The economics of the energy market
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The Economics of the Energy Market. Dr. Myles Watts Department of Ag. Econ. & Econ. Montana State University and April 2012. Energy Market Discussion. Energy Facts Quiz Domestic Energy Flow and Use Oil and Gasoline Prices. Energy Facts Quiz. List in order of magnitude:

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The economics of the energy market

The Economics of the Energy Market

Dr. Myles Watts

Department of Ag. Econ. & Econ.

Montana State University

and

April 2012


Energy market discussion

Energy Market Discussion

Energy Facts Quiz

Domestic Energy Flow and Use

Oil and Gasoline Prices


Energy facts quiz

Energy Facts Quiz

  • List in order of magnitude:

    • The U.S. energy sources Coal, Natural Gas, Nuclear, Petroleum, Renewable

    • France’s energy sourcesCoal, Natural Gas, Nuclear, Petroleum, Renewable

    • The U.S. energy usesCommercial, Industrial, Residential, Transportation


Energy facts quiz1

Energy Facts Quiz

  • List in order of magnitude (cont.):

    • The top three oil producing nations

    • The top six nations that produce oil consumed in the United States


The economics of the energy market

Energy Facts Answers

  • The U.S. energy sources

    • (Coal, Natural Gas, Nuclear, Petroleum, Renewable).

    • Petroleum (includes Crude Oil) – 41.5%

    • Natural Gas – 22.1%

    • Coal – 22.08%

    • Nuclear – 8.4%

    • Renewable – 8.0%

U.S. Energy Information Administration (www.eia.gov), Energy Statistics


Energy facts answers

Energy Facts Answers

  • France’s energy sources (2008)

    • (Coal, Natural Gas, Nuclear, Petroleum, Renewable)

    • Nuclear – 39%

    • Petroleum – 36%

    • Natural Gas – 17%

    • Renewable – 7%

    • Coal – 4%

U.S. Energy Information Administration (www.eia.gov), International Energy Statistics


Energy facts answers1

Energy Facts Answers

  • The U.S. energy uses (Commercial, Industrial, Residential, Transportation)

    • Industrial – 30.14%

    • Transportation – 27.51%

    • Residential – 22.51%

    • Commercial – 18.21%

U.S. Energy Information Administration (www.eia.gov), Energy and International Energy Statistics


Energy facts answers2

Energy Facts Answers

  • The top three oil producing nations

    • (in order of magnitude)

    • Saudi Arabia

    • Russia

    • United States

U.S. Energy Information Administration (www.eia.gov), Energy and International Energy Statistics


Energy facts answers3

Energy Facts Answers

  • The top six nations that produce oil consumed in the United States

U.S. Energy Information Administration (www.eia.gov) Energy and International Energy Statistics


Energy flow 2010

Energy Flow 2010

U.S. EIA Annual Energy Report 2010 Figure 1 (see report for footnotes)


Oil and gasoline prices

Oil and Gasoline Prices

Historical Energy Prices

Montana Oil Production

Exchange Rates

World Income

U.S. Refinery Capacity


The economics of the energy market

U.S. Energy Consumptionby Source and Sector 2011 (quadrillion Btu)

U.S. EIA Annual Energy Report 2010 Figure 2 (See report for footnotes)


Crude oil prices since 1861

Crude Oil Prices Since 1861

Growth of Venezuelan production

Sumatra

production began

Loss of Iranian supplies

Netback pricing introduced

Asian financial crisis

Post-war reconstruction

Fears of shortage in US

Invasion of Iraq

Russian

oil exports began

Yom Kippur

war

Suez crisis

East Texas field discovered

Discovery of Spindletop,

Texas

Pennsylvanian

Oil Boom

Iraq invaded Kuwait

Iranian revolution

CRUDE OIL PRICES 1861 – 2011 (US dollars/barrel)

1861-1944 US Average

1945-1985 Arabian Light posted at Ras Tanura

1986-2011 OK WTI Spot Price FOB

U.S. EIA: BPCrudeOilPrices.xls, Cushing OK WTI Spot Price FOB, Inflation Data BLS and Minneapolis Federal Reserve


Proven oil reserves

Proven Oil Reserves (%)

997

Billion Barrels

1028

Billion Barrels

1469

Billion Barrels

U.S. Energy Information Administration (www.eia.gov), International Energy Statistics


Reserves at end 2011 total 1469 billion barrels

Reserves at End 2011Total 1469 Billion Barrels

U.S. Energy Information Administration (www.eia.gov), International Energy Statistics and Annual Energy Outlook 2011


Oil reserves to production r p ratios

Oil Reserves-to-Production (R/P) Ratios

U.S. Energy Information Administration (www.eia.gov), International Energy Statistics and Annual Energy Outlook 2011


The economics of the energy market

Capitol Commodity Services: www.ccstrade.com


Gasoline prices since 1919 dollars per gallon

Gasoline Prices Since 1919Dollars per Gallon

U.S. EIA Motor Gasoline Regular Grade Retail Prices (Annual)


Recent gas diesel prices

Recent Gas & Diesel Prices

19

U.S. EIA Petroleum and Other Liquids Pricing


Montana crude first purchase price

Montana Crude First Purchase Price

20

U.S. EIA Petroleum and Other Liquids Pricing BLS CPI


Exchange rates

Exchange Rates

  • Most crude oil purchased elsewhere:

U.S. Energy Information Administration (www.eia.gov) Energy and International Energy Statistics

21


Financial influences inflation and exchange rates

Financial Influences(Inflation and Exchange Rates)

U.S. EIA Petroleum and Other Liquids Pricing, BLS CPI, Federal Reserve Exchange Rates

22


The economics of the energy market

Financial Influences(Inflation and Exchange Rates)

NOTE: Subject to “Fallacy of Composition” criticism.

U.S. EIA Petroleum and Other Liquids Pricing, BLS CPI, Federal Reserve Exchange Rates


World income

World Income

24

China’s personal income has been increasing at about 10% per year (real) for nearly two decades.

U.S. personal income has also increased substantially.

Personal income and GDP worldwide continues to increase.


U s personal real income

U.S. Personal Real Income

25

Bureau of Economic Analysis National Income and Accounts Tables BLS CPI All Urban Consumers


World gdp historical trend

World GDP: Historical Trend

26

World Bank National Accounts Data


U s refinery capacity

U.S. Refinery Capacity

U.S. Energy Information Administration U.S. Refinery Utilization and Capacity

No new refineries built in the United States since 1978

Some expansion in U.S. refinery capacity

27


Montana oil production 1981 2011

Montana Oil Production1981 - 2011

28

U.S. Energy Information Administration Montana Crude Oils First Purchase Price and Field Production


The economics of the energy market

Montana Oil Production ForecastQt = Oil Production (1000 barrels) in year tP = Price of Oil (2011$/barrel)

Qt = 1.9P.087Qt-11.48Qt-2-.704

R2 = .96Price Elasticity = 9%

(Estimated in Logs)

Data: EIA Annual MT Crude First Purchase Price, 1983 to 2011

Estimated by Doug Young

29


Questions

QUESTIONS


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