of price adders that reflect the true value of scarce flexible capacity restores economic viability for most combined cycle gas turbines in the Belgian market.



Cross-Border Exchange and Sharing of Generation Reserve Capacity

Fridrik M. Baldursson, Ewa Lazarczyk, Marten Ovaere, and Stef Proost

Year: 2018
Volume: Volume 39
Number: Number 4
DOI: 10.5547/01956574.39.4.fbal
View Abstract

Abstract:
This paper develops a stylized model of cross-border balancing. We distinguish three degrees of cooperation: autarky, reserves exchange and reserves sharing. The model shows that TSO cooperation reduces costs. The gains of cooperation increase with cost asymmetry and decrease with correlation of real-time imbalances. Based on actual market data of reserves procurement of positive and negative automatic frequency restoration reserves in Belgium, France, Germany, the Netherlands, Portugal and Spain, we estimate the procurement cost decrease of exchange to be €165 million per year without transmission constraints and €135 million per year with transmission constraints. The cost decrease of sharing is estimated to be €500 million per year. The model also shows that voluntary cross-border cooperation could be hard to achieve, as TSOs do not necessarily have correct incentives.




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