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Use of international energy statistic in research. Presentation of an oil market model

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Use of international energy statistic in research. Presentation of an oil market model Presentation by Knut Einar Rosendahl Research Department in Statistics Norway – PowerPoint PPT presentation

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Title: Use of international energy statistic in research. Presentation of an oil market model


1
Use of international energy statistic in
research. Presentation of an oil market model
  • Presentation by Knut Einar Rosendahl Research
    Department in Statistics Norway 1st meeting in
    the Oslo City group on energy statistics 6-8.
    February 2006 Statistics Norway

2
Introduction
  • International energy markets are important to
    understand
  • Particularly the oil market
  • Affects global economy in general and national
    economies in particular
  • Improved understanding of energy markets helps
    decision makers wrt. investments, policies,
    planning etc.
  • Construction of energy market models may help to
    understand the markets
  • Put together central relationships like demand
    functions for different consumers and supply
    behaviour for different producers into a
    consistent framework
  • Taking into account available reserves and costs
    of production
  • Models will never be completely correct, e.g. due
    to unpredictable behaviour

3
  • Numerical models need a quantitative basis
  • Based on energy statistics
  • A decent model requires decent statistics
  • The value of a numerical model depends on the
    quality of its data basis
  • Some statistics are more vital than others
  • A numerical model may give valuable insight even
    if (some of) the data are of poor quality
  • International energy statistics of good quality
    are not easily accessible and applicable
  • Different definitions
  • Lack of statistics for several countries
  • Rest of presentation
  • Brief presentation of oil market model and
    analysis
  • Presentation of energy statistics used and
    problems encountered

4
FRISBEE a global energy market model
  • FRISBEE is a partial equilibrium model of the
    international energy markets
  • Developed in Statistics Norway over the last 3
    years
  • Partly financed by Norwegian Research Council
  • Emphasis on the oil and gas markets
  • Applications
  • Analysis of OPECs optimal oil price level
  • Analysis of globalisation of gas markets
  • Analysis of various energy and climate policies
    on energy markets
  • Users
  • Mainly own use for research
  • Incl. presentations for e.g. Ministry of Energy,
    Oil companies etc.
  • Several analyses for Statoil

5
FRISBEE regional classification
Russia, Ukraine Belarus
Western Europe
Eastern Europe
Canada
China
Caspian region
USA
Rest-Asia
OECD-Pacific
OPEC-core
Africa
Latin America
OPEC-rest
6
Important aspects of the FRISBEE model
  • Production consumption of energy goods in each
    region
  • Free trade on the world market
  • Global equilibrium in each period (exogenous
    stock changes)
  • Time periods 1 year
  • Base year 2000
  • Time horizon Normally 2030
  • More flexibility in the long run
  • Consumption of oil products in each region
  • Three end-users Power production, Industry,
    Others
  • Two oil products Transport oil and Oil for
    stationary purposes
  • Depends on end-user prices of different energy
    goods GDP per capita Population Energy
    efficiency (exogenous) Demand in previous period

7
Important aspects of the FRISBEE model (cont.)
  • Transformation from primary to final energy goods
    is not modelled (fixed add-on in unit costs)
  • Oil production in each region
  • Four field groups (e.g., onshore/offshore)
  • Distinguishes between fields in production,
    undeveloped fields and fields to be discovered
  • Both investment and production decisions are
    treated explicitly
  • Costs are divided into capital costs and
    operating costs
  • Developed fields go through four phases
  • Investment phase pre-peak phase peak phase
    decline phase
  • Oil investments and discoveries
  • At the end of each year oil companies and OPEC
    invest in new fields and improved oil recovery
    (IOR), and discover new fields

8
Important aspects of the FRISBEE model (cont.)
  • Oil production outside OPEC
  • Production is set so that marginal costs equal
    regional crude oil price (minus gross taxes)
  • Higher costs in the decline phase (before
    shut-in)
  • Oil production in OPEC
  • OPEC supplies residual demand for a pre-specified
    oil price target
  • Investments outside OPEC
  • Oil companies consider undeveloped oil fields and
    IOR projects outside OPEC
  • Maximises net present value at discount rate set
    to 10 p.a.
  • Adaptive price expectations based on recent years
    price levels
  • Investments in new fields take time to get on
    stream IOR-investments increase production the
    next year

9
Important aspects of the FRISBEE model (cont.)
  • Investments in OPEC
  • OPEC invests to maintain a certain excess
    capacity
  • Investment costs
  • Vary across regions and field groups
  • High risk acts as actual costs
  • Costs increase when remaining reserves decline
  • Technological progress may compensate
  • Short-term costs may increase due to high
    activity level

10
OPECs optimal oil price level analysis of the
FRISBEE model
  • What is OPECs optimal oil price level in the
    long run?
  • Discounted income over the period 2005-2030
  • High prices High initial income lower market
    share in the medium term (high Non-OPEC supply
    and low demand)
  • Low prices Low initial income higher market
    share in the medium term
  • Constraint Consider only constant oil prices
    from 2010-2030
  • Implicitly assume that OPEC is a profit
    maximising cartel
  • Ignore internal conflicts or coordination
    problems
  • Ignore other considerations for OPEC (e.g.,
    geopolitical issues)
  • OPECs optimal oil price is not a prediction of
    the actual oil price level in 2010-2030

11
OPECs market share over time for different oil
price levels
12
OPECs net cash flow over time
13
OPECs optimal oil price level for different
discount rates (2000-)
14
Energy statistics used to calibrate the FRISBEE
model
  • Mostly international statistics
  • IEA EIA (US DoE) BP USGS
  • Energy demand and production in base year 2000
  • Mainly IEA statistics
  • Good coverage for most countries (incl. Non-OECD)
  • Energy prices in base year
  • Mainly IEA statistics
  • End-user prices of energy goods in
    households/industry/power prod.
  • OECD countries Large variation!
  • Non-OECD countries More or less absent
  • Forced to search elsewhere (research literature
    etc.), and make rough assumptions

15
Energy statistics used to calibrate the FRISBEE
model (cont.)
  • Energy prices in base year (cont.)
  • Wholesale prices
  • OECD Mostly OK
  • Non-OECD Little information
  • Taxes on energy demand
  • Not focused in this study (so far), but in other
    studies
  • Difficult to obtain for several countries and
    energy goods
  • Oil field information (resources, reserves,
    geology, start-up)
  • Access to extensive database with detailed
    information
  • Helped to sort oil reserves into
    developed/undeveloped fields onshore/offshore
    large/small etc.
  • Different opinions exist, especially wrt. size of
    reserves

16
Energy statistics used to calibrate the FRISBEE
model (cont.)
  • Production costs
  • Access to information about operating and
    investment costs in different types of fields in
    important countries
  • Used to calibrated cost functions in different
    phases
  • Investment, peak phase, decline phase
  • Undiscovered oil resources
  • US Geological Survey (2000) Potential
    discoveries next 30 years
  • Country specific
  • Different opinions exist of course!
  • Used to calibrate deterministic discovery
    function
  • Projections of future economic growth and energy
    demand
  • Mainly based on EIA
  • Used to calibrate income elasticities
  • Projections of energy demand vary a lot

17
Energy statistics important needs
  • More statistics for Non-OECD countries
  • More and more important for the international
    energy markets (e.g. China, Russia)
  • Very limited statistics, especially on prices
  • More available statistics for fossil fuel
    resources
  • Important in order to understand the development
    of the energy markets (cf. e.g. the peak oil
    debate)
  • Very costly today
  • Different definitions about reserves, and
    different evaluations
  • Predominance of unlisted companies
  • Strategic importance for oil companies etc.
  • Statistics on bio resources and other renewables
    also important

18
More information
  • Aune, Glomsrød, Lindholt and Rosendahl (2005)
    Are high oil prices profitable for OPEC in the
    long run? Discussion Papers 416, Statistics
    Norway (http//www.ssb.no/cgi-bin/publsoek?jobfor
    sideiddp-416kodedplangen)
  • E-mail ker_at_ssb.no
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