Transcript Beth al Talk 9 30 14 - Fairfield Faculty

World Energy Markets and the World
Economy
Mark LeClair, Fairfield University
September 30, 2014
Beth El, Stamford
Why Talk About Energy Markets?
• Major determinant of world economic growth
• Energy markets now dominate world
commodity trade
• Transition to a post-carbon energy mix has
been slow and is not likely to accelerate in the
near future.
• Controversies over the impact of carbon
emissions make energy transformation a hot
topic
Most Importantly
• Traditional sources of petroleum imports are
unstable:
– Middle East
– Venezuela
– Now, Russia
– Unhooking from parts of world energy markets a
dominant strategy if instability is the norm
– We do, of course, get oil from Canada, Mexico and
will eventually be importing from Brazil – much
more stable suppliers.
Publications in this Area
• International Commodity Markets and the
Role of Cartels, 2000, M.E. Sharpe
• “Achieving Gasoline Price Stability in the U.S.:
A Modest Proposal,” The Energy Journal, 27,
(2006)
World Current and Projected Use
of Various Forms of Energy (EIA)
U.S. Non-Hydropower Renewables
(EIA)
U.S. Energy Markets
• “Pain at the Pump”
– Long-run U.S. Gasoline and Diesel Prices have
risen sharply and will likely remain high
– Positive Impact on fuel composition
• Negative impact on economic growth
– Funny unintended consequence: Federal tax
revenue raised from gasoline has plummeted –
Feds are now short of funds to fix the roads.
The Big Picture – Transitions in
Global Energy Markets
• Center of the Universe for petroleum
production moving away from Middle East
• Saudi Arabia, Kuwait and others are still major
producers but, by 2011, Russia had largest
daily output
– Saudi Arabia was 2nd, Iran 4th, Iraq 7th, UAE 8th.
– U.S. now in 3rd spot, with China in 5th place and
Canada in 6th.
– Mexican production in 2011 was greater than
Kuwait’s
Key Producers (2011)
1
Russia
10,100,000
13.28%
2
Saudi Arabia
9,800,000
12.65%
3
United States
8,100,000
9.97%
4
Iran
4,231,000
4.77%
5
China
4,073,000
4.56%
6
Canada
3,592,000
3.90%
7
Iraq
3,400,000
3.75%
8
United Arab
Emirates
3,087,000
3.32%
9
Venezuela
3,023,000
3.56%
10
Mexico
2,934,000
3.56%
11
Kuwait
2,682,000
2.96%
.
World Reserves
•
•
•
•
•
•
•
•
•
Brazil
Canada
China
Mexico
Russia
Saudi Arabia
United States
Venezuela
2010
2011
2012
2013
2014
12.802
175.214
20.350
10.404
60.00
262.400
20.682
99.377
12.857
175.214
20.350
10.420
60.00
262.600
23.267
211.170
13.987
173.625
20.350
10.359
60.00
267.020
26.544
211.170
13.154
173.105
23.717
10.264
80.00
267.910
30.529
297.570
13.219
173.200
24.376
10.073
80.00
268.350
NA
297.740
Billions of Barrels – Energy Information Administration
But, Not all Oil is the Same!
• Venezuela might have largest reserves, but oil
is hard to extract and hard to refine
– Partly the reason for the poor performance of
industry
• U.S. oil tends to be “light (sweet)” variety
– Low-sulphur, easy to refine
U.S. Light Crude
Venezuelan Oil
Where Does U.S. get its Oil?
•
Country
Kuwait
Saudi Arabia
Venezuela
Canada
Mexico
Russia
Monthly Imports
14.7 million barrels
45.3 million bbl.
21.3 million bbl.
106.5 million bbl.
31.9 million bbl.
6.3 million bbl.
Canadian Oil
• Although a major supplier, most of the
nation’s reserves are locked up in tar sands
• Expensive, dirty process to extract
• A drop in the price of oil would make this
resource unexploitable
Tar Sands Operation
What Role for Renewables?
• Don’t commonly address this, but renewables
pose significant difficulties in terms of source
and transportation, particularly internationally
– U.K. beginning major Tidal Power initiative, but
generated power likely to stay in U.K.
– Transportation of generated electricity common
between contiguous countries (U.S. and Canada)
• Much less likely intercontinentally
Will Slow Development Further
• Nations unable to exploit a comparative
advantage in particular renewables (e.g.
biomass, geothermal) and become world
suppliers.
• Unlike petroleum and natural gas,
transportation of renewables not practical
Article: Wood, Elisa, “US Plans for Green Exports
For the first time the US is attempting to build an export
market for renewable energy. Will it succeed?”
RenewableEnergyWorld.com
Electricity Dominates U.S. Plans
to Export Green Power
The BIG public Issue
• Global Warming/Global Climate
Change/Climate Disruption
• Use of fossil fuels increases CO2 emissions and
(in the laboratory) this increases temperatures
• Physical evidence of the link on a planetary is
weak and involves a form of scientific testing
that runs counter to usual scientific practice
Latest IPCC Report
• Notes that the impact on the climate has been
much less than predicted
• Therefor the “doomsday” forecasts are
unlikely to occur
– Remember that the Artic was supposed to be
entirely ice-free by this year.
Why the Science is so Hard to do
Right
• Usual method – form a hypothesis – one that
assumes NO findings
• Stack the statistical experiment GREATLY
against rejecting that hypothesis
• Collect extensive data on the relationship you
are testing (CO2 versus temperatures)
• Apply to our old friend the Bell Curve
The Bell Curve
• Only if observations are way out in the tail
(usually in the 2.5% range at the end of the
tail) do we conclude that we have found
something
– Problem with climate science: There are no
consistent observations that support global
warming
• Models are entirely predictive – the planet will be X
degrees warmer in 100 years.
• Economists who do this kind of predictive work are
nearly always wrong! Not sure why climate scientists
would avoid the same trap.
Graph of Global Temperatures –
U.K. Met Office
• Thus despite a 10% rise in the level of CO2 in
the atmosphere, no change in global
temperatures
– Points to the complexity of the global climate
system
– We are years away from understanding how other
factors (e.g. solar activity affect temperature)
Leaves us all in a bit of a Quandary
• Abandoning fossil fuels is enormously
expensive, although getting somewhat less so
• New technologies may make the entire
problem a non-issue long before the
catastrophic part of global climate change is
supposed to occur.
• So, what is the appropriate approach? A
question I surely will not be answering this
morning .
The Ultimate Solution!
Questions
• Entire talk is available on my website at:
www.faculty.fairfield.edu/mleclair