Transcript Lecture 2 - Illinois State University

 Homework
7 due Wed.
 Exam #3 Wed.
Lowest gas prices in over 10 years
2
Pressures on transportation routes
Reconfiguration of gas corridors
TransCanada
GTN
Bison
LNG
Ruby
LNG
REX
Kern River
Expansion
Fayetteville Express
Gulf Crossing
Midcon Express
LNG
FGT Expansion
Flow increase
Flow decrease
3
Substitution of gas for coal
generation
U.S. Coal Generation Supply Curve 2011
Source: Derived from SNL data
4
 When
the government allows private
firms to extract minerals offshore or on
public lands, two common means of
sharing in profits
• Bonus bidding – awards the highest bidder the
right to extract and paid up-front
• Production royalties – charges a per-ton royalty
on each ton extracted and paid as long as the
mineral is extracted
 How
will this affect extraction over time?
 Would
either be consistent with the
efficient allocation?
 Suppose
the price path and size of
deposits are unknown. How would the
risk be shared between the government
and mining company, for the two
different policies?
MC
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AC
MR
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