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The Discovery Decline Phenomenon: Microeconometric Evidence from the UK Continental Shelf

Andrew Pickering

Year: 2002
Volume: Volume23
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No1-3
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The Discovery Decline Phenomenon (DDP) requires that firm-level discoveries of a non-renewable resource depend, non-linearly, upon cumulative industry wide exploration. In this paper, an optimal rule for the exploration. effort that adheres to the DDP is derived. Data from the United Kingdom Continental Shelf (UKCS) are applied to the model where it is found that cumulative exploration is a highly significant determinant of firm-level exploration, and that prices and taxes also determine exploration effort. The 'Hubbert peak' in discoveries in the UKCS is estimated to be 1989 thereby improving upon previous estimates but also implying that the DDP in this region is already quite advanced.

Modeling Peak Oil

Stephen P. Holland

Year: 2008
Volume: Volume 29
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No2-4
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Peak oil refers to the future decline in world production of crude oil and to the accompanying potentially calamitous effects. The majority of the literature on peak oil is non-economic and ignores price effects even when analyzing policies. Unfortunately, most economic models of depletable resources do not generate production peaks. I present four models which generate production peaks in equilibrium. Production increases in the models are driven by: demand increases, cost reductions through advancing technology, cost reductions through reserve additions, and production capacity increases through site development. Production decreases are driven by scarcity. The models do not rely on market failures and indicate that a peak in production may arise from efficient intertemporal optimization. The models show that prices are a better indicator of impending scarcity than peaking is and that peak production can occur when any percentage from 0-100% of the original deposit remains.

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