ENERGY SECURITY: LIBERALIZATION, ENVIRONMENTAL POLICY AND FOREIGN POLICY - PowerPoint PPT Presentation

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ENERGY SECURITY: LIBERALIZATION, ENVIRONMENTAL POLICY AND FOREIGN POLICY

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Title: ENERGY SECURITY: LIBERALIZATION, ENVIRONMENTAL POLICY AND FOREIGN POLICY


1
ENERGY SECURITYLIBERALIZATION, ENVIRONMENTAL
POLICY AND FOREIGN POLICY
  • ISTITUTO BRUNO LEONI
  • MICHAEL C. LYNCH

2
TRADITIONAL VIEW
  • PETROLEUM IS A SCARCE RESOURCE
  • POSSESSION OF OIL POLITICAL AND ECONOMIC POWER
  • RELIANCE ON IMPORTED OIL VULNERABILITY
  • THE WORLD IS VULNERABLE TO MIDDLE EASTERN
    POSSESSION OF OIL
  • WHICH WILL INCREASE SHORTLY (SEE ABOVE)

3
THEREFORE
  • REDUCE MIDDLE EASTERN OIL USE
  • COAL, LNG, NUCLEAR, RUSSIAN GAS
  • AGGRESSIVE FOREIGN POLICY
  • MAINTAIN GOOD RELATIONS WITH PRODUCERS
  • COOPERATION WITH CONSUMERS?
  • GOVERNMENT REGULATION
  • SURGE CAPACITY
  • VOLUNTARY CONSERVATION
  • NATIONAL/DOMESTIC OIL COMPANIES

4
BUT RESOURCE SCARCITY NOT A REAL ISSUE
  • FEARS BEGAN 2500 YEARS AGO
  • STILL WAITING
  • PEAK OIL IS BAD SCIENCE
  • WARNINGS HAVE BEEN REPEATEDLY EXAGGERATED
  • MALTHUSIAN BIAS
  • PRODUCERS VULNERABLE TOO
  • DEMAND SECURITY

5
OPEC MARKET SHARE FORECASTS (1996)
6
THE OPTIMISTIC IEAS FORECASTS FOR OECD OIL
PRODUCTION
7
PEAK OIL/SCARCE RESOURCES
  • PEAK OIL IS IMMINENT
  • (OR ALREADY PAST)
  • DUE TO GEOLOGICAL SCARCITY
  • CANT BE ALTERED BY TECHNOLOGY OR INVESTMENT
  • PRICES/RECESSION MUST CUT DEMAND IN RESPONSE
  • IMPACT IS SEVERE
  • GLOBAL RECESSION
  • ENERGY PRODUCERS POWER GROWS

8
LAHERRERE FORECAST FOR UK
Curve seems to fit perfectly, but estimate of
current production is about 60 too low.
9
CAMPBELL DISCOVERED (2005) VS URR (1997)
Campbell has found that more than half of all
countries studied have, by 2005, found more oil
than he thought they ever would in his 1997
analysis.
10
CAN GOVERNMENTS HELP?
  • FIGHTING THE LAST WAR
  • POOR ANALYSIS
  • SPECIAL INTERESTS
  • COAL, ETHANOL, ETC.
  • PERCEPTIONS SET POLICY, NOT REALITY

11
YOURE IN GOOD HANDS

12
OUR HERO!
13
FIGHTING THE LAST WAR
  • 1951 BUILD REFINERIES
  • 1956 BUILD SUPER TANKERS
  • 1967 EMBARGO WONT WORK
  • 1973 FIGHT EMBARGO WITH SHARING
  • 1979 BUILD SPR
  • 1990 DONT USE SPR
  • 2003/2007 MORE GOVERNMENT INTERVERTION IN
    MARKETS!

14
FOREIGN POLICY TO THE RESCUE!
  • HAVE GOOD RELATIONS WITH PRODUCING COUNTRIES
  • GAIN ACCESS TO SUPPLY
  • DIPLOMATS OFFER SPECIAL DEALS
  • SOLVE ARAB-ISRAELI CONFLICT
  • PREVENT GLOBAL WARMING
  • PROTECT ITALIAN CHEESES

15
US IMPORTS OF SAUDI OIL
16
MARKET SHARE BY COMPANY
17
ENERGY SECURITY DEBATEPOLI SCI VS ECONOMICS
  • GEOPOLITICAL VIEW
  • VOLUMEVULNERABILITY
  • DANGER IS PHYSICAL SHORTAGE
  • ECONOMISTS VIEW
  • MARKETS RESOLVE DISRUPTIONS
  • FUNGIBILITY
  • BOTH PARTLY RIGHT
  • BUT BOTH SEE NO CRISIS IN 1973/79

18
REAL PROBLEMS
  • DISRUPTION PRICE ASSUMED LONG-TERM EQUILIBRIUM
  • OPEC LISTENS TO THE ECONOMISTS
  • MARKET NOT COMPLETELY FUNGIBLE
  • MARKET CLEARS THROUGH PRICE MECHANISM
  • HOARDING CAN WORSEN PROBLEM
  • CATASTROPHIC FAILURE
  • HIGHER PRICES YIELD ECONOMIC DAMAGE

19
PRICE CHANGE DURING CRISES
20
GROSS LOSS OF SUPPLY
21
PRODUCTION INCREASES DURING CRISES
22
NET SUPPLY CHANGE
23
MARKET STRUCTURE
  • FLEXIBILITY
  • CONTRACTS
  • PIPELINES
  • SPOT MARKET
  • OIL PRICE INDEXING
  • INTEGRATION

24
WHY NO CRISIS IN 1990?
  • UNCERTAINTY LOW
  • MILITARY THREAT MINIMAL
  • OPEC RESPONDED QUICKLY
  • PRIVATE STOCKS HIGH
  • SPOT MARKET LARGE
  • SPRS AVAILABLE?
  • FUTURES MARKET?

25
WHY THE CURRENT CRISIS?
  • 2.5 MB/D OF LOST SUPPLY IN A TIGHT MARKET
  • POTENTIAL THREAT UNUSUALLY LARGE
  • RUSSIA, NIGERIA, VENEZUELA NEVER A CONCERN BEFORE
  • LOTS OF SPECULATION
  • KINDLEBERGERS LESSON

26
REGULATION AND ENERGY SECURITY
  • COINCIDENCE OF PRESSURE FOR LIBERALIZATION AND
    ENERGY SECURITY AT SAME TIME
  • ENERGY SECURITY IS A PUBLIC GOOD
  • INTANGIBLE
  • GOVERNMENTS PROVIDE PUBLIC GOODS
  • THEREFORE, REGULATION IS GOOD!
  • (BUT SEE RUSSIAN ENVIRONMENT)

27
REGULATIONS VALUE
  • INSURANCE/PUBLIC GOOD
  • SURGE CAPACITY
  • COST/BENEFIT TEST
  • FIGHT HOARDING
  • BUT GOVERNMENTS HOARD TOO
  • NOT ALLOCATION
  • NOT PRICE SETTING

28
THE ROLE OF LNG
  • CHEAP SUBSTITUTE
  • BUT ONLY IF PRICED THAT WAY!
  • CIF CRUDE EQUIVALENCE DOESNT IMPROVE MATTERS
  • IMPROVES COMPETITION
  • UNLESS ITS ALL ALGERIAN

29
CONCLUSION
  • SUPPLY DISRUPTIONS WILL OCCUR
  • VULNERABILITY CANT BE ENDED
  • NATIONAL MAYBE, GLOBAL NO
  • BAD POLICY CAN CREATE LOSSES
  • HOARDING
  • FOCUS ON VOLUMES INSTEAD OF PRICE
  • SURGE CAPACITY IS BEST INSURANCE
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