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USAEE Dialogue

Vol. 23, No. 1 (January 2015)

USAEE Dialogue is the official on-line Newsletter of the United States Association for Energy Economics.  Its mission is to communicate recent research, analyses and case studies on issues of energy economics that are of general interest to the membership. Articles for publication are invited from members in all sectors of the energy economics’ community -- business/consulting, government and academia (including students)USAEE Dialogue is also a forum for reports of local USAEE Chapter activities. For further information please consult: "Guidelines for Submissions of Articles" at http://www.usaee.org/pdf/blog/Dialogue_Article_Submission_Guidelines.pdf

 


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From the President, USAEE

 

Troy N. Thompson
Manager, Business Planning & Analytics
Chevron Corporation
(Houston, TX)
TroyThompson@Chevron.com
 
 

It is an honor to be the incoming President of USAEE for 2015, and I appreciate your confidence and support.   I have an exemplary Council to work with, and I’m excited about activities and plans for the upcoming year.  We’ll build on the accomplishments made under the able leadership of Mike Canes and the 2014 Council.  I want to express my gratitude to Mike for his contributions and dedication over the past year as President.

Our Association continues to be a vital part of the industry, with our members bringing an active voice to the table and participating in addressing today’s energy challenges.  Our strength lies in the ability to bring together energy professionals from a wide spectrum that includes Academia, Government and Industry.  This dynamic is what attracted me to the Association twenty years ago, and I know it is a draw for others as well.  A key objective for me is to nurture this collaboration in the form of a strong annual conference and in the exploration of ways to enhance the ability for groups to interact and find value.

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From the Editor

 
Robert Eric Borgström
Advisor on Energy Regulatory Policy & Management
(Washington, DC)
robertborgstrom2@gmail.com

 

Happy New Year!  

Having been a member of USAEE/IAEE for many, many years, it's a pleasure and privilege to serve as editor of USAEE Dialogue with the objective of using this on-line publication as a platform for sharing our diverse yet complementary interests in energy economics.  Featured in this issue are the following member-written articles:

  • "Recent Developments in LNG Markets," by in-coming IAEE President, Peter R. Hartley, based upon his presentation at the recent IAEE Asian Conference in Beijing;
  • "Demand a Better Utility Charge During Era of Renewables: Getting Renewable Incentives Correct With Residential Demand Charges," by Mark B. Lively;
  • "Economic Growth and Marginal Energy Return Ratios," by Douglas B. Reynolds;
  • "China's Omnipresence in the Global Oil Market," an invited paper by Mamdouh G. Salameh, based upon his presentation at the recent IAEE European Conference in Rome; and
  • "Lessons from Behavioral Economics for Rationalizing Energy Use," by Roman J. Zytek, based upon his presentation in Beijing.

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Featured Articles

 

Recent Developments in LNG Markets

This paper is based upon a presentation by its author at the 4th IAEE Asian Conference in Beijing.


Peter R. Hartley* 
Professor & Baker Institute Scholar
Rice University
(Houston, TX)
hartley@rice.edu
 
 

In a paper forthcoming in The Energy Journal (Hartley, 2015), I examine motivations for entering long-term contracts to trade LNG. Consistent with the industry focus on the “bankability” of long-term contracts, the model posits that the key motivation for long-term contracts is that they reduce cash flow variability and thereby increase the debt capacity of large, long-lived, capital investments for both the exporter and the importer. Increased leverage in turn reduces the cost of financing. These considerations imply, and the formal model shows, that additional debt under a long-term contract, and the benefits of a long-term contract relative to spot market trade, increase substantially with increasing spot price variability.

In this paper, I examine the recent evolution of markets for LNG and interpret those developments using insights from the model. I focus especially on the increasing amount of LNG being traded spot or under short-term contracts of less than four years duration. I argue that explanations for this, and other recent changes in LNG trading, imply that the proportion of LNG being traded under long-term contracts is likely to continue to decline and that the flexibility of long term contracts for trading LNG is likely to continue to increase.

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Demand a Better Utility Charge During Era of Renewables:

Getting Renewable Incentives Correct With Residential

Demand Charges

This paper is based upon a presentation by its author at a meeting of the New York Association for Energy Economics (USAEE) in New York City, Oct. 9, 2014.

 
Mark B. Lively
Consulting Engineer
Utility Economic Engineers
(Gaithersburg, MD)
MBeLively@aol.com
 

 

A growing interest in rooftop solar and other forms of distributed generation has created some worries in the electric utility industry about disappearing throughput.  Under cost of service regulation, reduced throughput normally means higher prices for the remaining throughput.  The higher prices for the remaining throughput encourages customers to add more distributed generation, which reduces throughput, raises prices, etc., etc., etc.  Twenty years ago this death spiral concern was sparked by some exceedingly expensive power plant investments.  Now the spark seems to be a reduction in the effective cost of rooftop solar, as well as the removal of various institutional barriers.

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Economic Growth and Marginal Energy Return Ratios (MERR)

 
Douglas B. Reynolds
Professor, Oil and Energy Economics
University of Alaska Fairbanks
(Fairbanks, AK)
dbreynolds@alaska.edu
 

When considering natural resource economics and economic growth theory, Simon (1983 and 1998) among others believe technology can overcome scarcity to create ever increasing levels of wages and GDP.  Alternatively, Meadows et. al (1972 and 2004) among many look at the real inputs into economic production and proclaim natural resource scarcity as crucial in determining the height of wages and GDP that humans can attain.   On the technology-centric side of the debate, it is assumed that technology creates economic growth through labor and capital productivity enhancements, which can overcome natural resource scarcity.  However on the resource-centric side of the debate it is emphasized that technology is not what makes things move, not what transports people and materials to location and not what drives machinery. Energy does that. Thus, the economy is a physical, engineering, oil consuming machine rather than a pure technology driven machine.  Nevertheless, scientists and economists often talk past each other regarding how economic growth occurs, such that a simplified model, presented here, could enrich the discussion on energy-economy interactions.

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China’s Omnipresence in the Global Oil Market

This invited paper was presented at the 14th IAEE European Conference in Rome, Oct. 28-31, 2014.

 

Mamdouh G. Salameh*
Director
Oil Market Consultancy Service
(Haselmere, UK)
mgsalameh@btconnect.com
 

 

China is the new factor in global politics and economics. The much-heralded advent of China as the other superpower is now a reality. On issue after issue, China has become the second most important country on the planet. Since 2007 China has been contributing more to global growth than the United States, the first time another country had done so since the 1930s. It has also become the world’s largest consumer, eclipsing the United States in food, primary energy and industrial commodities.

Read more: .

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Lessons from Behavioral Economics for Rationalizing Energy Use*

This paper is based upon a presentation by its author at the 4th IAEE Asian Conference in Beijing.

 
Roman J. Zytek
Senior Economist,
Middle East and Central Asia Department
International Monetary Fund
(Washington, DC)
rzytek@imf.org
 

 

Theoretically, households and firms choose the volume of utilities they use to maximize their welfare and profits, respectively. Government policies often try to influence household and firm choices to support specific social goals (Tanaka 2011). In the past, some policies encouraged more use. More recently, policies have started to encourage reduction in use, or more rational use. In most of these cases, policies aim to reduce the intensity of use, often at certain times of day. Policies to achieve these objectives involve changing prices as well as non-price measures.

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Recent IAEE Conferences

 

An important benefit of your USAEE membership is the opportunity of participating in a variety of IAEE-sanctioned conferences in interesting venues around the world.  

 

 


 

 4th IAEE Asian Conference

"Energy Economics: New Challenges and Solutions"

Beijing, China - September 18-21, 2014

The 4th IAEE Asian Conference in Session in the Auditorium of the Chinese Academy of Science.

IAEE/USAEE Leadership in attendance at the 4th IAEE Asian Conference

[from left] Ronald Ripple (Prof., University of Tulsa); Ying Fan, (Conference Chair and Prof., Chinese Academy of Sciences, Beijing), Gürkan Kumbaroglu (Prof., Bogazici University, Istanbul); Omowumi Illidare (President, IAEE; and Prof., Emerald Energy Institute, Port Harcourt, Nigeria); John Jimison (General Counsel, IAEE/USAEE; and Managing Director, Energy Future Coalition, McLean, VA); Peter Hartley (Prof., Rice University, Houston, TX); Michael Canes (President, USAEE; and Distinguished Fellow, Logistics Management Institute, McLean, VA); Anthony Owen (Prof., National University of Singapore); James Smith (Prof., Southern Methodist University, Dallas, TX); and David Williams (Executive Director, IAEE/USAEE, Cleveland, OH).

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Scenes from the 14th IAEE European Conference

"Sustainable Energy Policies and Strategies for Europe"

Rome, Italy - October 28-31, 2014

 

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Forthcoming Conferences


33rd USAEE North American Conference

"The Dynamic Energy Landscape"

Pittsburgh, Pennsylvania - Oct. 25 - 28, 2015

 www.usaee.org/usaee2015

Massive transformations in how and where energy is produced and consumed are drastically changing our energy economy.  The theme of the 33rd USAEE/IAEE North American Conference is “The Dynamic Energy Landscape”, a title reflecting the challenges that face government and industry leaders as they make policy and investment decisions in order to balance the use of natural resources and their impacts on the environment and local economies.

The opening plenary will focus on natural gas and plans to explore the astonishing growth of natural gas production from the Marcellus and Utica shales.  A panel of leading energy economists and stakeholders will define and probe the extent of the domestic and global resource, and discuss opportunities and challenges in capturing and sustaining the broad economic, employment, trade and even environmental benefits of shale gas, while ensuring public health and safety. 

The 2015 conference will be held in Pittsburgh, Pennsylvania, one of the main centers of American energy and an area that has witnessed an industrial resurgence, which will also be one of the planned plenary topics.  In addition, a Society of Petroleum Engineers (SPE) led topic will focus on water at the well-site and explore the challenges around its production, handling and disposal.  Other plenaries plan to  cover a wide range of topics that include Renewable Energy Integration, Climate, the Future of Coal, Geopolitics, Energy Infrastructure and current issues facing North American Energy.  A post-conference technical tour to Range Resources’ Southwest Marcellus Shale natural gas producing operations is also planned.  

Please mark your calendars for October 25-28 and plan to attend and to participate.  The deadline for receipt of abstracts for both the Concurrent Sessions and the Student Poster Session is Thursday, May 21, 2015.  Check the conference website at www.usaee.org/usaee2015 periodically for further information as our planning continues.

 


 

Other IAEE-Sanctioned Conferences in 2015

 

 

5th  Latin America Energy Economics Meeting (ELAEE)

 "Energy Outlook in Latin America and Caribbean: Challenges, Constraints and Opportunities"

Medellín, Colombia

March 16 - 18, 2015

http://5elaee.aladee.org

 

 


 

8th NAEE/IAEE International Conference

Nigerian Association for Energy Economics

"Future Energy Options: Policy Formulation, Assessment and Implementation"

University of Ibadan, Nigeria

April 26 - 28, 2015

Admin@naee.org.ng

 


  

 

38th IAEE International Conference 

"Economic, Environmental, Technological and Security Challenges for Energy" 

Antalya, Turkey

  May 24 - 27, 2015 

www.iaee15.org  

The conference program is being prepared so as to make sure that critical issues of vital concern and importance to governments and industries are presented, considered and discussed from all perspectives. In this context, many exiting plenary and dual plenary sessions on key current energy issues, featuring internationally-established speakers and lively discussions, will be organized. The opening plenary will be focusing on climate change whereas the international implications of the US energy renaissance will be addressed at the closing plenary. Electricity market design, oil and gas transport and geopolitical issues as well as energy efficiency, access and economics of new technologies will be discussed within the dual plenary sessions.

With its informal social functions, the conference will provide a unique opportunity for networking and enhancing communication among energy concerned professionals from business, government, academia and other circles worldwide. The rich social program will include unique arrangements like various pre-conference tournaments including Golf, special cultural attractions and a beach party on the Mediterranean shore.

A conference workshop entitled "Shale Gas in North America: Resources, Deliverability, Demand and Global Implications" will be held on May 24th and again on May 28th 2015. The workshop will be given by Gürcan Gülen and Svetlana Ikonnikova from the Bureau of Economic Geology (BEG), The University of Texas at Austin and Dr. Scott Tinker, director of the BEG. The Bureau has been conducting the most in-depth, publicly available, interdisciplinary analysis of major shale plays in the U.S. Registration fee for the workshop is 100 USD.

Check out the conference web-site at www.iaee15.org for complete details and begin making your plans now to attend and to participate!