ALBERT

Description: The Middle East, home to nearly half of the world’s oil and natural gas reserves, has traditionally been amongst the world’s least diversified regions in terms of its domestic energy mix, which continues to rely for more than 98% on regionally produced fossil fuels. An increasing number of Middle Eastern and North African countries have set ambitious targets for the adoption of renewable energy to supply their future energy markets. Given the limited use of renewable energy technology in the region so far, governments and various private sector stakeholders interested in promoting renewable energy technology in the Middle East find themselves in a challenging position. This paper aims to examine the various stakeholders’ positions; to discuss barriers to the introduction of renewables to the region’s energy markets; and to propose realistic targets and policy solutions to effectively raise the share of renewables in the Middle East’s future energy mix. The post A Roadmap for Renewables in the Middle East appeared first on Oxford Institute for Energy Studies .

Description: This paper examines the implications of the rapid growth in US tight oil production for US and global energy markets. The behaviour of US crude markets is analysed, with a particular focus on changing arbitrage dynamics. The rapid growth in US tight oils production was not met with an equally fast response by the US midstream companies, resulting in severe regional crude price dislocations. These lower regional prices impacted on producer profits and, more significantly, benefitted refineries that secured cheap feedstock and sold end products at levels linked to global product markets. However, we argue that globally, US tight oil production has primarily impacted price spreads though changes in trade flows, rather than absolute oil price levels, given various offsetting factors such as extremely weak supplies from outside the US.‎ Put another way, we argue that perhaps the correct way of seeing the US supply shock is not as something that should result in the collapse of prices, but instead as a factor that has prevented prices from being significantly higher. The post US Tight Oils – prospects and implications appeared first on Oxford Institute for Energy Studies .

Description: Historically, the industry has had a very poor record in predicting oil prices and key fundamental shifts in the oil market, and this time is no different. Not only did most industry and oil market analysts fail to predict the scale of the tight oil revolution, but now that the pendulum has swung in the opposite direction, expectations regarding the impact of the tight oil revolution on global supply dynamics and international prices appear overhyped. However, contrary to the general view in the market that the abundance of tight oil would cause both a sharp drop in oil prices and create a supply glut in crude or refined products, neither has really materialized. This raises a key question: how can the oil market be undergoing a revolution without its effects being felt on global oil prices? One may argue that the impact of shale oil on prices and oil market dynamics is yet to be felt, as some of the underlying forces still need time to unfold. However, we find such an argument unconvincing. If, during the last three years, the large positive US supply shock failed to cause sharp price falls, why would a rise in US supply now bring about falling prices over the next few years? Instead, in this note, we argue that there are some fundamental weaknesses and flaws in the analysis underlying the ‘oil price-collapsing’ scenario and ‘hyped expectations’; current projections of the impact of shale on global oil market dynamics are hence likely to produce ‘off the mark’ predictions once again. We also argue that the current debate neglects some key areas in which the tight oil revolution is likely to have its biggest impact – namely on crude oil and product trade flows, on price differentials, and on the global markets for natural gas liquids. The post The US Tight Oil Revolution in a Global Perspective appeared first on Oxford Institute for Energy Studies .

Description: Spain is living with a high penetration of intermittent renewable power from wind and solar PV. Other EU electricity markets will soon have to do the same, if they are not already doing so. This Comment summarizes a number of the challenges facing Spain as a result of this form of de-carbonization, and also considers the implications for the EU.  For each of the challenges, the Comment suggests possible policy responses.  The Spanish case reveals the need for a fundamental revision of European wholesale electricity markets to reflect the cost structures of de-carbonised  power.  It also highlights the need to reconsider European policies on climate change to enable markets to support innovation in low carbon technologies. The post Living with Intermittent Renewable Power – Challenges for Spain and the EU appeared first on Oxford Institute for Energy Studies .

Description: The Italian gas market is the third largest in Europe with strong demand growth especially in the power generation sector up to the mid 2000s. But projections of demand growth from that era have not been realised. Clearly the impact of the financial crisis and subsequent recession has had a significant impact, exacerbated by the growth in wind and solar generation capacity. Market liberalisation in the 2000s failed to achieve levels of competition in the mid and downstream sectors to the extent seen in North West European markets. This resulted not only in some of the highest European end-user gas prices, but also delayed development of a liquid trading hub. Only in late 2012 did prices at the Italian gas hub PSV align with the prices at the Dutch gas hub TTF and other North West European hubs after capacity availability issues in linking infrastructure were resolved. Italy’s contracted supply commitments considerably exceed current and envisaged gas consumption levels. Scenarios on gas demand are not optimistic and will ultimately depend on future economic activity, tempered by the growth of renewable capacity. This paper takes these issues into consideration, and offers some insights regarding the challenges but also the opportunities that will arise in the Italian gas industry up to 2020. The post The Italian Gas Market – Challenges and Opportunities appeared first on Oxford Institute for Energy Studies .

Description: Natural gas commentary and industry focus on South Asia tends to target India, the largest gas market.   Pakistan and Bangladesh in aggregate however equal India in terms of gas consumption and as such are significant markets in their own right.  This paper by Ieda Gomes is an in-depth study of the genesis and present situation of these two significant gas consuming countries, including the drag on their potential economic output as a consequence of gas supply shortages and the attempts of each to secure gas import projects be they pipeline gas or LNG.  Their lack of success to date due to poor institutional capability, insufficient trust with potential suppliers or merely procedural shortcomings is recounted.  This said, there is clearly a need for both a re-invigorated upstream domestic exploration and development campaign and the implementation of a coherent import strategy.  Reform of domestic pricing is critical to the achievement of both these necessary developments. This paper is a detailed and comprehensive study of these gas markets at a crucial stage of their evolution. The post Natural Gas in Pakistan and Bangladesh – current issues and trends appeared first on Oxford Institute for Energy Studies .

Description: In this OIES Energy and Environment Brief, Benito Müller looks at lessons from fiscal transfer mechanisms, i.e. instruments used to allocate central tax revenue to sub-national governments, for the allocation of (adaptation) resources by the Green Climate Fund. The post The Allocation of (Adaptation) Resources appeared first on Oxford Institute for Energy Studies .

Description: This paper seeks to analyze the dynamical structure of the Indian stock market by considering two major Indian stock market indices, namely, BSE Sensex and CNX Nifty. The recurrence quantification analysis (RQA) is applied on the daily closing data of the two series during the period from January 2, 2002, to October 10, 2013. A Rolling Window of 100 and step size 21 are applied in order to see how both the series behave over time. The analysis based on three RQA measures, namely, % determinism (DET), laminarity (LAM), and trapping time (TT), provides conclusive evidence that the Indian equity market is chaotic in nature. Evidences for phase transition in the Indian equity market around the time of financial crisis are also found.

Description: The role of the Arctic region in global petroleum supply over the next decades is becoming a subject of increasing interest as the potential of the region’s geology is revealed and the shrinking of the ice cap makes drilling an increasingly feasible activity. Nevertheless, significant concerns remain, not least the potential impact of any hydrocarbon E&P activity in an environmentally sensitive region. In addition, the lack of existing infrastructure and the likely high cost of any development in geographically remote and climatically harsh conditions mean that the economics of any new project will depend to a large extent on the size of discoveries and the oil price, which, in turn, will be impacted by the development of other sources of oil supply (for example, US unconventional oil) and alternative energies. As a result, although increased activity in a number of Arctic countries suggests that the region could become a major source of future oil supply, there are a number of challenges – including the impact of sanctions resulting from the Ukraine crisis – to be met before this potential can be realized. The objective of this paper is to provide an updated overview of offshore oil and gas developments in the Arctic and to discuss the potential for large-scale development of the region as a petroleum province over the next 20-30 years, thereby providing a starting point for future production estimates and for analyzing how relevant such estimates may be for global oil (and gas) markets. The paper argues that the most likely Arctic offshore areas to be developed first are the Barents Sea and the Kara Sea but that various factors – political, commercial, technological and environmental – have the potential to hamper petroleum development, particularly if the conflict between Russia and the international community continues to escalate, as partnership will be critical if the Arctic resources of the country with the largest geography in the region are to be developed successfully. Executive Summary The post The Prospects and Challenges for Arctic Oil Development appeared first on Oxford Institute for Energy Studies .

Description: During President Putin’s visit to Beijing in November 2014 Gazprom and CNPC signed a memorandum of understanding concerning the export of gas to China via the so-called “western route” via the Russian republic of Altai. The announcement was hailed by Russia as another example of its shift towards Asia as a diversification of its traditional gas export business in the West. This has important implications not only for Russia and China, but also for all the other potential suppliers of gas, and especially LNG, into North-East Asia. Confirmation that China could import up to 68bcma of Russian gas starting from 2019 would create a significant dent in the country’s potential LNG import requirement from 2020, increasing the competition between the planned sources of supply that are being constructed and planned over the next 5-10 years. Despite remaining doubts as to whether both Russia – China pipeline deals proceed to completion, it would appear that LNG suppliers are right to be concerned, as there is real commercial as well as political logic for significant Russian gas to flow south into the world’s fastest growing gas market. From a Chinese perspective, growing gas demand, uncertainty over some of its existing sources of supply, a desire to create more competition with Central Asian gas and the one-off nature of the opportunity to negotiate with Russia from a position of exceptional bargaining strength mean that an Altai deal is also likely to make sense. There may be some concern over the need for more Russian gas, with the possibility that total supply of 68bcma (the combined capacity of the Power of Siberia and Altai pipelines) could account for as much as one third of total Chinese imports by 2030. However, any potential security of supply threat is offset by the fact that the Russian contribution to overall Chinese gas consumption would be much lower, at around 13%, while the share of gas in the China’s total energy balance is estimated to remain below 10% at that date. Overall, then, the potential for a deal on exports via the Altai pipeline appears to have significant commercial and political logic. If a deal is signed, substantial problems will still remain, not the least of which will be Gazprom’s ability to raise the money needed to build the pipeline given its current inability to access western capital markets. Nevertheless, the impact of the signing of an Altai deal alone could have a significant impact on the ambitions of companies planning LNG projects that are also targeting the Chinese market, and as such the continuing discussions will require attentive observation over the next 12 months. The post The Commercial and Political Logic for the Altai Pipeline appeared first on Oxford Institute for Energy Studies .

Description: Within existing literature, it is well known that people’s behavior in ultimatum game experiments cannot be explained by perfect rationality model. There is, however, evidence showing that people are boundedly rational. In this paper, we studied repeated ultimatum game experiments in which the pie size is only known to the proposer (player 1), but the transaction history is made known to both players. We found that subject’s behavior can be very well explained by the history-consistent-rationality model (HCR model) of Lee and Ferguson (2010), which suggests that people’s behavior is affected by what they observed in the past. The HCR model is able to yield point predictions whose errors are on average within 5% of the total pie size. The experimental results provide evidence that subjects' behavior is boundedly rational with respect to the transaction history.

Description: The government has an ambitious renewables programme whose costs have been much discussed. Unfortunately, due to the polarised nature of the debate, it has not produced clarity and some basic points remain obscure – are renewables cheap or expensive? Are renewables costs rising or falling?  This Comment, by Malcolm Keay, looks at two important aspects of the issue – resource and system costs – which have often been neglected but which throw light on the debate and help explain some of the uncertainties about the likely cost of meeting the government’s targets.

Description: At the second meeting of the Green Climate Fund (GCF) Board in October 2012, India announced they would prepare a submission with regards to the Board deliberations on a business model for the GCF. A consultation meeting was held in New Delhi on 15-16 February 2013 for which Benito Müller (Director Energy and Environment, OIES) was asked to contribute one of three background papers, focussing on access modalities and disbursement instruments. This Oxford Energy and Environment Brief is based on this background paper.

Description: High oil prices and the environmental advantages of gas have led to increased interest in natural gas as a transportation fuel though barriers such as lack of refuelling infrastructure and inadequate policy actions have inhibited growth in many countries. Levels of global car ownership are forecast to continue to grow strongly as is the demand for road freight. Significant penetration of the transport sector by natural gas could therefore represent an attractive growth opportunity for the fuel – not least in Europe where the gas demand outlook is for low or negative growth rates. The paper will cover the following aspects: •     The technical, commercial and environmental case for natural gas transportation (NGT) versus other fuel options •     The extent and likelihood of the adoption of natural gas as a transportation fuel in the European market under existing and potential policy directions •     The long term impact on European gas demand of alternative policy scenarios encouraging NGT usage •     The key policy drivers and structural aspects that could encourage or inhibit the development of the NGT sector in Europe

Description: The UN Framework Convention on Climate Change implies that countries should shoulder costs and burdens of climate change in accordance with differentiated responsibilities and respective capabilities, but it does not indicate how these fairness parameters are to be quantified. In this OIES Paper, Benito Müller and Lavan Mahadeva provide a novel and distinctive methodology (‘Oxford Approach’) regarding quantifying the (economic) capability of countries as a contribution to assessments of fair cost/burden distributions, an issue of central importance in the upcoming international climate change debate.

Description: While oil, economy and politics are subjects that are often debated in discussions of contemporary Iran, the political and institutional framework that both enables and constrains Iran’s oil sector has rarely been made an explicit subject of analysis. The relative neglect of this area has left a gap in our scholarly understanding of Iran’s most important industry and its symbiotic relationship with the shifting configurations that constitute the Iranian political elite. The importance of filling this gap has become particularly salient in light of the current consolidation of oil sector decision making under the Iran Revolutionary Guards Corps (IRGC). William’s research will examine contemporary changes in the confluence of oil, politics and institutions to map the new trajectory along which Iranian oil sector strategy and governance is currently developing. Bringing to bear an intimate knowledge of the Iranian political landscape, the research will place sectoral developments in a broader analytical landscape that will encompasses Iran’s domestic and international position.

Description: This study addresses the indirect impacts of state-mandated workers' compensation benefits on workers' wages. The benefit structure of workers' compensation causes a fundamental estimation problem. I develop a new strategy to limit the biases inherent in earlier models. I utilize individual-level census data (between 1940 and 1990) to exploit benefit variation that occurs both across states and within the fifty states over time. The results suggest that wage offsets are not constant across time and may be larger for workers at lower-wage levels.

Description: This study intends to estimate the demand for indigenous chicken meat in Kenya, including other available meat products for comparison purposes. Data used was collected from six counties. A total 930 rural and urban households were sampled. Linear Approximated Almost Ideal Demand System (LA/AIDS) model was used to obtain the demand elasticities and to examine the socioeconomic and demographic factors influencing the meat budget shares. The results ascertain that the socio-demographic factors such as household location, the proportion of household members and the family size are important factors in explaining perceived variations in the consumption of meat products. Indigenous chicken meat, beef and mutton, were identified as necessities. Indigenous chicken meat and beef were identified as substitutes while indigenous chicken, goat and exotic chicken meats were complements. In view of the high expenditure elasticities, therefore, considering a policy option that would enhance consumer income is desirable, since it will result in high consumption thereby providing more incentives for production of meat products. The information generated would be more beneficial to the interest groups in the livestock sector as a whole. This would be utilised in the formulation of effective policies in line with food security and poverty alleviation.

Description: This paper assesses the prospects and challenges facing the Republic of Cyprus in developing the discovery of a significant offshore gas field by Noble Energy in December 2011. This discovery came close on the heels of the major discoveries in adjacent offshore Israel, further astounding the international upstream exploration and production community who had largely overlooked the prospectivity of this area.   For the Republic of Cyprus, whose economy is dominated by tourism and the service sector and overshadowed by Eurozone economic malaise, this discovery offers lower domestic energy costs and substantial export revenues. However, as is often the case with unexpected fortune, decisions on how best to develop such a resource for the benefit of a nation with a history of inter-ethnic tensions are not straightforward and further complicated by Cyprus’ geographic and geopolitical setting. Anastasios Giamouridis describes the status of the Aphrodite field and juxtaposes the logical process of progressively defining options for the development of the field and the export strategy for gas produced in excess of Cyprus’ modest current and future consumption needs with the rising expectations, not just of the Cypriot government but also neighbouring countries with either aspirations to share in this source of hydrocarbon wealth or openly disputing Cyprus’ sovereign hydrocarbon ownership rights.  Anastasios introduces the pros and cons of future unitisation and joint development with Israel and examines the institutional capability of the Cypriot government to guide the monetisation of the resource at a time when it is also focused on Cyprus’s EU Presidency in the second half of 2012.

Description: To most analysts, the combination of geopolitical and economic factors constitutes a ‘perfect storm’ that will keep an upward pressure on oil the price for the rest of 2012. The purpose of this short article is to broaden the debate and consider some potential weaknesses in the dominant story. The article will highlight three main points. First, the premises upon which the story of tightened market fundamentals is built are subject to a wide degree of uncertainty. Second, the channels expected to put an upward pressure on the oil price are not exogenous: they tend to interact with each other and are shaped in part by oil price behaviour. Finally, the feedback from policy circles seems to be different this time from that seen in the previous oil price cycle, and thus should not be ignored. This is not to say that dominant expectations of very tight market fundamentals may not materialize. They may well do, but this is not a foregone conclusion.

Description: Within existing literature, it is well known that people’s behavior in ultimatum game experiments cannot be explained by perfect rationality model. There is, however, evidence showing that people are boundedly rational. In this paper, we studied repeated ultimatum game experiments in which the pie size is only known to the proposer (player 1), but the transaction history is made known to both players. We found that subject’s behavior can be very well explained by the history-consistent-rationality model (HCR model) of Lee and Ferguson (2010), which suggests that people’s behavior is affected by what they observed in the past. The HCR model is able to yield point predictions whose errors are on average within 5% of the total pie size. The experimental results provide evidence that subjects' behavior is boundedly rational with respect to the transaction history.

Description: This energy comment is a response to a paper by Sergei Komlev, from the Contract Structuring and Pricing Directorate of Gazprom Export, which challenged the conclusions of previous OIES research on European gas pricing and suggested that we had “refused to engage constructively with those who offer opposing viewpoints.” In this comment, Jonathan Stern and Howard Rogers set out the differences between their research and that of Sergei Komlev and respond to his criticisms. They conclude that that contractual linkage of European natural gas prices to oil no longer has any market reality, and is only held in place by existing long-term contracts. By contrast they suggest that Komlev is refusing to recognize that the era of oil-linked gas pricing is drawing to a close in Europe (and is subject to increasingly serious challenge in Asia) and also refuses to accept that such changes represent a secular trend which will not be reversed. This is far from an academic argument: the extent to which Gazprom is willing to change its views on pricing will have a significant impact on Russian gas supplies to Europe, and hence on the future of the entire European gas market.

Description: We analyze the mutual relations among firms’ capital structure, ownership structure, and valuation. Through the estimation of a system of simultaneous equations for a sample of 1,130 firms from 16 countries from both the common law and the civil law environments, our results confirm the differential effect of ownership structure on firms’ value in each setting. Whereas in civil law firms the higher ownership concentration results in an entrenchment and an alignment effect, in the common law firms higher ownership concentration increases the value of the firm. Second, we corroborate the endogeneity of ownership structure since we find that ownership structure is affected by the value of the firm and by the capital structure. Third, our results suggest that corporate finance decisions are taken simultaneously with other mechanisms of corporate governance and conditional on firms’ valuation.

Description: Conditional expected shortfalls calculated for European insurance companies and banks under stressed market conditions are shown to be of similar magnitudes. Measured at 95% and 99% stress levels, on data covering the period from 1995 to 2011, the equity-return tail losses of insurance undertakings and banks are indistinguishable. Granger causality analysis, on all pairs of banks and insurance companies included in the sample, shows that banks and insurance companies have equal propensity to cause each others price movements. Even though the business model of insurance undertakings is different from the business model typically applied by banks, and even though insurance companies are not depending to a similar degree on short term funding as banks, the empirical results indicate that the financial equity markets in Europe do not differentiate their trading of banks and insurance companies in periods of stress.

Description: Total Factor Productivity (TFP) measures the growth in output which is not accounted for by inputs. Data Envelopment Analysis which forms the basis for the computation of Malmquist TFP index is used in this paper to study the performance of different river basins in Andhra Pradesh state, India. The results indicated that average technical efficiency of all the basins is only 66%. In all the basins there was a decline in growth of agricultural output during the first two decades, viz., 1979-1980 to 1988-1989 and it had picked in the last decade (1999-2000). All the river basins have TFP change greater than 1 indicating progress in agricultural productivity. Out of the 40 river basins, 14 river basins have technical efficiency change less than 1 indicating decline in TFP growth whereas all the basins have technical changes greater than 1 implying that there is shift in production frontier over years. In general, within the TFP, technical change contributed more than technical efficiency change. Looking at the future options for increasing the agricultural output in the river basins, it is important to focus on improving the TFP growth compared to increasing the quantities of physical inputs.

Description: This paper investigates the changes in cigarette demand in response to the changes in cigarette prices; smokeless tobacco prices; adoption of clean indoor air laws (CIALs). We used an error-correction econometric method to estimate the cigarette sales adjustment path in response to changes in prices and CIAL coverage in the United States by utilizing scanner data from supermarkets. Finding from this study indicates that smokeless tobaccos are not perfect substitutes for cigarettes, but increases in the price of cigarettes are associated with an increase in smokeless tobacco sales. The error-correction econometric method suggest that the demand for cigarettes and smokeless tobacco is related to each other; a price increase in either product leads to an increase in demand for the other product. However, the adjustment paths are quite different; an increase in cigarette prices lowers cigarette sales in relatively faster rate than decreases in smokeless tobacco prices or adoption of smoke-free laws. Changes in cigarette demand in response to changes in cigarette prices occur relatively quickly; but the full effects of smokeless tobacco price change and the adoption of 100% smoke-free laws on cigarette demand take a longer time.

Description: This paper provides new insights into the calculation of trade potential between the EU and its Southern and Eastern Mediterranean partners (MPs). It is based on an econometric specification which takes into account some new explanatory variables which are not included simultaneously in the previous studies. These include trade costs (tariffs, NTBs, and logistics costs), factor movement (migration and FDI), as well as governance. In addition, specific estimators are implemented in order to account for zero trade flows, endogeneity and dynamics. The main conclusion of this study is that contrary to some results found in previous studies, MPs have reached their export potential with the EU. It is also shown that there is no specificity of the MP-EU trade potential in comparison with the other main PTAs (NAFTA, MERCOSUR, and ASEAN) which have also reached their trade potential. These results have strong policy implications.

Description: The purpose of this study is to investigate how earnings announcement event affects stock returns at Karachi Stock Exchange (KSE). For this purpose we use the KSE-100 Index as our sample. We use the CAR Analysis to analyze the impact of earnings announcement over the stock returns around announcement dates. Our results suggest that KSE experiences abnormal stock returns around earnings announcement dates for the overall market and for different categories which indicate that efficient market hypothesis does not hold in Pakistani market and point out the presence of informational dissemination inefficiencies in the market.

Description: This report was supported by the UK Foreign and Commonwealth Office (FCO) Prosperity Fund for Latin America. It examines the feasibility of private investment in wind power in Colombia within the current regulatory framework.  It focuses especially on the regulatory methodology for estimating the “firm energy” that wind power plants are capable of providing in Colombia to back up hydro generation during extended periods of drought (El Niño weather events).  Our conclusion is that the current methodology probably underestimates wind’s firm energy contribution, possibly by a substantial amount. This in turn means that wind power stations receive a lower firm energy payment than they should.  We consider this to be an important barrier to investment in wind power in Colombia. We recommend that the Colombian Government reconsider their methodology for estimating the firm energy capacity of wind power and of other (non hydro) sources of renewable power.

Description: In the past 50 years, a striking stylized fact has been the downward—or flat—trend of intra-African trade as a share of Africa’s total trade, while official development assistance (ODA) has experienced a noticeable expansion. During the same period, economic growth performances have not been consistent and robust enough to put a dent in the poverty level across the African continent in general and the Economic Community of West African States (ECOWAS) in particular. Using a two-stage least square (TSLS) estimation technique, this paper finds out that intra-ECOWAS trade stimulates per capita income growth substantially more than foreign aid, which rather constitutes an impediment to that growth in most specifications. Additionally, comparable results are obtained when the scope of the study is expanded to include trade of ECOWAS members with the rest of the world. As a result, it becomes appropriate to suggest policy recommendations encouraging increased cooperation among member states in an attempt to (i) expand and build new cross-states infrastructures, aimed at boosting communications and telecommunications networks, (ii) accelerate the trade facilitation process by addressing administrative red tapes that balloon both transaction costs and delays in the flows of goods across borders, seaports, and airports, and (iii) develop and diversify the industrial base in member states.

Description: The earthquake and tsunami which left its toll of destruction and the tragic loss of life on Japan’s eastern seaboard on 11th March 2011 was a natural disaster of the highest order.  This working paper addresses methodically and in detail the extent of the impact of the events of 11th March 2011 on Japan’s energy complex and describes how, through higher utilisation of fossil fuel plant and enforced and voluntary demand conservation measures, the country has coped with this unprecedented reduction in generation capacity. Looking forward, the key uncertainty is the policy-driven path of future nuclear generation. It is in this context that the paper provides a timely and robust evaluation of Japan’s future LNG import requirements based on a range of scenarios regarding the future utilisation of operable nuclear power facilities. Importantly the paper also analyses the strong growth in industrial consumption of LNG in the period prior to 2011 and identifies this as a continuing source of demand growth tempered perhaps by the prevailing linkage of imported LNG prices to crude oil. Compared to the 2010 LNG consumptions levels of 69.8 million tonnes, the paper shows a range for 2015 from 75.5 to 84.8 million tonnes, and for 2020 78.1 to 88.7 million tonnes, depending on decisions to re-start nuclear plant.

Description: The main purpose of this paper is to consider the multivariate GARCH (MGARCH) framework to model the volatility of a multivariate process exhibiting long-term dependence in stock returns. More precisely, the long-term dependence is examined in the first conditional moment of US stock returns through multivariate ARFIMA process, and the time-varying feature of volatility is explained by MGARCH models. An empirical application to the returns series is carried out to illustrate the usefulness of our approach. The main results confirm the presence of long memory property in the conditional mean of all stock returns.

Description: This study examines the economic and welfare effects of raising the number of high-skilled immigrants in Canada. It uses a life-cycle applied general equilibrium model with endogenous time allocation decisions between work, education, and leisure. According to the simulation results, raising the number of high-skilled immigrants would boost productive capacity and labour productivity but could lower real GDP per capita. In addition, by raising the supply of high-skilled workers, more high-skilled immigrants would reduce the skill premium and the return to human capital. This in turn would lower incentives for young adults to invest in human capital and have a dampening effect on the domestic supply of skilled workers. Finally, it is found that more high-skilled immigrants would be welfare enhancing for medium- and low-skilled workers but welfare decreasing for high-skilled workers.

Description: This paper studies how boundedly rational default expectations affect the credit cycle. I propose a simple model of oligopolistic bank competition which serves to compare situations with just a portion of boundedly rational banks to situations where either all banks are rational or all banks are boundedly rational. When all banks are boundedly rational, the credit cycle is most amplified relative to the situation where all banks are rational. However, the amplifying effect of bounded rationality on the side of banks largely remains even when only a portion of banks are boundedly rational. Hence, the interest rate decisions of a minority of boundedly rational banks induce the more rational competitors to aggravate the credit cycle.

Description: This paper by Howard Rogers addresses the issue of the challenges in establishing Carbon Capture and Sequestration at a commercial scale in the power generation sector, especially as this has been repeatedly proposed as a key policy in furtherance of CO2 emission abatement in the last decade. For those who have become increasingly frustrated by claims about, rather than demonstrations of, the contribution which natural gas can make to a low carbon economy, it has become important to understand more of the detail behind the headlines of carbon capture and sequestration (CCS). This paper shows that all aspects of the implementation of CCS projects are complex, albeit that the underlying technologies have been used individually in the petrochemical, refining and upstream industries for decades. Costs, and technical and commercial complexity go a long way towards explaining why there is no gas-fired power plant with CO2 capture and storage in operation or under construction anywhere in the world. The few gas-related CCS projects which exist mainly serve to process natural gas to grid specification and either store CO2 close to gas production sites, or use it for enhanced oil recovery. With slower than expected progress of other forms of power generation, UK policy makers have come to the realisation that gas-fired capacity will remain important for a considerable period of time. This in turn will mean that the question of whether CCS should be fitted (and retrofitted) to gas-fired power generation is likely to move higher up the UK’s climate policy agenda. Howard Rogers’ study demonstrates that, on paper, gas-fired generation with CCS can be more competitive than the low carbon generation options such as Offshore Wind, generally assumed to grow most significantly in the UK over the next decade but the commercial complexities of CCS projects set out in this paper, do not give cause for optimism about its future development, absent a clear and sustained commitment from government. It is no part of the OIES Gas Research Programme’s remit to promote natural gas, either in the UK or more generally. However, our research increasingly suggests that the likely future role of gas in energy balances has been, and continues to be, under-estimated in a range of countries, including perhaps until very recently, the UK.

Description: In 2008 Scott Barrett wrote a paper on “The incredible economics of geoengineering” in which he argued that the potentially low cost of climate engineering (CE) measures together with the quick response of the earth’s temperature to such interventions will change the whole debate about the mitigation of climate change. Whereas Barrett was mostly focusing on the cost of running CE measures, we point out that several determinants of overall economic cost like price or external effects are not yet sufficiently accounted for and that the question of dynamic efficiency is still unresolved. Combining the existing theoretical investigations about the topic from the literature, we show that even though these new measures provide new options to deal with climate change, several of them might also reduce our scope of action. Consequently, we suggest that economic research should shift its focus to portfolios of CE measures and put more emphasis on those measures which control atmospheric carbon concentration and therefore allow extending our scope of action. Additionally, economic research should address the question of phase-in and phase-out scenarios for measures which directly influence the radiation balance.

Description: This paper by Patrick Heather assesses the development of the European Continental Gas Trading Hubs. It is a natural successor to his 2010 paper ‘The Evolution and Functioning of the Traded Gas Market in Britain’.  Although the drivers and challenges for gas trading on the European Continent have been different from those of Britain, the desire for change at an EU policy level, the catalyst of the economic recession and the sea-change in the acceptance of trading have all contributed to an astonishing development in European gas hubs over the past few years. Based on extensive research and discussion with the key actors intimately involved, the paper provides deep insights into the characteristics of the individual hubs, the reasons behind their particular evolutionary path and their characterisation as ‘Trading Hubs’ (NBP and TTF), ‘Transit Hubs (ZEE and CEGH) and ‘Transition Hubs’ (GPL, NCG, PEGs and PSV); a framework which assists the reader in better understanding the current and future role of each.

Description: The policy view, which argues that foreign aid is effective only in a good policy environment, suggests that aid ought to be given to countries with good policies. This has generated a lot of interest and controversy. We argue that the key recommendation of the policy view runs contrary to other prescriptions, particularly those that arise under asymmetric information. Inefficiencies that derive from information problems often require that policy makers do not base the amount of foreign assistance on the recipient's policy effort. This suggests that donors should be cautious in applying the policy view. We also briefly discuss problems that are likely to emerge in estimating aid's productivity given policy in the light of potential information problems.

Description: This study contributes to the literature by estimating discount rate for health benefits and value of statistical life of workers in India. The discount rate is imputed from wage-risk trade-offs in which workers decide whether to accept a risky job with higher wages. The estimated real discount rate varies across regions ranging 2.4–5.1 percent, which is closer to the financial market rate for the study period. The estimated value of a statistical life is Rs. 20 (US $ 1.107) million. The results thus provide no empirical support for utilizing a separate rate of discount for health benefits of life-saving policies in developing countries like India.

Description: In the presence of a risk-free asset the investment opportunity set obtained via the Markowitz portfolio optimization procedure is usually characterized in terms of the vector of excess returns on individual risky assets and the variance-covariance matrix. We show that the investment opportunity set can alternatively be characterized in terms of the vector of Sharpe ratios of individual risky assets and the correlation matrix. This implies that the changes in the characteristics of individual risky assets that preserve the Sharpe ratios and the correlation matrix do not change the investment opportunity set. The alternative characterization makes it simple to perform a comparative static analysis that provides an answer to the question of what happens with the investment opportunity set when we change the risk-return characteristics of individual risky assets. We demonstrate the advantages of using the alternative characterization of the investment opportunity set in the investment practice. The Sharpe ratio thinking also motivates reconsidering the CAPM relationship and adjusting Jensen's alpha in order to properly measure abnormal portfolio performance.

Description: This paper highlights some recent components related to the endogenous growth literature; in particular, (i) research and development progress, direction, and diffusion; (ii) human-capital accumulation; (iii) wage inequality; (iv) nonscale economic growth, showing how each one has been treated by the existing seminal literature and the expected impact of bringing them together. The connection of the different components is mainly done by involving the leading literature on North-South technological-knowledge diffusion by imitation under trade, and the prevailing literature on intra- and intercountry wage inequality.

Description: This paper examines the impact of various determinants on gender gaps in human capital in developing countries. We find that female primary completion is dependent on per capita GDP growth, female employment in agriculture, in industry, and in services, and the interactions between per capita GDP growth and female employment in industry and in services. We are also able to show that the ratio of girls to boys’ enrollments in primary and secondary schools is a function of the poverty rate, the fraction of the population with access to an improved water source, and maternal mortality. In addition, we observe that girls’ mortality is dependent upon the fraction of the population having access to improved sanitation and water services, and ethnic fractionalization. Finally, we find that maternal mortality is a function of the fraction of the population with access to improved water services, the fraction of births attended by skilled staff, the fraction of women receiving prenatal care, and ethnic fractionalization. These statistical results can assist developing countries identify areas that need to be improved upon in order to reduce gender gaps in human capital—specifically those concerning female mortality and education.

Description: This paper explores the economic and labour market effects of implementing a tax reduction targeted at older workers. The analysis is conducted with a life-cycle computable general equilibrium model calibrated on Canadian data. The analysis shows that implementing a permanent income tax reduction for workers aged 60 and over has only small macroeconomic effects because the labour supply increase of older workers is partly offset by a reduction in the labour supply at core ages. This induced effect also discourages savings and generates crowding out through private investment but has a favourable impact on lifetime economic welfare. The macroeconomic impact is much larger when the income tax reduction is temporary because workers no longer reduce their hours at core ages and there is no reduction in savings. However, since only current middle-aged and older workers benefit from the tax cut, a temporary income tax cut reduces intergenerational equity.

Description: The Controvery over Energy Subsidies

Description: Pacific island countries (PICs), which attained political independence, are open economies with very small manufacturing base and narrow range of exports of copra and tuna. They are highly dependent on imports ranging from food and mineral fuels to intermediate and capital goods and transport machinery. Four of the 14 PICs, namely Samoa, Solomon Islands, Tonga, and Vanuatu, have independent currencies with usual paraphernalia of central banks under fixed exchange rate regimes. Their financial sectors are small and with undeveloped money and capital markets. The nominal exchange rate as an anchor has served the four PICs well by keeping inflation low. The objective of the paper is to investigate whether money has played any significant part in output growth as well as determination of prices in PICs. The findings are that broad money (M2) and exchange rate have a long run as well as short-run casual relationship with both output and prices in all PICs.

Description: The countries of Central and Eastern Europe (CEE) have gone through immense political and socioeconomic restructuring after the collapse of communism around 1990. Such transition has affected the lives of populations in these countries in many significant respects. A key aspect of life and wellbeing in any society is that of population health. This paper traces the transitions in population health—life expectancies and mortality rates for both males and females—in seven of the CEE countries during the two decades after the fall of communism. We estimate a series of panel data models to identify some of the common factors that would explain health transitions in these countries, while allowing for country-specific variability. Our findings indicate that the health transitions are strongly country specific. Moreover, income per capita and trade openness are statistically significant common contributors to health transitions.

Description: This paper aims to investigate the determinants of nonperforming loans in the Romanian banking sector by means of time series modelling. It is motivated by the hypothesis that macroeconomic-cyclical indicators, monetary aggregates, interest rates, financial markets, and bank-specific variables influence the nonperforming loans in the Romanian banking system. Using monthly series that span from December 2001 to November 2010, we cover both the booming period and the recent financial crisis. Given the significant presence of the Greek banks in Romania, the novelty of the paper lies in the introduction of variables that proxy the Greek crisis. Thus, we examine the existence of a potential transmission channel to the Romanian banking system by investigating the impact of the Greek crisis to the Romanian nonperforming loans. Our findings indicate that macroeconomic variables, specifically the construction and investment expenditure, the inflation and the unemployment rate, and the country's external debt to GDP and M2 jointly with Greek crisis-specific variables influence the credit risk of the Romanian banking system. The results have several implications for policymakers, regulators, and managers as the most recent published stress tests on the Romanian banking system are based on end 2008 data.

Description: We investigate the effect of different scales of addictive factors on the utilization of medical services in this paper using a two-part model. Data are from the 2005 National Health Interview Survey and the claims data in the National Health Insurance Research Database in Taiwan. The results show that personal addictive behavior is significantly associated with both outpatient and inpatient utilization. Moreover, our result implies that those who smoked at least 20 cigarettes per day might not visit a doctor until the illness was severe. It suggests that the government can accomplish these goals by promotion and education in order to increase public awareness of personal health.

Description: An analysis of Canadian farmland risk and its return on investment shows that a Farmland Real Estate Investment Trust (F-REIT) and gold would have significantly enhanced portfolio performance over the past 35 years. Investors who desire low-risk portfolios would not have benefited from an F-REIT or gold investment. However, investors in the medium-risk category could have improved the financial performance of their portfolios by including an F-REIT investment rather than gold. The financial gains from F-REIT result from a level of risk that is lower than gold, REITs, and stocks, an expected yield that is greater than for bonds, and a low correlation with other financial asset returns.

Description: The recession of 2007–2009 has led to renewed interest in forecasting discretionary consumer spending and whether marketing variables contain predictive content. Using the ACSI customer satisfaction index and both linear and nonlinear methods, this note suggests the index fails to enhance our understanding of the temporal evolution of discretionary spending.

Description: The paper demonstrates the efficacy of liquidity management through both the rate and quantum channels. Using the concepts of autonomous and discretionary liquidity, the paper derives the optimal policy mix of instruments which can be used for stabilizing the price of liquidity. For effective liquidity management, the sufficient condition highlighted in the paper has important implications for developing market-related monetary policy instruments, particularly in emerging market economies.

Description: We extend the literature on endogenous lifetime and economic growth by Chakraborty (2004) and Bunzel and Qiao (2005) to endogenous fertility. We show that development traps due to underinvestments in health cannot appear when fertility is an economic decision variable and the costs of children are represented by a constant fraction of the parents' income used for their upbringing.

Description: This paper examines the degree of polarization in African countries' per capita GDP distribution between 1966 to 2004. We first use a nonparametric analysis and find that the countries tend to cluster in two classes of per capita GDP. Secondly, by using the Wolfson's bipolarization measure, the results reveal that bipolarization has been accelerating during the two first decades and is still growing. We relate the evolution of polarization during the period to the business sectors. We find that the specialization of the countries is the main factor explaining its evolution, namely, in agriculture and industry sectors.

Description: Over the recent past, the global market of electrical and electronic equipment (EEE) has grown exponentially, while the lifespan of these products has become increasingly shorter. More of these products are ending up in rubbish dumps and recycling centers, posing a new challenge to policy makers. The purpose of this paper is to provide a review of the e-Waste problem and to put forward an estimation technique to calculate the growth of e-Waste.

Description: The objective of this study was to examine whether the implementation of the helmet law had reduced the likelihood of head injury and the associated medical cost in Taiwan. Data were taken from the 1996 and 1998 population-based data. In total, 888,179 and 921,058 effective samples were used in the study from the two years. Two different types of regression model were adopted to evaluate the impact of the motorcycle helmet use law on incidences of head injury and associated medical cost and hospital length of stay. The results reveal that medical cost is down by 11.5 percent and hospital LOS has fallen by 18.58 percent. Thus, with the introduction of the motorcycle helmet use law having had a demonstrably positive influence on motorcycle head injuries and fatalities, significant savings are clearly being achieved, not only in terms of economic and social costs, but also with regard to medical cost.

Description: The aim of this study is to investigate whether there is any relationship between socioeconomic factors and mental depression, specifically in connection with family income and education. Our empirical model was estimated using the database of three National Household Sampling Surveys (1998, 2003, and 2008) and their special supplements on the health status of the Brazilian population. Analyses for men and women were conducted separately. Family income proved to be a protective factor against depression for both men and women. With regard to the effects of education, the estimates indicate that the maximum risk of depression occurs when women have approximately four years of schooling and men have about eight. Above these levels, the risk decreases as schooling years increase.

Description: Unilateral trade preferences are one of the most important instruments offered by developed countries to foster developing country exports. This paper analyzes the impact of unilateral trade preferences on developing countries by focusing on the experience of Mozambique. In this paper, we analyze whether unilateral preferences offered by the EU are “valuable” for Mozambican exporters based on the impact on preferential margins, utilization rates, and export prices. We use a detailed dataset with cif unit values at HS8-digits level covering the period 2000–2007. Our findings indicate that (i) for a large number of product lines, export margins are zero; (ii) utilization rates are generally high; however, (iii) this does not translate into a positive price margins captured by Mozambican exporters compared to MFN competitors. These findings cast doubts on the “value” of preferences and their potential impact on developing country exports.

Description: This paper tackles the problem of aggregate TFP measurement using stochastic frontier analysis. We estimate a world production frontier for a sample of 75 countries over a long period. The “Bauer-Kumbhakar” decomposition of TFP is applied to a smaller sample in order to evaluate the effects of changes in efficiency (technical and allocative), scale effects, and technical change. Estimated technical efficiency scores are compared to productivity indexes offered by nonfrontier studies. We conclude that differences in productivity are responsible for virtually all the differences of growth performance between developed and developing nations and that a large part of this is due to allocative efficiency.

Description: If an emission reduction agreement with participation of all players is not enforceable because politicians are too myopic or costs of reducing emissions are too high, strategic investments in research and development (R&D) of green technology, for example, sustainable drivetrains, can pave the way for a future treaty. Although no player will rationally reduce emissions on its own, investments in R&D by at least one player can change the strategic situation of negotiations to control emissions: emission abatement costs will decrease so that a treaty with full participation can be achieved in future periods through time consistent sustainable policies.

Description: The importance of the individual’s health behaviour for the health production process is beyond controversy. Health relevant behaviour can be viewed as a key variable in the health production process. Changes in the behaviour may influence individual’s assessment of health. Following this idea, we use German microdata to identify determinants of smoking, drinking, and obesity and their impact on health. Our empirical approach allows for the simultaneity of behaviours and self-reported health. In addition, we account for endogeneity of health behaviours and take aspects of reporting heterogeneity of self-reported health into account. We find that health behaviour is directly related to the socioeconomic status and observe gender-specific differences in the determinants of drinking, smoking, and heavy body weight in particular. The influence on health is also gender specific. While we do not find any impact of smoking, overweight is relevant only for males and no clear pattern for alcohol exists.

Description: Progressive reformers failed to gain support to implement compulsory health insurance in the US after WWI. Modeling results presented in this paper, using a lifecycle model with sickness risk and precautionary savings, support the conclusion that existing voluntary insurance plans were adequate and welfare-enhancing in the US, that compulsory health insurance as proposed would not be welfare-enhancing, and that Americans' preference to self-insure during most of their working lives was rational, utility-maximizing behaviour.

Description: Understanding the economic impacts of transportation projects is essential for decision makers, officials, and stakeholders as they determine the best course of action for their jurisdiction. Economic impacts can guide decisions of future projects and help explain past economic fluctuations. This study uses an evaluative (ex-post) analysis process to assess the generative economic impacts of transportation projects after completion that can be used to identify the economic impacts of transportation projects while quantifying their relationship. Both pre- and postconstruction data were collected and used to compare the trends of sales tax revenue and employment numbers adjacent to transportation projects in Utah over a 10-year period. Plots of the trends before, during, and after construction for each project in the analysis were generated. A formal process was created for completing the analysis for future study. Results indicate that there is a positive relationship between transportation improvement projects and sales tax revenues. This relationship amounts to approximately a 4.0 percent increase in trends compared to the state overall. Employment demonstrated a 4.5 percent increase compared to the state overall. Although the results are not considered statistically significant, they are considered practically significant and add to the literature on this topic.

Description: The countries of the Middle East and Africa sit on large reserves of natural gas, but their share of international trade looks unlikely to increase significantly by 2020. Fast-growing domestic demand is, in many of these countries, putting considerable pressure on domestic gas supply, resulting in reduced exports and growing import needs. Artificially-low domestic gas prices are a key feature of this state of play. They need to be reformed if these regions – especially the Middle East and North Africa – are to contribute to international gas trade more as a source of exports than as a growing demand (and import) centre. However, reforms of gas (and energy) prices remain tentative because of the political economy logic in which they tend to be rooted and in which governments appear to be locked. This is not to say that solutions do not exist – remedies can be devised based on existing experiments and country-specific circumstances. This paper analyses the political economy of domestic pricing in gas-rich developing countries in the Middle East and Africa, and chronicles the pricing mechanisms in the main export and import contracts in these regions, helping assess the disconnect between domestic prices and international prices and its implications for gas use in these regions.

Description: In an incomplete regulation framework, the regulator cannot replicate all the possible outcomes by himself since he has no influence over some firms in the market. Due to asymmetric information, it may be better for the regulator to allow the unregulated firms to extract a truthful report from the regulated firm through side-payments under collusion, and therefore the “collusion-proofness principle” may not hold. In fact, by introducing an exogenous number of unregulated firms, social welfare differences seem to favour a collusion-allowing equilibrium. However, such result will depend on the relative importance given by the regulator to the consumer surplus in the social welfare function.

Description: This paper investigates whether the relationship between income inequality and growth changes over time. Two time periods, covering 1970–1985 and 1985–1999, are analyzed and compared. A statistically significant relationship between inequality and growth in either time period fails to emerge. However, there are indications that effect of inequality on growth may be different in the nineties when compared to the seventies. In the literature, a consistent negative effect of inequality on growth is documented although the significance of the effect is open to debate. This paper also finds a negative effect of income inequality on growth in the seventies but, although statistically insignificant, a consistently positive effect in the nineties.

Description: This paper examines ethnic wage differentials for the entire population of workers who enrolled for the first time as students at Dutch universities (WO) and colleges (HBO) in 1996 using unique administrative panel data for the period 1996 to 2005 from the Dutch tertiary education system. The study breaks down wage differentials into two components: a component which can be explained by the observed characteristics and an unexplained component. The analysis provides new evidence for the magnitude and the origin of ethnic wage differentials by gender. In general, ethnic wage gap is larger for migrant women than migrant men and larger for Western and Caribbean migrants than for Mediterranean migrants. Ethnic minority workers appear to have larger wage surpluses which is almost entirely explained by their observed favourable characteristics. Most notably, Mediterranean female graduates have significantly positive wage discrimination, while Western female graduates seem to face a small wage penalty.

Description: A shareholder theory of firm and a stakeholder theory of firm may differ in their respective evaluation method of firm performance. Both theories however recognize the importance of value creation as the economic role of firms as institutions. The New Institutional Economics (NIE) emphasizes incentives alignment, while also viewing stakeholder engagements as methods to expand the boundaries of firms. The difference in performance evaluation between the two approaches can be reduced if stakeholders, while formulating incentive alignment, also evaluate the mechanisms of establishing a common currency value. The concomitant development of stakeholder engagement, incentive alignment, and value currency creation is argued to be an evolutionary process with the efficiency implications of the two theories tending to converge.

Description: US wheat varieties are examined for differential disease resistance between public and private varieties, an issue for critics of plant intellectual property. Analysis using disease resistance rankings of wheat varieties from Kansas and Texas indicate that private varieties are as or more resistant. This finding was further confirmed with two years of Texas data. Thus, the results from the study reject the criticism of private breeding activities that they are more susceptible to disease compared to public varieties. However, private varieties resistance is incorporated from public offerings so that productive private wheat breeding is partly derivative.

Description: Utilizing linear mixed oligopoly model, this paper explores the magnitude of the maximum-revenue tariff, optimum-welfare tariff, and revenue-constrained optimal tariff that is especially designed for the consideration of the bureaucratic inefficiency. In particular, the tariff ranking issue is examined under both cases of Cournot competition and domestic public leadership. We found that, under Cournot competition, the optimum-welfare tariff is the highest and it is followed by the revenue-constrained optimal tariff while the maximum-revenue tariff is the lowest. But, under Stackelberg public leadership, if the domestic private firms are fewer than the foreign firms, the maximum-revenue tariff becomes the highest and the optimum-welfare exceeds the revenue-constrained optimal tariff.

Description: The research community has developed three main concepts and indicator systems to measure sustainability: the capital concept, the ecological concept and the multidimensional concept. Whereas a lot of research has been dedicated to the pros and cons of the three/four-pillar sustainability concept, to the shaping of the pillars and their indicators, research on standardized methods to aggregate the indicators to one index is lacking. However, a useful model exists—the GDP—which summarizes the different economic activities of various social actors in one index. An overall sustainability index has the advantage that the sustainability of a system can be expressed in one index. This allows the sustainability status of a system to be better communicated both to the public and to politicians. Against this background, we developed the Index of Sustainable Development (ISD) to measure the sustainability of systems described by multidimensional sustainability concepts. We demonstrate that it is possible to aggregate sustainability indicators of the multidimensional sustainability concepts to one index. We have chosen exemplarily the German sustainability strategy and selected the energy indicators within it because of the importance of the energy sector and due to the good statistical database in this sector.

Description: In February 2012, during a period of extremely cold weather across Russia and large parts of Europe, Gazprom failed to supply all the gas that was requested from it by its non-CIS customers in countries ranging from Poland in the north to Italy and Greece in the south of Europe. This situation led to concerns over a gas shortage and caused gas prices to spike at all the major hubs on the continent and in the UK. This Comment argues that the supposed supply “crisis” was not caused by any production shortfall in Russia but by a combination of inadequate storage available to Gazprom, excess gas withdrawal by Ukraine and in particular by political considerations in Russia ahead of the Presidential election in early March. However, it does highlight the current constraints to the Russian gas supply machine under certain severe temperature conditions. The paper also argues that, in contradiction to the claims of Alexander Medvedev (the Head of GazpromExport) that “spot markets failed to compensate for the increased demand”, in fact the markets had a logical price reaction to daily supply/demand changes. Although this reaction resulted in sharply higher prices in the short term, this provided a potent commercial signal which in turn led to spot supplies and/or demand management and then, as the situation resolved itself, produced lower prices so that the monthly average was still below the oil-indexed average price. While it is certainly true that the mature hubs at NBP and TTF reacted in a more responsive manner than some of the Continent’s less liquid hubs, it was nevertheless the case that, overall, customers were supplied at a market price and traders were able to arbitrage a short-term supply and demand imbalance.

Description: The financialization of oil futures markets has been held responsible for a variety of phenomena including changes in price volatility, increased co-movement between oil futures prices and other financial asset and commodity prices, a breakdown of the statistical relationship between oil inventories and the price of oil, and an increased influence of the decisions of financial investors such as swap dealers, hedge funds and commodity index traders on the oil futures price. Most importantly, there is a perception that oil futures markets no longer adequately perform their functions of price discovery and risk transfer. In this presentation, Dr Fattouh reviews the evidence in the academic literature and evaluates to what extent it provides support for the proposed effects of financialization.

Description: This paper, by Fan Gao, assesses the extent to which China is likely to achieve levels of shale gas production by 2020 which would make a meaningful difference to its growing need for imports of pipeline gas and LNG. The study suggests that given the rather disappointing progress on Coal Bed Methane production since exploration and development work started some 25 years ago, a cautionary approach is needed in anticipating the outlook for shale gas for the remainder of this decade.  The specific challenges include water availability and population density demographics as well as the need to stimulate an innovative competitive dynamic in the Chinese upstream service sector and an appropriate upstream investment framework with foreign participants for the transfer and application of technology. The paper provides a rare appreciation of the dynamics of the onshore Chinese upstream industry and from that basis a better understanding of what will be required, on a number of policy levels, for Chinese shale gas development to succeed.

Description: This presentation by Malcolm Keay was delivered at a British Institute of Energy Economics seminar on 25 April 2012.  It looks at the links between energy efficiency and sustainability and concludes that they are much more complex than they might appear at first sight.

Description: As one of the world largest holders of oil as well as natural gas, Iran is a significant producer of both. Yet, international sanctions which have intensified in recent years have significantly dented the country’s oil and gas industries’ short- and medium-term prospects. National oil company NIOC’s own set target of producing 4.5 mbd by 2010 was not met and meeting the desired 5 mbd benchmark by 2015 looks by now very unlikely; indeed, Iran’s long term industry-intern challenges have most recently been added to by the intensifying conflict with Western nations in expectation of a new round of sanctions aimed at Iran’s oil sector. This paper aims to examine the status of Iran’s oil sector; to draw lessons from previous year’s of sanctions and its effect on Iran’s oil sector; and to conclude from our observations Iran’s potential role as a producer and exporter of oil.

Description: The aim of this study is to explain based on the case of the GCC economies the particular ways in which many oil- and energy-rich economies price energy domestically; to identify different cost concepts and observed and potential future caveats of these pricing systems, such as rapidly rising energy demand, lack of energy efficiency and a rapid depletion of exhaustible natural resources; and to draw policy lessons for energy-rich countries’ pricing strategies.

Description: This paper suggests a new approach to analysing the distribution of natural resource revenues and applies it to the case of Mexico. It defines a natural resource entitlement as a citizen’s per capita share of their country’s natural resource rents. The main finding is that, according to official estimates, Mexican fiscal policy transfers oil entitlements from the bottom 90 percent of the population to the top 10 percent of the population. This implies that, although fiscal policy is progressive relative to market income, it is regressive once oil entitlements are taken into account. I consider a fiscal reform that would ensure that every citizen received their oil entitlement, and in doing so would eliminate extreme poverty.

Description: Sharing costs and risks are the basic foundation of any the joint venture. However, the required financial commitments might be jeopardized either by a co-venturer who cannot afford the payment of the related costs or a co-venturer who simply chooses not to pay its share. The petroleum industry tends to rely on the forfeiture of interests as a threat to deter such behaviour but as a remedy this is often uncertain in times of its enforceability and could operate to the benefit of the defaulting party. The options to consider are collateral support provision, secured interests and cross-default options structured over wider asset interests. The recommendations which should arise out of this research intend to provide safer guidance for a long term relationship in a joint venture in the petroleum industry.

Description: The increasing maturity of Russia’s onshore fields, especially those in West Siberia, and the potential for the country’s production to go into sharp decline over the next decade has prompted the Russian government to promote offshore development as a potential solution. President Putin has encouraged his state oil company to seek international partnership to bring in the requisite technical and management expertise as well as much needed capital to fund what will be very expensive projects. The immediate consequence of this activity has been the formation of three joint venture partnerships between Rosneft and Exxon, ENI and Statoil respectively, with the IOCs finally seizing the chance to exploit their competitive advantages in a region with huge resource potential. However, despite the undoubted benefits which these new partnerships can bring for all parties in terms of technical knowledge exchange, reciprocal asset deals, diversification of risk and potential upside from exploration success, it would appear doubtful whether the results of their activity can be anything other than a long-term solution to Russia’s production issues. Therefore, the Russian government may need to increase the incentives for both domestic and international companies to exploit the country’s more accessible onshore resources if the country’s current levels of oil production are to be maintained in the short to medium term.

Description: Energy subsidies form an important part of many governments’ policies in the developing world, the Arab world being no exception. The primary goal behind energy subsidies is often to address underlying poverty issues and to enable all citizens to access at least basic forms of energy. However, the use of energy subsidies has been criticised by numerous national and international observers as ineffective in achieving its goal, and for creating large scale energy waste. Organisations such as the OECD and the IEA are now calling directly on their member states to eliminate energy subsidies. Iran, the Arab world’s most immediate neighbour and a major energy producer has recently set an example of how a large-scale reform of energy subsidies can be realised; in tandem with the removal of direct and indirect energy subsidies, particularly vulnerable parts of society are protected through the disbursement of compensatory, universal cash transfers. This research looks at the situation of energy subsidies prevalent in the Arab world their impact on the region’s economies, with a focus on non-GCC countries. It also proposes options for the reform of energy subsidies in the context of the Arab world.

Description: This paper, by James Henderson , concludes that Russian domestic gas prices are not likely to reach European netback levels any time soon, but that the momentum of the past five years towards significantly higher domestic prices will continue, leading to an eventual liberalization of the Russian gas market. Over the next decade, this could create fundamental changes in Russia’s relationship with European gas markets with potential competition for available supplies between domestic and European export markets.

Description: The European Commission has broken new ground in proposing to streamline national planning approval of vital energy infrastructure, use EU funds to leverage private finance for such networks and to negotiate foreign pipelines on the EU’s behalf. These initiatives coincide awkwardly with the eurozone crisis. But David Buchan broadly endorses Brussels’ attempt to kick-start implementation of Europe’s 2020 energy and climate goals. He suggests the Commission go a step further by taking advantage of the forthcoming treaty revision to propose a constitutional amendment on EU states’ energy mix.

Description: While much of the emphasis of the literature on energy poverty is on the prevalence of the phenomenon in sub-Saharan Africa and South Asia, little has been written about energy poverty in the Arab world. Traditionally having being seen as one of the world’s most energy rich regions, the Arab world has in recent years often been overlooked as a region which suffers severely from energy poverty itself. In 2002, about 65 million people in the Arab world had no access to electricity, and an additional 60 million were severely undersupplied in both urban and rural areas. In terms of cooking and heating, almost one-fifth of the Arab population rely on non-commercial fuels like wood, dung, and agricultural residues particularly in Comoros, Djibouti, Sudan, Yemen, and Somalia but also in Algeria, Egypt, Morocco, and Syria. This study fills a gap in the existing literature by looking at the case of prevailing energy poverty in Yemen, one of the poorest countries in the Arab world.

Description: In 2004 a large discovery of oil was made in Rajasthan, a relatively poor state in north-west India. Oil began to flow in 2009. The estimated total hydrocarbons resource base in Rajasthan is 6.5 billion barrels, and the fields are estimated to have the potential to reach output levels of over 200,000 barrels of oil per day. The quantities of oil that are expected to be produced, and their resulting revenues, are significant, but unlikely to be transformative to the state’s finances. However, given low levels of economic and human development, effectively-spent resource revenues could have a significant impact on the welfare of Rajasthan’s citizens.  This paper discusses options for the use and management of oil revenues in Rajasthan, picking up the challenge from the point at which revenues start to flow to the government. The receipt and expenditure of oil revenues are matters for fiscal policy, and we consider them in the context of India’s federal system, where fiscal responsibility is divided between the federal government and state governments. Drawing on international experience, we discuss how resource revenues are spent in practice, and how they might better be used to benefit the citizens who ultimately own them.

Description: In parallel with a flourishing economy, the natural gas industry in Spain was characterised by rapid consumption growth in the late 1990s and 2000s. Infrastructure and supplies were designed to meet the needs of a gas market growing at double digit rates each year. This high growth rate – for a European gas market – was expected to continue until at least the mid-2010s. By 2011, this outlook was replaced by a more pessimistic one. Firstly, the country’s economy was hit hard by the global recession and GDP growth recovered later than average for Europe. Secondly, the utilisation of Spain’s CCGTs dropped from 52% in 2008 to only 33% in 2010 as a result of an increasing use of renewable energy – especially wind and hydropower – to produce electricity. This raises the question of whether the expectation of gas demand in the Spanish power sector is ever going to materialise. The objective of this paper is to investigate the state of the Spanish gas market and its potential for growth. Will the negative impacts on the gas market be short lived or is there a need to review the scenarios to incorporate new dynamics relative to economic growth and renewable energy use? What will the consequence be of these changes on the gas industry?

Description: The Oxford Institute for Energy Studies has recently published a paper which concludes that agreement between Russia and China for pipeline gas exports may not be reached this year or even in 2012. The paper by James Henderson suggests that the Chinese have developed other gas import options from Central Asia, Myanmar and a range of LNG suppliers which mean they are not in a hurry to conclude a contract with Russia. On the other side of the border Gazprom does not want to compromise on the principle of oil-linked pricing on which it is insisting in its European export contracts. Both sides believe themselves to be in a powerful position without the need for compromise, but the paper suggests that if the first pipeline project could be located in Eastern Siberia – instead of the Altai line from Western Siberia which is Gazprom’s priority – then it would be easier to agree a price acceptable to both parties.

Description: Carbon dioxide (CO2) emissions are essentially cumulative in character; but much of the economic analysis and policy making in relation to the mitigation of CO2 emissions fails to reflect fully this fundamental feature of any analysis of the impact of emissions on climate. The cumulative and irreversible nature of CO2 emissions implies that a significantly heavier weight should attach to current as opposed to future emissions. Unfortunately current application of market-based approaches to limiting carbon emissions delivers a contradictory message, with the price of current emissions being very low but with a prospect of rapid rises in the future. This inconsistency has the potential to create major distortions in policy and is likely to be seriously sub-optimal. Similar criticisms can be levelled at policies or climate negotiations based on individual year targets rather than cumulative emissions. Policy making needs to redress this imbalance. Focus on the cumulative nature of CO2 also strengthens the case for urgency and leads to more recognition of the positive option value of early action on emissions.

Description: The events that took place in the Arab world in the opening months of 2011 mark a watershed in the history of the Middle East and North Africa (MENA) region. Given the importance of MENA energy supplies in global economic terms, the political unrest witnessed by the region has caused widespread fears about the prospect of energy supply disruptions. With international oil and gas prices beginning to rise from 2010, there was serious concern among market and political actors that any further increase in prices would put at risk the fragile recovery of the global economy from the deepest recession in decades. This paper examines the significance of the recent Arab uprisings and their implications for regional and global oil and gas markets. It argues that, although markets were able to cope resiliently in the short term, there remains much uncertainty about the likely longer-term implications of the recent events.

Description: This Oxford Energy and Environment Brief by Dr Benito Müller (Director Energy and Climate change at OIES) discusses a way in which the Kyoto Protocol could be used to provide the framework for a legally binding outcome in the current UN climate change Negotiations.

Description: While the former Soviet Union is usually thought of as a gas producing region, it is also the second-largest regional market behind north America – and that even modest changes in consumption could have big implications for future production in the region, the investment required for it and the availability of gas for export markets. The paper considers the substantial demand reduction that could be achieved with efficiency measures, and the reasons why progress towards these has been painfully slow and the potential largely unrealised. The paper concludes that some efficiency gains have already been made, and more could be achieved quite soon, largely as a result of the long-term trend towards higher gas prices, whereas larger-scale gains, dependent e.g. on power and heat sector reforms, will take much longer. The analysis is underpinned by a detailed study of the statistical information available, with particular reference to consumption by various economic sectors.

Description: This paper by Howard Rogers challenges the assumption of UK government policy papers and projections that, as a result of substantial increases in renewable and other low carbon generation capacity, the role of gas in the will decline rapidly over the next decade and beyond. The study suggests that gas will retain a central and undiminished role in the UK power generation sector. Although its role in the power generation sector may change, gas is likely to be particularly important in respect of ensuring security of supply in the context of increasing intermittent wind generation. As a result, additional gas storage will be needed and, given current market conditions, immediate attention needs to be devoted to creating incentives to ensure this will be provided.

Description: Nuclear Energy post Fuklushima Malcolm Grimston Gordon Mackerron Malcolm Keay Interconnecting the GCC States Laura El-Katiri Oil and Gas Resources Bassam Fattouh James Henderson Juan Carlos Boue

Description: In this Comment, Dr Shamil Yenikeyeff analyses the reasons for the collapse of BP’s Arctic partnership with the Russian state company Rosneft. He argues that the BP–Rosneft deal was inauspicious even before it was signed due to the history of the Kremlin’s reluctance to back BP plc in its often uneasy relations with the AAR consortium – BP’s Russian partners in the TNK–BP joint venture. Dr Yenikeyeff analyses the motives of the key players involved and looks at the possible future of BP’s involvement in Russia.

Description: Oil prices are largely formed at the junction of the financial sphere and the physical sphere. This is particularly true for the main markers, such as Brent prices. The term “Brent prices” may refer to several type of contracts (see, for example, Bossley 1999) traded by physical and financial participants. The main contracts interacting in the Brent sphere are ICE Brent futures contracts, Dtd. Brent, Forward Brent and Brent CFDs. In this article we look at the interaction between these contracts, resulting in part from the price assessment methodology of Price Reporting Agencies (PRAs). Our conclusion is that changes in PRAs methodology in the past ten years, first aimed at avoiding price manipulation, today can guarantee an anchor to the physical market for oil prices.

Description: This Oxford Energy and Environment Brief is the first of two papers by Benito Müller on the theme of ‘Equity and the Durban Platform’ as recently presented at the Centre for Policy Research in New Delhi. The Brief focuses on the question of how to operationalize the principle of common but differentiated responsibilities and respective capabilities as enshrined in Article 3.1 of the UNFCCC. It does so by looking at the controversy about the introduction of international aviation in the EU Emission Trading Scheme as a case study and uses the proposed operationalization to suggest options for compromise in that dispute.

Description: Despite the existence of other regional crudes with a much larger physical base, more than 25 years have now passed, and most cargoes from the Gulf destined for Asia are still priced against Dubai. Nevertheless, the nature of the Dubai benchmark has evolved and many of the institutional and pricing details have witnessed major transformations, driven in large part by the decline in Dubai’s oil production and innovations in the pricing mechanisms introduced in the 2000s. In theory (and in practice to some extent), the price of Dubai may be identified from the financial layers that have emerged around Dubai and Brent. The Brent complex sets the price level for Dubai while the EFS and the inter-month Dubai spread market set the price differentials against Brent. Since physical benchmarks constitute the pricing basis of the large majority of physical transactions, some observers claim that derivatives instruments such as futures and swaps derive their value from the price of these physical benchmarks. However, this is a gross over-simplification and does not accurately reflect the process of crude oil price formation in the case of Dubai.

Description: The expansion of the ESPO pipeline to China and the Pacific has re-focussed attention on Russia’s oil export priorities and the question of whether it will have sufficient supplies to meet its export goals to both western and eastern markets. This research will explore Russia’s oil export priorities and the available supply to meet them, reflecting the current trend for expansion in Asia that has already caused some crude to be withdrawn from exports to Europe. We will examine Russia’s future production profile, likely domestic demand and overall export plans and attempt to identify any key issues that individual companies and the Russian government itself may have to face as demand from Asian markets for Russian crude oil increases. The post Crude oil trade flows from Russia appeared first on Oxford Institute for Energy Studies .

Description: Oil Benchmarks The post Oxford Energy Forum – Issue, 94 appeared first on Oxford Institute for Energy Studies .

Description: LNG has been a priority for Gazprom for the past decade as it has attempted to establish itself as a global player in the gas market, but it is now becoming an area of increasing competition with its domestic rivals. This report will examine how Russia’s overall LNG strategy is developing, who the key players will be and whether the country’s LNG projects can be competitive in the global gas market. It will also question whether the development of an LNG business will mark a change in overall gas strategy for Russia, and if it might also mark a gradual change in the position of Gazprom as the dominant player within the sector. The post Russia and the Global LNG market appeared first on Oxford Institute for Energy Studies .