Dialogue

Vol. 13, No. 3

Science, Technology and Eco-nomics for a Clean Energy Policy

Global Oil Supply Dynamics: Per-spectives on Microeconomics of Oil and the Role of Saudi Arabia in 2030

25th USAEE Annual North American Conference Reports

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17-22

Focus on the Center for Energy, Marine Transportation and Public Policy at Columbia University

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November 2005

USAEE Mission StatementThe United States Association for Energy Economics is a non-profi t organi-

zation of business, government, academic and other professionals that advances the understanding and application of economics across all facets of energy de-velopment and use, including theory, business, public policy and environmental considerations.

To this end, the United States Association for Energy Economics:• Provides a forum for the exchange of ideas, advancements and professional

experiences.• Promotes the development and education of energy professionals.• Fosters an improved understanding of energy economics and energy related

issues by all interested parties.

United States Association for Energy Economics: An Affi liate of the IAEE

Dialogue 2

Energy in a World of Changing Costs and Technologies September 24-27, 2006 Ypsilanti Marriott at Eagle Crest Ann Arbor, Michigan - USA

26th USAEE/IAEE North American ConferenceUnited States Association for Energy Economics International Association for Energy Economics

Vice President for Conferences: Gürcan GülenGeneral Conference Chair: David Nissen Program Co-Chair: Lynne Kiesling

Concurrent Session Chair: Wumi Iledare Conference StructureThis year we have chosen plenary session themes that we believe reflect the key policy challenges and uncertainties for North America in the global energy economy. We would like the concurrent sessions to expand on these themes, and are actively soliciting papers that address the suggested bullet points. Papers on other topic ideas are, of course, welcome, and anyone interested in organizing a session should propose the topic and possible speakers to:

Wumi Iledare, Concurrent Session Chair (p) 225-578-4552 (f) 225-578-4541 (e) wumi@lsu.edu

Transportation & Fuels Electricity & FuelsVehicle technologies

• Diesel hybrids, fuel cells• Integrating advanced technologies, fuels and emissions

constraints

Generation/Transmission: competition and reliability• Market design policy evolution in the USA• Capacity markets? – reliability, financing• Europe -- what do “national champions” mean for efficient

competition?• Developing markets? -- lessons of liberalization and privatization

New fuels & markets• Product market fragmentation and refining capacity• Ethanol/oxygenate policies, markets & the environment• Non-conventional supplies and advanced fuels• Urban transportation restructuring• Hydrogen distribution systems

Alternatives • Demand side technologies in transportation, buildings, and processes?• Electricity and natural gas distribution regulation restructuring• Demand side response policies and new technologies• Sustainability and technology timing• Carbon capture and sequestration

Oil market security and reliability• OPEC capacity and price targeting• Strategic and commercial policy for reliability• Emerging roles of China and India• National Oil Company strategies• Impact of EITI and Local Content policies

Natural gas: supply and facilities• North American markets• Arctic natural gas• LNG infrastructure• Evolution of global gas markets

Energy, Economic Development & Energy Poverty• Energy poverty – clean and efficient heat and power for 2 billion poor people – technologies, institutions, and aid program structure• Technologies, markets, and infrastructure for clean heat• Effective technology and infrastructure for rural electricity

Science and Technology Policy• Basic research and commercialization strategies for vehicle technologies, electricity generation, and carbon sequestration• S&T policy for to realize “learning by doing” and diffusion externalities

**** CALL FOR PAPERS ****Abstract Submission Deadline: April 28, 2006

(Please include a short CV when submitting your abstract) Abstracts for papers should be between one to two paragraphs (no longer than one page), giving a concise overview of the topic to be covered. At least one author from an accepted paper must pay the registration fees and attend the conference to present the paper. The lead author submitting the abstract must provide complete contact details - mailing address, phone, fax, e-mail, etc. Authors will be notified by June 2, 2006, of their paper status. Authors whose abstracts are accepted will have until August 4, 2006, to return their papers for publication in the conference proceedings. While multiple submissions by individuals or groups of authors are welcome, the abstract selection process will seek to ensure as broad participation as possible: each speaker is to present only one paper in the conference. No author should submit more than one abstract as its single author. If multiple submissions are accepted, then a different co-author will be required to pay the reduced registration fee and present each paper. Otherwise, authors will be contacted and asked to drop one or more paper(s) for presentation. Abstracts should be submitted to:

David Williams, Executive Director, USAEE/IAEE, 28790 Chagrin Blvd., Suite 350, Cleveland, OH 44122 USAPhone: 216-464-2785 / Fax: 216-464-2768 / E-mail: usaee@usaee.org

Students: Please submit your paper for consideration of the USAEE Best Student Paper Award (cash prizes plus waiver of conference registration fees). If you are interested, please contact USAEE Headquarters for detailed applications / guidelines. Students may also inquire about our scholarships for conference attendance. Visit www.iaee.org/en/conferences for full details.

Travel Documents: All international delegates to the 26th USAEE/IAEE North American Conference are urged to contact their consulate, embassy or travel agent regarding the necessity of obtaining a visa for entry into the U.S. If you need a letter of invitation to attend the conference, contact USAEE with an email request to usaee@usaee.org The Conference strongly suggests that you allow plenty of time for processing these documents.

Interested in touring Ann Arbor? Visit http://www.annarbor.org/

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Contents

FeaturesPresident’s Message 3Editor’s Corner 4Calendar 24

ArticlesScience, Technology and Economics for a Clean Energy PolicyDaniel M. Kammen 8

Global Oil Supply Dynamics: Perspectives on Microeconomics of Oil and the Role of Saudi Arabia in 2030 Ferdinand E. Banks 11

Focus on the Center for Energy, Marine Transportation and Public Policy at Columbia University, New York, NY 16

25th USAEE Annual North American Confer-ence Reports 17-22

DialogueVol. 13, No. 3 ($10.00)

November 2005www.usaee.org

Dialogue

Dialoge is a tri-annual publication of the Unit-ed States Association for Energy Economics. Subscriptions are dependant on membership with USAEE. Reprints are available for $10 US and Canada.

Editor: Wumi Iledare

Submissions

Articles, notices, news of chapter events and relevent energy news can be sent to the editor.

Wumi IledareLSU Center for Energy StudiesEnergy Coast & Environment BuildingBaton Rouge, LA 70803-0001wumi@lsu.eduFax: (225)578-4541Tel: (225)578-4552

President’s Message

(continued on page 4)

This year has certainly flown by, and what a year it has been. We have experienced significant perturbations

in energy markets, and face great uncertainties in the global energy outlook. More work is needed to under-stand the impacts of higher energy prices on the global economy and energy demand, and to understand how fuel can be used more prudently. In addition, more work is needed to understand the cost of replacing oil and natural gas supplies, the cost of alternatives and the future energy price outlook. The two hurricanes that severely impacted the U.S. Gulf Coast provided a wake up call on the fragil-ity of key energy infrastructure in the U.S., and the need

to site and build more energy infrastructure in diverse locations.The Energy Bill that the U.S. Congress passed last summer was only a first

step in sorting out our nation’s energy future. I believe the USAEE has an impor-tant role in the energy debate that will underpin future legislation. We can offer rational and objective analysis to keep the debate honest. We can also make sure the costs and benefits and trade-offs of policies are fully addressed. We can play a particularly important role in the evaluation of new technologies. We can insure that technology is assessed on a full life cycle basis and that the markets in which these technologies are implemented are fully understood.

Our conferences provide an ideal forum for debating key energy issues. We had a successful conference in Denver last month. 270 professionals interested in energy economics were in attendance, with a record number of students present.

In our first plenary session on Fossil Fuels Reliance, we heard that fossil fuel reserves are not an issue. Janet Gellici of the American Coal Council pointed out that the U.S. is the Saudi Arabia of coal, having 25% of the world’s coal reserves. Mark Finley of BP reminded us that oil reserves are still growing. Tom Woods of Platts Research & Consulting indicated that gas resources are plentiful, even in the U.S. Resources were not deemed to be a problem – the problem was deemed to be resource access and the cost of access, and concern about CO2 emissions.

We also heard from Shirley Neff of Columbia University what the Energy Policy Act did and did not accomplish, including her reminder that many of the technology incentives in the Act still need to get funded to move forward. Sue Tierney, Commissioner of the National Commission on Energy Policy, shared the Commission’s recommendations on U.S. energy policy, including incentives for low carbon technology, increased fuel efficiency standards and a mandatory carbon cap & trade system. John Felmy from the American Petroleum Institute cautioned that policymakers should resist overreacting to short-term events and repeating the policy mistakes of the 1970s that exacerbated supply and pricing issues rather than helping the situation.

We also heard a debate between Amory Lovins (Rocky Mountain Institute), Jim Sweeney (Stanford University) and David Freeman (Renewable Resources Group) about what it will take to achieve improvements in energy efficiency and a shift to alternative vehicles and renewable fuels. Jim Sweeney discussed the technological and economic hurdles these technologies face. This debate was continued in the last plenary session on Renewable Energy with a discussion about whether renewable technologies should be promoted through regulation, incentives or both. The panel agreed on the importance of a diverse portfolio of renewable technologies and demand-side management, and the need for regula-tory reform in the electricity sector to insure transmission access. The conference ended with a tour of the National Renewable Energy Laboratory.

Planning for next year’s conference is progressing well. It will be held in Ann Arbor, Michigan on September 24-27, 2006. Mark your calendars. The

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Conference Proceedings on CD Rom25th North American Conference

Denver, CO, USA, September 18-21, 2005This CD-Rom publication includes articles on the following topics:

Natural Gas Industry Energy Data and Modeling Demand Estimation Economics of Electric and Gas Utilities Economics of New Energy TechnologiesInternational Energy Economics Energy and the EnvironmentEnergy Industry Finance Oil Industry: E&P, Transportation, Refining, etc.Market for Motor Vehicle Fuels Are High Oil Prices Here to Stay?How Credible are Proven Oil Reserves? The Hydrogen Futures Simulation ModelHigh Oil Prices: A Non-OPEC Capacity Game Natural Gas Market VolatilityRestoring the Nuclear Option in the U.S. Deregulation and Restructuring in Power Markets

Single Volume $130.00 - members $180.00 - non-membersPayment must be made in U.S. dollars with checks drawn on U.S. banks. Complete the form below and mail together with your check to Order Department, USAEE, 28790 Chagrin Blvd., Suite 350 Cleveland, OH 44122, USA.Name __________________________________________________________________________________________Address ________________________________________________________________________________________City, State, Mail Code and Country __________________________________________________________________

Please send me ____ copies @ $130.00 each (member rate) $180.00 each (nonmember rate). Total enclosed $_________ Check must be in U.S. dollars and drawn on a U.S. bank, payable to IAEE.

USAEE NewsEditor’s Corner

President’s Message (continued from page 3)

theme of the conference will be Energy in a World of Chang-ing Costs and Technologies and the first call for papers will be issued soon.

The USAEE Council has made it a priority to enlarge our student membership and increase student participation in con-ferences. After all, students are the future of this organization. The Council agreed to expand the scope and funding for best student paper awards. I appeal to those of you in faculty posi-tions to encourage your students to become involved with our organization.

Finally, with a note of sadness, I wanted to acknowledge the passing of one of our founding members, Dennis O’Brien. In addition to coaxing me to become involved in the USAEE, he was a mentor and a friend. I never knew where I would run into Dennis. I never saw him when I visited Oklahoma but would see him in far away places like Abu Dhabi. Dennis will be sorely missed by our organization, and by all his colleagues and friends.

Marianne Kah

In this fall edition of the USAEE Dialogue, several delegates to the 25th USAEE/IAEE

North American Conference held in Denver, Colorado review discussions and presentations on plenary session themes. Shir-ley Neff, who presided over the energy policy session, presents a synopsis of the presentations by three prominent energy experts who have been involved in national energy policy for well over 60 years. Kim Coffman, an economist with the U.S. Minerals Management Service discusses the timeliness of the conference plenary session on energy policy. He observes that panelists seemed to agree that the EPA of 2005 made small strides on both sides of the equation but—on the whole—would not dramatically change the nation’s energy production and consumption patterns.

Kristi Darby, research associate and geologist, Louisiana State University’s Center for Energy Studies provides a review of panelists’ comments on various non-conventional energies and gives an overview of the speech by Guy Caruso, Admin-istrator for the Energy Information Administration, on the role of U.S. EIA in energy economics. Further, Feredidoon (Perry) Sioshansi, president of Menio Energy Economics, reviews pre-sentations by three prominent speakers with considerable expe-rience in different segments and aspects of electricity markets in North America during the dual plenary session on electricity restructuring.

The editor welcomes policy or analytical debates on topi-cal issues of energy concerns between two experts. Thus, this issue presents Dr. Ferdinand Bank’s opinion on the supply of

Saudi oil and offers a few general remarks on why he disagrees with the theory that is now frequently being advanced that high oil prices no longer threaten the stability of the global macro economy. Further, we want to publish short articles on research centers (academic, government laboratories, etc) around the country working on energy economics and related fields. Thus, in this edition we have presented a short précis on the Center for Energy, Marine Transportation, and Public Policy at Columbia University, New York, NY.

Wumi Iledare

5 Dialogue

He enjoyed gatherings of oil analysts and industry folks as an intellectual discourse without worrying about com-pensation for himself. His long term colleague Fereidun Fesharaki relates a story that Dennis was planning an en-ergy roundtable in the Napa Valley. Since Napa is noted

for another liquid than oil, one might wonder why Napa, until you figure out that his children lived there. Dennis claimed oil and wine mixed well.

Beyond his brilliance and his commitment to furthering energy economics, Dennis was a man of courage and curiosity. When attending an energy conference with Fesharaki at the time of the fall of the Iran Revolution, at great risk to himself, he talked to the Revolutionary guards and took a number of photos with the guards. He sustained this curios-ity and courage throughout his career. Recently, he introduced weather forecasting as a disci-pline within the Sarkey Center.

Dennis had a wonderful sense of humor and concern for

his colleagues. I know this from my own experience as Dennis’s good friend and from countless stories from his friends and colleagues.

Dennis was quite the traveler. He had a passport that required a number of additional addenda. He knew what to wear in what country, how to best get there economically, what the best restaurants were, and who on the energy scene he should meet.

I remember when I joined Dennis as an invited par-ticipant in an energy forum in Moscow. I was late and neglected to properly enter the then Soviet Union. Dennis helped me find and forge a visitor’s document so that I could exit the country safely. Another time in Luxemburg, Dennis ordered a salad and ate it with gusto. At the bottom of the salad was a worm, very much alive. He called over the waitress and asked for a refund in a humorous way. He had a good laugh when the waitress told him that the worm was “on the house.”

One time that I will remember about Dennis is how much he loved his wife Beverly and his children, Kevin and Pam. Whenever we were in the world and no matter what the topic of discussion was, his conversation was al-ways redirected to his family.

Wherever Dennis went, people respected him and wel-comed him. We will miss him. As the old Irish blessing goes, “Dennis, until we meet again. May God hold you in the hollow of His hand.”

Tony Finizza and Dennis’s friends

Dennis O’Brien We were all shocked and saddened to hear of the passing

of our good friend and colleague, Dennis O’Brien. In typical Dennis style, he passed away, passionately involved, on the frontlines and on his return from an IAEE Conference.

I am honored to be asked to write a eulogy for my friend Dennis. I talked to a number of his friends to compare notes and I found that we all had similar stories. We concluded that for anyone who really knew Dennis, no eulogy could possibly do him justice. For those who were not privileged to know Dennis well, no eulogy could convey who the man was, who the friend was, and who the person was we grew to admire and respect.

Dennis and his devoted wife Beverly were frequent at-tendees at energy conferences. It was always a treat to be with them.

Dennis taught us all, by example, humility, concern for others, and the need to consider all points of view. He was par-ticularly fond of helping students or energy economists in the early stages of their career. It is a tribute to him that his students have won the “Student Best Paper Award” on a number of oc-casions.

A graduate of the University of Missiouri, Dr. O’Brien worked in the Department of Energy as a Deputy Assistant Secretary in the 1970s. He later served as Chief Economist at CALTEX. In his last assignment he was Director of the Sarkey Energy Center at the University of Oklahoma. Throughout his career, he was professional and committed to excellence.

Dennis started the US Association of Energy Economics as a chapter of the IAEE with me in the early 1990s. He always put others first. He told me, “you be the first president and I’ll be your vice president.” From 1994-95, he was President of the US chapter. In 1997, he was elected President of the International Association.

Dennis was a man of ideas. He was always thinking of new ways to bring people together to debate energy issues.

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Scenes from the 25th Annual North American Conference18–21 September, 2005 – Denver, Colorado, USA

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Dialogue 8 9 Dialogue

Science, Technology and Economics for a Clean Energy Policy

By Daniel M. Kammen*

Energy Expenditures versus Engines of Innovation

If energy is in the news, there must be a crisis.The OPEC embargo of the 1970s contributed to a major

economic recession. The Three Mile Island and Chernobyl accidents highlighted the extreme risks posed by management failures at highly complex energy facilities. The California en-ergy crisis and the still unfolding Enron scandal hinted at how much havoc unmitigated greed can unleash on society. The Northeast and European blackouts of 2003 demonstrated how fragile and dated our electricity grid has become. Record-high crude oil prices have recently sparked a discussion and debate of our seemingly ever-expanding appetite for oil and gas. The mounting evidence of climate change largely caused by fossil fuel combustion links our energy economy to a truly global threat. These events each reached public and political promi-nence as illustrations of the fragility and costs associated with our current energy economy.

The real issue, in fact, is that our energy economy lacks the diversity it needs to respond to the inevitable economic, po-litical, and environmental shocks that history has demonstrated will frequently occur. The good news, however, is that despite a record of chronic underinvestment in vital areas of energy research and development, recent technological advances, new policy mechanisms to diversify energy markets, and an increas-ingly bullish financial sector could all be marshaled to usher in a new age of energy innovation. A policy that reflects these changing tools and opportunities could make our energy econ-omy significantly more secure. We could evolve from an era of energy ‘hunter-gatherers’ to one of ‘energy farmers’; namely from a portfolio based on a precarious balance of expanding traditional supply avenues to meet a steadily growing demand, to one that emphasizes a full range of energy supply, efficiency, and demand management technologies and policies.

Energy is the largest industry on the planet, with sales of over three trillion dollars annually. In the U. S. alone energy is a trillion dollar industry, yet at the federal level we invest less than one percent of that total in research and development. By contrast, the biomedical and information technology industries reinvest well over 10% of revenues on new innovations to ad-vance and expand those fields.

Our inattention to energy science and policy is at odds with its importance to the global economy and environment, and makes the U. S. needlessly vulnerable to financial, political, and environmental crises. Even worse, it is a bad business and

specifically bad for American business.Wind energy is the world’s fastest growing energy source

on a percentage basis, at over 30%/year growth for the past five years. While the U. S. gets less than 1% of electricity from wind, parts of Europe meet over 25% of demand with wind, peaking during some months at over 50%. Is Europe the Saudi Arabia of wind? Hardly, Germany – with three times the wind electricity production of the U. S. -- has less of a wind resource than the state of North Dakota. Globally there was over $7 billion in wind energy investment in 2003 alone, and world-wide capacity is over 31,000 MW. The north German state of Schleswig-Holstein currently meets 25% of annual electricity demand wind power, and has met over 50% of demand for se-lected months. On a regional scale, the European community anticipates 10 – 20% of total electricity from wind by 2010. Not only have wind turbines undergone a technological revolu-tion in blade and motor design, but also in scale. Five years ago 750 kW turbines were considered large, but today 1.8 – 4 MW machines are standard in many of the largest new wind farms, with even larger machines (even 5 MW each) planned for many off-shore installations. Innovations have come at such a rate that repowering (replacing/upgrading) the machines on existing wind farms installed even within the last decade has become common, with the old machines sold to other, emerg-ing, markets.

The story for solar electricity – photovoltaics -- is the simi-lar. Globally, sales have been climbing at 25%/year for the past decade with global production of solar cells now surpassing 700 MW/year, the equivalent of a large power plant. A wealth of new technologies are now on the horizon, from thin-films that use a fraction the materials of current cells, to plastic and even organic cells that hold the potential to dramatically reduce costs per watt.

Biomass too has the potential to play a major role in a low-carbon and diverse energy economy. Liquid biofuels for transportation applications, solid and gasified fuels for power plants, and the integration of energy and agricultural crops are now all realistic near-term possibilities.

In the last few years we have witnessed a dramatic increase in vehicle efficiency, with hybrid cars a particularly high-profile example. Electronic devices and buildings, too, could become significantly more energy efficient through the adoption of standards based on current ‘best practices’ to say nothing of the opportunities for new sensor and control technologies to bring down the energy requirements of technologies across our economy.

To be sure, many of these innovations – both technological and in the management of energy markets – are taking place in the U. S. We are, however, seeing a global transformation in efforts to put new energy technologies into use, and to link research and development (the traditional ‘technology push’) with market opportunity (demand pull). The important issue is not that energy innovation is rapidly taking place around the globe, but that the a dynamic partnership of public and private research and development, and efforts to expand the markets for these new technologies could be a mainstay of a U. S. en-ergy policy that not only helps to meet our domestic energy needs, but becomes a major export industry and a vehicle for job creation as well.

* Daniel M. Kammen is Class of 1935 Distinguished Professor of Energy in the Energy and Resources Group, the Goldman School of Public Policy, and in the Department of Nuclear Engineering, as well as founding director of the Renewable and Appropriate Energy Laboratory (http://socrates.berkeley.edu/~rael), and Co-Director of the Berkeley Institute of the Environment (http://bie.berkeley.edu) at the University of California, Berkeley. This is an edited version of his talke at the 25th Annual IAEE/USAEE North American Meeting, September 18-21.

Dialogue 8 9 Dialogue

Implementing an Innovative Energy Agenda

Our energy economy must be diversified to encourage competition and provide insurance against real or created supply scarcity. An excellent mechanism already exists in the Renewable Energy Portfolio Standard (RPS), where states set a minimum requirement for clean energy production within any given market. Already 16 states have adopted varying forms of this policy (see Figure 1). Providing market access for solar, wind, biomass and environmentally-friendly hydropower and tidal technologies not only reduces the environmental burden of energy production, but it also gives investors confidence that the energy industry is generating options and opportunities, and is worthy of investment. Investment breeds innovation, and with overseas markets for renewable energy technologies booming, expanding our domestic use of renewables would transform the U. S. into a leader of a rapidly expanding market. In a recent study, my laboratory found that the job creation potential of an expanded renewable energy sector is significant, both in terns of total employment growth, and in the shift to domestically-based jobs that would result.

The important innovations taking place at the state level would be made far more efficient with federal support. The U. S. is primed for such an expansion in the use of renewable energy, with excellent and diverse renewable energy resources across the nation. A federal commitment would likely see the biomass and wind industries growing rapidly in the east, bio-mass and some wind in the south, biomass and wind in the Mid-west and northern states, and a mixture of wind and biomass in the west and southwest. Current and emerging solar energy technologies have applications across the country in the form of solar arrays, building integrated solar photovoltaic materials, and solar thermal systems. A range of different studies now indicates that, for example, a 20% Federal RPS would save the country billions relative to our current ‘business as usual’ path of overseas oil and gas dependence.

Market barriers to new renewable energy technologies se-verely limit their ability to expand market share even when they are economically competitive on a technology-to-technology comparison. If a given energy technology has a 1% or smaller market share, its economics are dominated by a niche applica-tion, or by a specific regulatory provision. By contrast, roughly a 10% market share is one that is, for many technologies, one of economic competitiveness. The threshold to move from niche to viability is thus likely somewhere in this range. An RPS – particularly one that encourages a range of technologies, not simply those that are leas cost today -- provides one mechanism to move these promising but marginalized technologies to the point where they can compete in the marketplace. Milestones, too, such as buildings that are energy self-sufficient can ener-gize and involve other sectors of the economy.

Thus a set of challenging yet achievable goals would be of great value if they are used to raise the profile of sustain-able energy strategies, galvanize action among the research and commercialization communities, and make a compelling case that the public can support. A wide range of strategies exist, such as that of the Apollo Energy Alliance, which has as its goal a significant reduction in U. S. imports of fossil fuels.

This could be met by combining efforts to increase fleet vehicle efficiency, develop a large-scale, environmentally sustainable biofuel industry, and engage in regional planning to minimize the need for vehicle-miles traveled. The U. S. could make it a national priority to regain international leadership in the sales of clean energy systems. Specific goals could include develop-ing and deploying $1 - 2/watt solar cells, dramatically expand-ing the U. S. wind-turbine industry, and using nano-technology to increase the efficiency and durability of fuel cell membranes, as well as the targets and challenges for low-cost generation of H2 fuel (Lipman and Kammen, 2003).

Hydrogen is an important and now increasingly debated future energy carrier. On the one hand, it presents the opportu-nity to deploy vehicles without tailpipe emissions. At the same time, a major role for hydrogen in the economy, barring a break-through, is years to even decades away. To break this impasse, it is vital to maintain the diversity of hydrogen supply options. The goal, in fact should be to expand the range of promising supply options – from fossil fuels, biomass, low-cost electroly-sis, and through engineered bacteria. Recent proposals for a national hydrogen institute are unlikely to achieve this goal. Large, centralized, hydrogen efforts will likely ‘pick winners’, and focus research efforts in a few areas. This approach is un-likely to increase the range of supply options. Instead, hydro-gen research needs to be distributed between academic groups, national laboratories, and commercial research laboratories – in some cases through collaborations, and in some cases through productive competition. There is world-class expertise and in-novative potential within many university groups, within indus-try, and at Oak Ridge, Pacific-Northwest, Argonne, Sandia, Los Alamos, and the National Renewable Energy Laboratory. The diversity of approaches these groups represent would likely be lost if the hydrogen program becomes The energy research and development community could, in this case, learn an important lesson from the biotechnology industry, where competition and diversity increase dramatically the rate of innovation.

Many of the long-term strategies that would benefit the U. S. and the global population and environment are direct out-growths of the immediate and medium-term strategies. Over the next several decades we must reduce our disruption of global biogeochemical and hydrological cycles dramatically. Current anthropogenic carbon emissions exceed 6 x 109 tons (6 GT), with business as usual forecasts of 12 GT by 2050. At a start, we must halt this growth in emissions and then begin a path of reduction. A simple but useful framework is provided in a recent paper by Pacala and Socolow (2004) who provide a list of technologies that, if scaled up over 50 years, could each off-set 1 GT of carbon emissions. The large-scale deployment of solar, wind, biomass technologies, aggressive efforts to expand energy efficiency programs, carbon sequestration, and nuclear power are all options. The authors highlight a range of studies that find that each of these industries could be plausibly evolved from their current size to sufficient scale to provide true climate protection over the 50-year timescale most experts agree we need to utilize effectively to protect the global environment. However, as with any long-term strategy, it is easy to delay, and inevitably more costly than to begin the process. This, in effect is a restatement of the call for diversity in our energy portfolio.

Dialogue 10

Open Challenges

A significant challenge to efforts to develop a clean energy sector is to make this process profitable to the utilities. In many respects the greatest hurdle that must be addressed to take ad-vantage of the opportunities for highly efficient combined heat and power systems, local building-integrated renewable energy (for example, solar), and to focus greater attention on the value of efficiency is the role of utilities. In most areas the present utilities see few attractive revenue opportunities through en-couraging greater efficiency, and in particular distributed gen-eration appears as a simple loss of revenue. The opportunities for utilities to both encourage and to profit from clean, local, power production is one area critically in need of attention.

Lurking in this equation is the operation and evolution of the grid and the rules under which power transmission and distribution are managed. Analysis of the bottlenecks in the California and west-cost grid, and a review of the causes of the northeast blackout of 2003 both point to the need for a massive investment in our transmission and distribution system. Some estimates place the cost of renovating the system at over $100 billion. However, as with all investments, this presents as much of an opportunity as a cost. In this case, we have the chance to make the grid compatible with local power management and sales, net-metering programs, new methods to increase regional reliability. It is vital that these new technological and policy options become the mainstay of our new grid system so that power purchases and sales can expand the diversity of our energy supply and management options.

Distributed generation systems have great promise for tailoring the amount of power generated to local demands. To accomplish this, a significant program of research is needed on smart-grid technologies to permit monitoring and flexible re-routing of small amounts of power surplus and demand. Build-ing integrated power production could become the norm – with many buildings self-sufficient in energy supply from clean sources – but will require a new generation of grid hardware to make this practical. At the same time, new financial tools are required to make the support of DG attractive to utilities. A step in the right direction is the new U. S. Department of En-ergy Combined Heat and Power research and outreach network, which combines research with outreach to businesses currently utilizing DG techniques, and those interested in moving in this direction.

As the conduit of electricity transmission and end-use man-agement, utilities could become the entities that manage power transactions between houses, businesses, and industry that buy and sell in a real-time, distributed market. Beyond that, utilities themselves could transform the power industry by becoming an agent of regional planning: entering into performance-based contracts for both electricity efficiency, and CHP transactions; and developing local energy storage capacity (pumped hydro, spinning reserves, flywheels, hydrogen/electricity stations) for which they would charge as a form of supply. To evolve the en-ergy markets so that utilities are rewarded for these innovations will require coordination between the Department of Energy, the Federal Energy Regulatory Commission, and a range of state and regional entities.

A significant weakness in our energy technology supply

chain is the fickle and intermittent nature of renewable energy research and development support (R&D). Many R&D pro-grams have exhibited roller-coaster funding cycles, at times doing more harm than good to the sustained development and deployment of specific technologies (Margolis and Kammen, 1999; Kammen and Nemet, 2005). At the same time, the R&D portfolios we have adopted for many renewable energy tech-nologies have been tremendously risk -- and hence potential benefit – averse. In particular, our R&D programs for solar and fuel cell systems have not been focused on short- or long-term goals that we were committed to achieve, but instead designed to spend available funds, which often had to be justified on un-realistically short timetables. Energy production and efficiency goals, and not specific programmatic or technological subsidies, need to guide the long-term direction of our R&D portfolio.

Finally, we need to implement and adhere to well-designed and enforced environmental regulations that drive innovation and create new business opportunities. Our history is replete with examples: from the phasing out CFCs to protect the ozone layer, to reduced health costs from improved air quality; to the market leadership seen in companies taking aggressive positions in developing and marketing hybrid vehicles. These cases demonstrated ways to redefine the outdated environment-versus-economy debate. New opportunities present themselves everyday. Fossil fuels, for example, are too valuable to use as wastefully as we frequently do today. Creating a market for global pollutants such as carbon dioxide that causes global warming would likely do the same and is a business opportuni-ty waiting for innovators. The recent study of the impacts of cli-mate change on California highlight the economic advantages of sending priced signals to turn impending environmental risks into economically efficient opportunities for industrial innova-tion. While carbon markets have been and will surely continue to be debated, the economic and technological value of carbon regulations is indisputable.

References & Further ReadingDuke, R. D., and Kammen, D. M. (1999) “The economics of

energy market transformation initiatives,” The Energy Journal, 20, 15 – 64.

Hayhoe, K. et al., (2004) “Emissions pathways, climate change, and impacts on California,” Proceedings of the National Academy of Sciences, 101, 12422 – 12427.

Kammen, D. M., Kapadia, K. and Fripp, M. (2004) Putting Renewables to Work: How Many Jobs Can the Clean Energy Industry Generate? Report of the Renewable and Appropriate Energy Laboratory (online at http://socrates.berkeley.edu/~rael).

Kammen, D. M. and Nemet, G. F. (2005) “Reversing the incredible shrinking energy R&D budget”, Issues in Science and Technology, Fall, 84 – 88.

Kammen, D. M. and Lipman, T. E. (2003) “Assessing the Future Hydrogen Economy”, Science, 302, 226.

Margolis, R. and Kammen, D. M. (1999) “Underinvestment: The energy technology and R&D policy challenge”, Science, 285, 690 - 692.

Pacala, S. and Socolow, R. “Stabilization wedges: Solving the climate problem for the next 50 years with current technologies” (2004) Science, 305, 968 – 972.

11 Dialogue

Global Oil Supply Dynamics: Perspectives on Microeconomics of Oil and the Role of Saudi Arabia in 2030

By Ferdinand E. Banks*

Everything that you need to know about the future of Saudi Arabian oil production can be found in a staff report to the sub-committee on international economic policy of the committee on foreign relations of the United States Senate (1979). Regardless of what you may or may not have heard on that increasingly relevant subject, between 1979 and now hardly anything has changed, although the question must still be asked why this and similar documents were – and still are – overlooked by many energy professionals.

The purpose of this article is to add few observations on the structure and dynamics of the global oil market to my earlier work on the subject. Geology and supply-demand mechanics are still of crucial importance, but more attention has been paid to what might be called ‘petroleum (= oil + gas) microeconomics’, as well as certain game-theoretical insinuations. Some very use-ful background to the present exposition is provided in an article by Murray Duffin (2004), which can be found with a number of other papers on oil (and gas) topics in the leading energy forum Energy Pulse (www.energypulse.net). There are also a large number of valuable comments on contributions to that platform.

Introduction

According to the journalist Max Rodenbeck (2004), the United States became a net importer of crude oil for the first time in 1976, and in 2000 imports accounted for more than half of the US consumption of this commodity. At the present time imports are about 11 million barrels per day (= 11 mb/d). These observations by Mr Rodenbeck – who ‘covers’ the Middle East for the Economist – have enough validity to be useful to many of the readers of that publication, even if most of his other com-ments principally serve as a reminder that the present state of knowledge about the most important raw material in the world is far from what it should and could be.

It must be stated that both Banks (2000) and Banks (1980) failed to give adequate recognition to the crucial role that Saudi Arabia has played on the world oil scene and, more important, is expected to occupy in the future. But now is the time to cor-rect this oversight, because in my opinion the plans of the Saudi Arabian government are very different from those attributed them by many journalists, as well as fly-by-night experts from academia. Moreover, these intentions have not changed over the past 30 years or so. Let me add that an attempt to make a comprehensive estimate of the present goals of the leadership of the most important oil producer on the face of the earth, as well as some knowledge of the intentions of other governments and firms toward that producer, may turn out to be the key to introducing some energy economics wisdom into the lives of certain influential observers who still expect that the oil future will resemble the oil past.

As alluded to in the sequel, the general feeling today is in the direction of pessimism where both oil production and invest-ment in new capacity are concerned. This makes a great deal of sense. There are still, however, a few observers of the flat-earth variety who do not share this attitude. In their world, physical investment is capable of finding oil that the geologists say is not there – or, to put this another way, they think that ‘market solu-tions’ and technological innovation can overwhelm the laws of physics. Steve Forbes, owner/editor of what might be the best business magazine in the world, apparently sees the interplay of supply and demand eventually reducing the price of oil to under $40/b, while Martin van Weyler – financial commentator of The Spectator (UK) – believes that technology will provide a hundred more years of oil. Actually it will provide thousands, however once global production has peaked it hardly makes any difference what the actual figure turns out to be.

The Petroleum Economist (October 2004) stated flatly that investment no longer keeps pace with high oil prices, which is a sure sign that in the executive suites of major oil companies, the general belief is that there are no longer investment opportuni-ties capable of matching those of the past. Regardless of the upbeat bulletins and rumours emerging from those venerable premises, this should always be kept in mind, because even in-vestment in OPEC countries (by local and/or foreign ‘players’) has slumped badly, and if this trend continues the production forecasts of the International Energy Agency (IEA) and US De-partment of Energy cannot possibly be fulfilled. One prominent consulting organization, PFC Energy, has stated that by 2020 at the latest, OPEC will not be able to make up the difference between non-OPEC supply and global demand. This is not a very welcome prophesy, and I am at a loss to explain why it is not more widely discussed.

A Few General Observations

Before attempting to put the supply of Saudi energy resourc-es into perspective, a few general remarks about oil are essential. The theory is now frequently advanced that high oil prices no longer threaten the stability of the global macro economy, but as far as I am concerned this is a serious misunderstanding.

Private consumption in the US is still at a record high. It has been raised to a much greater than normal extent by increas-es in the price of real estate (i.e. a wealth effect), as well as the continued availability of inexpensive credit. At the same time there is under consumption in most of the rest of the world, par-ticularly in Europe and China. According to the chief economist of (the investment bank) Morgan Stanley, Mr Stephen Roach, the deficit in the US balance of payments is now close to 7.5% of the gross national product, while at the same time the US ac-counts for 70% of the total global balance of payments deficits. (He could have added that a large fraction of the US current account deficit can be attributed to imports of energy, and in particular oil.) Roach regards this as unnatural, which it is, and he predicts a “crisis”. Moreover, he pictures that crisis reaching every part of the world because of the cross-border linkages created by globalization. As it happens though, regardless of the curse of globalization, these linkages have always existed for reasons shown in every book dealing in any way with inter-

* Nationalekonomiska Institutionen, Uppsala University; Dalbovägen 33D, Uppsala Sweden (75653)

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national economics.The exact circumstances that would initiate this crisis are

unclear, but I am convinced that it will be via a sharp (upward) interest rate adjustment, either directly because of a decrease in the saving of foreigners, or indirectly because of another sustained increase in the oil price boosting the macroeconomic price level. The wealth effect referred to above would then move in the opposite direction, and the impact effect of the re-sulting decrease in spending could have serious consequences for both physical and financial markets everywhere. Note the expression “impact effect”, because (ceteris paribus) eventu-ally a decrease in spending in the US will have to take place in order to obtain ‘equilibrium’.

The International Energy Agency (IEA) has postulated an increase in the world oil demand from the present 84.5 mb/d to 121 mb/d in 2030. Normally, I would express some curiosity as to the scientific background for that estimate; however I propose to use it to make another preliminary remark about the supply capabilities of Saudi Arabia. At the time when this 121 mb/d is supposed to be produced, OPEC is pictured as being respon-sible for about one-half (as compared to approximately 35% just now). This suggests an expected OPEC production of ap-proximately 60 mb/d. At the present time Saudi Arabia supplies almost a third of OPEC oil, and given their reserve situation relative to the other OPEC (and non-OPEC) countries, this frac-tion will hardly decrease. (Saudi Arabia apparently has proven reserves of about 260 billion barrels, while second place Iraq has 120 billion barrels.) Accordingly, it seems that IEA experts believe that Saudi Arabia will supply at least 20 mb/d in 2030.

One of the main purposes of my recent work is to convince readers that Saudi Arabia is not going to willingly supply 20 mb/d in 2030, or at any other time in the near or distant future, regardless of what you may hear on the grapevine. A high-rank-ing Saudi official has stated that 15 mb/d should be possible, and once this amount is attained he appeared certain that it could be maintained indefinitely. This kind of assurance un-doubtedly sounds lovely to the world’s motorists, but founda-tional economics informs that 15 mb/d is a goal that will not be easy to reach, while the game theory suggests that this kind of talk should be taken with a grain of salt. Furthermore, and more important, even if that production level was realizable, it would not be maintained for more than a comparatively short period – unless the Saudi government had come to the conclusion that less money was preferable to more.

What is easily acceptable, however, is that the government of that country will do everything possible to approximately dou-ble its share of the global petrochemical output from its present 7 percent share over the next five years. The reason for this is that from an economic point of view, a greatly increased petrochemi-cal (and refining) output in the near future is a more reasonable economic goal than attaining a crude oil production of more than 12 mb/d at any time. According to the Saudi government, foreigners are welcome to invest/participate in the production of petrochemicals and refined products in that country, but I suspect that the reason for this generosity is the desire to use the influ-ence of large energy companies to facilitate the access to foreign

markets of Saudi Arabia’s petrochemical and refined output. There is also some question as to what OPEC as a whole

will be able to achieve. A report from the consulting firm PFC Energy (as mentioned in the Petroleum Economist, October 2004) states that OPEC is producing about 8 billion barrels a year more than it has been finding. This situation has been pic-tured as changing if e.g. Libya and Iraq intensify their explora-tion activities. However, even under the best of conditions, it is impossible to believe that this will be of other than marginal significance for the IEA targets mentioned above.

Of late we have been hearing a great deal about oil from tar sands (in the Athabasca region of Canada), and the heavy oil of the Orinco region in Venezuela. As it happens, if a large expansion takes place in the output of these unconventional re-sources, then those observers who feel that the resources of the Middle East are overrated might be correct, because in those circumstances it is conceivable that the 9-10 mb/d output of Saudi Arabia could be matched or overmatched. As suggested by Crandall (2005) and Reynolds (2005), the total output of unconventional oil from these two regions will not reach any-where near 9-10 mb/d in the near or medium future, and by the time it does the global production of conventional oil might have turned down. Accordingly, we would still be faced with an oil price that is capable of devastating the international macro economy, as well as creating social/political chaos in the large importing countries. The CEO of one of the major oil compa-nies has sworn what almost amounts to a sacred oath that his enterprise is prepared to assume the responsibility for develop-ing the kind of technology needed to make unconventional oil economically attractive, but this sounds like the kind of pledge that is delivered late at night after the cognac has gone around the table a couple of times.

Microeconomics of Oil

This section will begin with an extremely important but simple numerical example dealing with the reserve-production (R/q) ratio of oil – or for that matter gas. (Reserves (R) are measured in e.g. barrels (b), while production (q) is measured in barrels per unit of time.) The assumption here will be that when this ratio reaches a ‘critical value’ (R/q)* – which will be taken as 10, since that was the number mentioned most often in the seminal article of Flower (1977) – then in order to optimize the value of the output from a particular deposit, the annual output from the deposit should ideally be kept from falling below 10% of the remaining recoverable reserves. Accordingly, from that point on (and as shown in a numerical example immediately below) this ratio will determine production: production must adjust in such a way as to hold the R/q ratio at (or around) the critical value. If this were not done, then it would be tantamount to ‘overworking’ the deposit, and as a result of accelerated (physical) depletion, reducing the amount of oil that can ultimately be obtained. The US government document referred to in the first paragraph of this article also takes notice of this concept.

Assume that we have a field with 225 units (= R) of accessible oil reserves, and we desire to lift 15 units/year (=q). It is obvious that we can have an output of 15 units / year every

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year for 5 years. During this time, the R/q ratio falls from 14 (at the end of the first year) to 10 (= (R/q)*) at the end of the fifth year, and reserves fall to 150 units. After that, however, if we continue to remove q = 15 units/year, we are violating our constraint: the R/q ratio will fall under the critical value (= (R/q)* = 10). For instance, if we removed 15 more units during the sixth year, or q6 = 15, then reserves fall to 135, and (R/q)6 declines to 135/15 = 9. To keep this ratio at 10, production in the 6th year cannot be larger than 13.64. (Thus R/q = (150 – 13.64)/13.64 ≈ 10) Continuing in the same vein, in the 7th year production cannot be larger than 12.4 units / year.

Readers should be able to get these results by simple trial and error, however this discussion may be generalized to show that 10 ≤ Rt/qt ≤ (Rt-1 – qt )/qt. This expression can then be solved to give qt ≤ Rt-1/11. (Be careful to note that in the present example, this ratio is measured at the end of the year.) In terms of the bizarre mathematical expositions that fill the scholarly economics literature on exhaustible resources, this expression does not appear to have much to offer, but in point of fact it is very useful! To begin, if the discussion is carefully examined, the reader will see that it involves construction of a production plateau and decline phase of an oil deposit. (An example showing a production profile with a growth phase and peak is easily constructed by assuming that initially, after beginning with e.g. an output of 15 units/year, q increases by a certain percentage every year. For instance, try 5% = (0.05) as the rate of increase, but to make the exercise more interesting begin with R = 450 units The only trouble with this exercise is that while there is a peak, there is no production plateau.)

Now for something that is extremely important! In the numerical example given above, production turned down after the fifth year. At that time we have (150/225) x 100% = 66.7% of the original reserves still in the ground. If we had calculated the ‘length of life’ of this oil field at the beginning of the exercise, we would have obtained 225/15 = 15 years, which would have presented a completely false impression of the availability of oil! Your favourite journalist or energy economist might tell you that the global R/q ratio of oil at the present time is approximately 41 years, but what we should understand in the light of the above discussion is that this number is almost completely inconsequential. It is made that way by the importance of the critical R/q ratio (= 10 in the above example), as well as Hubbert’s Peak: the tendency for the production of oil from a given reservoir to decline at approximately the time when the half-way point is reached. For instance, the global length of life of oil reserves is not the 41 years that is usually cited, but thousands of years – in fact it approaches infinity – but some experts associated with the Association for the Study of Peak Oil (ASPO) think that the global peak could come in ten years.

In 1962 Dr. M. King Hubbert reissued an updated version of a highly controversial report in which he had claimed that oil production in the ‘lower 48’ of the US would peak between 1966 and 1970 at a point where approximately half of the total amount of US reserves had been produced. (Total here means the sum of the amount of oil extracted plus proven reserves.)

The peak came very late in l970, and although the US still possessed a tremendous amount of reserves, output has been trending down ever since. Hubbert’s warning of potential oil shortages was in general ignored because of an ingrained – and to a considerable extent understandable – belief in the efficacy of the price system: higher oil prices should theoretically speed up the introduction of a superior oil recovery technology, and at the same time increase exploration and the amount and intensity of drilling. All of this is true, but as previously noted, technological progress cannot find oil that does not exist. (It can, admittedly, locate and play an important role in the production of ‘heavy’ oil, and oil from tar sands and shale; however, these non-conventional resources are in a higher cost class.)

Some observers insist that enough oil can eventually be squeezed out of existing deposits to compensate for the inability to discover major new deposits. My immediate reaction here is that since between 75 and 80 percent of today’s oil output come from fields that were discovered more than a quarter of a century ago, and since almost all of these fields are in full decline, this is another case in which upbeat expectations should be carefully examined and justified before our political leaders and their experts use them to make pivotal decisions.

The argument used above almost certainly has its origin in the well-known theorizing of Professor Morris Adelman, and what it begins with is a (correct) hypothesis that the amount of oil that can be removed from a typical deposit almost always exceeds the original estimates. Exploration only discloses pools of unknown magnitude (and likely profitability). It is when these pools are turned into producing properties that we can judge their various attributes, to include getting a good estimate of the reserves that are present. The US is often used as an example here, but unfortunately it is the wrong example. Regardless of the technological prodigies that are ostensibly being performed on or planned for deposits in that country, aggregate production will continue to decline.

This is not a particularly attractive prospect for a country like the US, where a shortage of oil is often pictured as a direct threat to national security and economic well-being, however there is not very much that can be done about it. The US oil sector is on the falling portion of its depletion curve, and a durable reversal of this situation is almost unthinkable – and by that I mean almost unthinkable if every square inch of onshore and offshore US territory, to included the Arctic National Wildlife Refuge (ANWR), were immediately thrown open to exploration and production, regardless of the environmental costs.

On one of the occasions that I lectured on the world oil market, I was brusquely reminded that the R/q ratio in the UK North Sea was closer to 5 than to 10. This does not, however, vitiate the above discussion. What it probably meant is that even in medium-deep water, production costs can be so high that, unless expected prices are high, maximizing (discounted) profits might entail consuming (i.e. destroying) some of the deposit (R) in order to speed up the recovery of the capital that was invested in the deposit so that it can be invested elsewhere. I can note here – and as indicated in the US government docu-ment referred to earlier – that if the critical R/q ratio is ignored

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where output is concerned, then when the decline in ‘q’ takes place it is steeper.

For those persons who have spent much time with the conventional academic economics literature on exhaustible resources, it needs to be emphasized that the key variable in oil production is pressure in the deposit. As a result it may be so that when, on the average, about half of a typical deposit is exhausted, the pressure has been reduced to a level where raising or maintaining production by additional investment is too expensive. If this is true, then Hubbert’s peak is as much an economic as a geological phenomenon. Several researchers have tried to extend Hubbert’s work so that it takes on a distinct economics makeup, but the opinion here is that they have not been successful, because they have not given adequate consid-eration to e.g. pressure.

The average ‘recovery factor’ for oil at the present time is about 35%, where this factor is defined as the ratio of the amount of oil (or gas) expected to be recovered, to the total amount of oil (or gas) ‘in place’. (Note: recoverable oil, and not oil in place, is oil reserves.) In some parts of the world the recovery factor is well under 35% – e.g. for some heavy oil, it may only be 5%, which is something well worth remembering; while it has been know to reach 80% for light oil (and gas). The important thing here is that given the movement of the recovery factor over the past two or three decades, there is no longer any reason to believe that it will take the dramatic lunge upward that is necessary to radically change the global reserve figure!

The production of conventional oil involves reservoir fluids flowing under pressure out of the reservoir rock into a production well (or borehole). Initial production tends to be constant for a period ranging from several days to several years. Then, as the pressure drops and the oil has to move fur-ther through the reservoir rocks to reach a given borehole, the output will tend to decline – ceteris paribus. One of the things that will reduce the pressure is a too rapid depletion. This can result in the deposit being damaged, which in turn makes the oil more difficult to extract (for the same effort), as well as de-creasing the recovery factor. Now we see why the R/q ratio is so important: by operating below the critical R/q ratio (taken as 10 in the above discussion), we reduce the ultimate flow of oil. Something else that should be recognized is that petroleum engineering is a serious profession, and most economists lack the background to understand the more elusive details of oil production. Thus, for economists, levels and changes in the R/q ratio might be capable of serving as a proxy for a great deal of important geological information.

As is well known, the production profile for a typical oil field – where a field is a group of reservoirs in the same general area – exhibits rising production, a plateau, and then falling production. Obtaining this profile calls for drilling a number of production wells. Initially the flow from new wells exceeds the depletion of those already drilled, and so we start out with a rising production pattern. Then, new drilling takes place at a pace that is designed to keep output more or less constant; and finally drilling slows because as the amount of oil remaining in the field declines, the cost of extra wells is high compared to the

additional amount of oil obtained. As an example we can consider the Khurays field in Saudi

Arabia, where expansion may already be under way. It is esti-mated that altogether 400 wells will be required over a period of 3 years in order to obtain a total of 1.2 Mb. What happens after those 3 years is uncertain; however, I presume that the field will be in full decline. It will also need 2 million barrels/day of wa-ter injection, facilities to process the water, and pipelines. The same sort of thing is true for other fields, and so a natural ques-tion might be ‘why bother?’ As suggested in the next section, the money involved in these investments might be better spent on increasing petrochemical and/or refining capacity.

Accordingly, any analytical model that aspires to a mean-ingful exposition of oil production must explain how reservoir pressure influences the interaction between current output, investment, and the (likely) dependence of recoverable oil on the time path of production. Furthermore, the latter item should cause careful observers to immediately think of the R/q ratio, because as already noted, by driving this ratio too low, the total amount of recoverable oil is reduced due to physical ‘deprecia-tion’ of the deposit.

If a reservoir is tapped by a well, and the pressure in the well-hole is considerably less than that in the reservoir, there can be a ’natural’ flow of oil to the surface, and into a pipeline. This category of production is termed natural drive, and it tends to prevail for a relatively long time in the richest oil fields. Eventually, this pressure will fall, and some category of arti-ficial lift must be introduced, and/or other wells drilled. Thus, what some observers think of as a pure ‘one shot’ investment problem leads unavoidably to a complicated intertemporal con-sideration of investment..

Finally, many reservoirs are rate sensitive, and a too rapid production of oil may reduce reservoir pressure, and cause a permanent loss of the resource. What is a “too rapid” produc-tion of oil? The simplest way to describe it is a production level which pushes the R/q ratio below what was earlier defined as the critical R/q ratio; but in addition it should be appreciated that if e.g. 10 Mb of oil are to be extracted over a 5 year period, an extraction program that lifts 2 Mb/y for 5 years could have a different effect on the ultimately recoverable amount of this resource than a program that removes 5 Mb the first year, and 1.25 Mb in each of the remaining four years.

Saudi Arabia and Oil Production in 2030

Just before I began to study energy economics, which was around the time of the first oil price ‘shock’, the Saudi Arabian oil economy was being programmed by its foreign ‘owners’ (which included Exxon, Texaco, Standard Oil of California, and Mobil) to produce 20 Mb/d of oil. Exactly how that figure was reached is conjectural. However, given the extremely low cost of producing oil in Saudi Arabia at the time, certain academic economists had no difficulty accepting that in the light of the existing and the expected price, 20 Mb/d was an appropriate profit maximizing quantity for the government of that country.

But despite the unsolicited scholarly expertise at his disposal, as pointed out in the staff report mentioned in the first paragraph, Crown Prince Fahd stated that “Saudi Arabia

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has worked and is working sincerely and earnestly to provide an appropriate level of oil and gas production as an expression of its feeling of shared responsibility in the international community, but our feelings of responsibility toward future generations in Saudi Arabia also claim careful consideration and the establishment of a calculated balance between the present and the future.”

This kind of thinking is not commensurate with an output of 20 Mb/d. The more oil used today, the less will be available tomorrow; and thus the monetary return from the present output should take into consideration the amount of profits and/or consumer satisfaction that might have to be sacrificed later. Put another way, the cost that we should be dealing with at each moment of time should include a scarcity rent or scarcity royalty that is related to the using up of a depletable (or exhaustible) resource. This is not an easy thing to calculate, although it might be suggested that the scarcity royalty on Saudi Arabian oil is considerably larger than that of the oil in Denmark, largely for macroeconomic reasons that cannot be gone into here.

In any event, the proposed production – and specifically the plateau rate – of 20 Mb/d mentioned above was soon scaled down to 16 Mb/d, and from there to 12, and subsequently to less than 10. At the same time it appears that investments were undertaken to provide for a surge capacity of about 10.5 Mb/d. (Surge capacity represents the output that can be provided for a short period of time – perhaps several weeks or longer – without damaging the reservoir.) A great deal is now being made of that capacity – which today might be as high as 12Mb/d – because theoretically it represents a particularly valuable piece of insurance for the oil consuming world.

In addition, Crown Prince Fahd informed the large oil importing countries that their best strategy was to moderate their consumption of oil, while introducing as rapidly as possible alternative sources of energy. Since he also emphasized the need to preserve his country’s petroleum wealth for future generations, it seems likely that, unlike certain prominent academics, he did not view the oil reserves of his country as inexhaustible.

Now let’s go back to the figure given above as the possible or desired production of Saudi Arabia in 2030 – i.e. 20 Mb/d. Amazingly enough, in the early l970s, the Arabian American Oil Company (Aramco) – which was jointly owned by the Saudi government (60%), and four American oil companies (Exxon, Texaco, Standard Oil of California, and Mobil) – intended to establish by the early l980s a maximum output potential of 20 mb/d.

Fortunately for all of us (i.e. both producers and consumers) this program was cancelled after the nationalizations that took place as a result of the l973 war in the Middle East. The main reason given by the new owners – the Saudi Arabian government – was that an output of 20 mb/d entailed mismanaging a national asset. Every person who is responsible for managing the economic future of themselves or their family should intuitively agree with this, even if they are oblivious of some of the technical details that play an important role in programming the flow from petroleum reservoirs. The crucial observation in this case is that an output of 20 mb/d could only

be maintained for a relatively short period of time without badly damaging reservoirs and reducing future output. In addition, after ramping production up to 20 Mb/d, the billions of dollars spent for fixed investment to produce and distribute that amount of oil could be lost due to the inevitable decline in output (and, once again, if this decline were delayed, then when it took place it would be steeper).

The Middle East has an enormous competitive advantage in Petrochemicals, and perhaps also in refining. Moreover, I have some difficulty understanding why half of the new capacity that is planned for the coming decade, is not already on line. According to the Financial Times (September 21, 2005), one of the problems facing Saudi Arabia is that it is not a member of the World Trade Organisation, which means that it is “fair game for protectionist measures”. Personally, I have a difficult time imagining any government initiating protectionist measures against the global oil superpower, particularly since that superpower is ostensibly “looking at scenarios to bolster production to even 15 Mb/d” (Business Week, October 10, 2005). Preparing various lectures has interfered with my study of game theory, but what they are probably looking at are scenarios that would help them to convince the rest of the world that they can or will produce 15 Mb/d, and in addition produce this amount over a long period. The first ‘might’ happen, but the last is completely out of the question, and should be recognized as such. Le me add that if a country like South Korea could build a viable petrochemical export industry although it lacks domestic petrochemical feedstock, or inexpensive energy for running these facilities, then a country like Saudi Arabia has an indisputable edge over any and all competitors.

Final Observations

There is a theory making the rounds that a serious act of terrorism could play havoc with the supply of oil from Saudi Arabia. This is true, although simple arithmetic leads me to be-lieve that a really drastic act of terrorism in that country is un-likely, even if it is possible. Protecting the oil facilities of Saudi Arabia is definitely within the competence of the Saudi govern-ment, and besides, the escalation in oil prices has provided the government of that country with economic and social options that were unthinkable when the rest of the world were compar-ing the price of a barrel of oil with a barrel of coca-cola. References

Allen, R.G.D. (1960). Mathematical Economics. London: Macmillan.

Banks, Ferdinand. E. (2000). Energy Economics: A Modern Introduction. Boston, Dordrecht, and London: Kluwer Academic Press.

Duffin, Murray (2004). ‘The energy challenge 2004 – petroleum.’ EnergyPulse (www.energypulse.net).

Flower, A. (1978). ‘World oil production’. Scientific American. (March).

Hoyos, Carola. (2004). ‘Tough choices for oil companies in the quest to head off a global capacity crunch’. The Financial Times (September 22).

United States Government Printing Office (1979). ‘The Future of Saudi Arabian Oil Production’ (96th Congress, 1st Session).

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Focus on the Center for Energy, Marine Transporta-tion, and Public Policy at Columbia University, New York, NY

The Center for Energy, Marine Transportation and Public Policy is a focal point at Columbia University for the study of economic, environmental, political, technological and other factors that affect the global production, transportation and consumption of energy. Established in 2000 as a new research center at the University’s School of International and Public Affairs (SIPA), the Center builds upon SIPA’s strengths in area studies, international economics, public policy and quantitative techniques for analyzing policy and management. In addition, the Center draws on other resources at Columbia, including The Fu Foundation School of Engineering and Applied Science, the Columbia Earth Institute and the Business and Law Schools. The Center benefits from its location in New York City, one of the leading centers of international relations, business and media in the world.

Academic

The Center’s concentration in International Energy Man-agement and Policy provides students in SIPA’s master’s degree programs with a thorough understanding of energy industry fundamentals, including the structure and operation of interna-tional energy systems and the business organizations, markets, and governance structures involved in producing, transporting, and marketing energy products. It examines economic, envi-ronmental, and social policies applicable to energy production, transportation and consumption; political and strategic issues arising from the unequal distribution of global energy resourc-es; and the impact of technological change on the future role of energy in the global economy. Electives are available to permit students to pursue detailed study in energy project development and finance, urban energy systems and policy, electricity mar-kets, petroleum markets and trading, the geopolitics of energy, alternative energy resources and marine energy transportation technology and policy.

Outreach

The Center sponsors conferences, roundtable discussions, lectures and other programs on a wide range of energy and marine transportation topics. These programs foster an ongo-ing dialogue among the public and private sectors, NGOs and public interest groups, and draw on the expertise of faculty and research scholars at Columbia University and energy sector professionals from around the world.

Themes include:• the geopolitical forces involved in the shaping of energy

policy;• the efficacy of policies and practices adopted by different

countries and major municipalities to manage the produc-tion, transport and/or consumption of energy;

• the interplay between energy policy and the environment;• approaches that international and national energy compa-

nies can take to contribute to the economic and social de-velopment of the countries in which they operate, maintain

economic viability, and serve as good corporate citizens; and

• the impact of different fiscal, legal and regulatory policies, including international agreements, on the global energy and marine transportation industries.

Training

The Center provides mid-career and other training pro-grams for executives, managers and professionals in both the public and private sectors. These programs are designed to enhance participants’ ability to deal effectively with complex business, economic and political issues in the energy and ma-rine transportation industries.

• Regional Briefing Programs, corresponding to the areas of focus of SIPA’s regional institutes, are intended to provide participants with a thorough understanding of key regions of the world (such as the Middle East) as an aid to doing business there.

• IEMP-Based Programs correspond to areas of academic focus in the concentration in International Energy Man-agement and Policy.

Research

The Center sponsors research on current energy and ma-rine transportation issues and collaborate on research initiatives with other centers, institutes, programs and schools within Columbia University and at other institutions. Briefing papers published by the Center provide background and analysis of a variety of energy topics.

The Center provides opportunities for students to undertake research projects under the guidance of the Center’s faculty.

• Workshops in International Energy Management and Policy are a required component of the IEMP curriculum in which students perform research as part of consulting engagements for real-world clients.

• Student Energy Research Fellowships involve highly tal-ented students in a semester-long program of research and writing on topics of current interest.The Center for Energy, Marine Transportation and Pub-

lic Policy provides a forum for scholars, practitioners and policymakers to discuss critical energy issues in an informal environment that is conducive to an open exchange of ideas. Comprehensive information can be found at the Center’s web site: www.cemtpp.org

17 Dialogue

25th Annual North American Conference Plenary Session Report: National Energy Policy for the 21ST CenturyBy Shirley Neff, USAEE 2005 President Elect, adjunct lec-turer and Research Scholar, Colombia University

The panel was made up of old policy hands who have been involved in national energy policy for well over 60 years. Shir-ley Neff, Center for Energy, Marine Transportation and Public Policy at Columbia University and formerly with the US Senate Energy Committee, Sue Tierney, Analysis Group and Commis-sioner, National Commission on Energy Policy, and Joe Dukert, Energy Consultant and VP-USAEE were the participants.

Shirley Neff, who is also President-elect of the USAEE, highlighted the critical elements of the recently passed energy legislation, the Energy Policy Act of 2005. In her view, the most important reason, and the most enduring aspects, of the legislation concern electricity, from the creation of a mandatory electric reliability organization to the repeal of the Public Util-ity Holding Company Act (PUHCA). She noted that the Senate had repeatedly passed a federal renewable portfolio standard (RPS) which did not make it into the final legislation as a result of objections from the House and the Administration, in spite of the fact the President had signed into law one of the most well regarded RPS programs in Texas. Neff cautioned that the renewable fuels standard (RFS) requiring refiners, marketers and importers to use an increasing amount of ethanol in the coming years could pose some problems for refiners as they sort out the transition from MTBE at the same time the new lower sulfur fuel specifications go into effect for next summer’s driving season.

Sue Tierney largely agreed with Neff on the importance of the legislation and what was left out, also focused on the research and development programs to promote new technolo-gies to diversify the power sector and reduce greenhouse gas emissions. She described the greenhouse gas credit trading proposal of the National Commission on Energy Policy which was broadly debated in the Senate until fierce opposition from the House and Administration caused it to be dropped in favor of a “Sense of the Senate” resolution calling for a serious green-house gas strategy to be implemented by the next Congress. While no policy directive on climate change mitigation was included in the final law, she noted that the attention had moved the debate to such an extent that key members of Congress have stated a clear intent to force the issue.

Joe Dukert, a respected expert on North American energy policy, described a significant shift in continental energy policy relations under the “Security and Prosperity Partnership of North America”. He said that an agreement announced on March 23 at the “Waco Summit” of North America’s three top leaders (Canadian Prime Minister Paul Martin, U.S. President George W. Bush, and Mexican President Vicente Fox) has led to higher level involvement of the energy ministries of the three countries. Ongoing dialogue, sharing of information and expertise coupled with efforts at serious coordination is at an all time high. He said all indications are of support and con-tinued interest at the highest levels of the three governments,

a dramatic change since Mexico insisted that under the North American Free Trade Agreement (NAFTA) petroleum issues were off the table.

25th Annual North American Conference: Joe Dukert’s Comments on the NREL Tour

The National Renewable Energy Laboratory (NREL) Tour was excellent . . . well worth staying over the extra night. There were only a few drops of rain . . . and, oddly, brisk wind gusts just as we arrived at the wind generator test area (even though the average wind speed there is too low to make it a successful commercial site). The opening briefing for the lab’s overall work was concise but comprehensive. Our timing was fortunate in that we got to see dynamic tests on a huge wind-turbine blade; but even if we had not I would have learned some things from the static walkbys. I especially enjoyed the running Q&A as we toured pilot plants for production of photovolta-ics and cellulosic ethanol. Our hosts were wise to break the group in two as we visited certain cramped areas, and every one of our multiple guides was knowledgeable and helpful in all respects. I think we got full and forthright answers to all our questions, whether on economics or technology. I even enjoyed the brown-bag lunch. Kudos to NREL!

ANNOUNCEMENT8th Annual USAEE/IAEE/ASSA Meeting

Boston, Mass., USA January 6 - 8, 2006Current Issues in Energy Economics and

Energy Modeling Presiding: Fred Joutz, George Washington UniversityDates: Saturday, January 7 – Hilton/Copley Hotel – 2:30 Speakers:

Youngho Chang, National University of Singapore – Modeling Pricing Behavior with Vesting Contracts in a Deregulated Electricity Market

Young Yoo and Bill Meroney, Federal Energy Regulatory Com-mission – A Regression Model of Gas/Electricity Price Relationship and Its Application for Detecting Potentially Anomalous Electricity Prices

Margaret Taylor and Greg Nemet, University of California, Berkeley –The Interaction Between Policy and Innovation In Renew-able Energy Technologies

Graham A. Davis, Colorado School of Mines – The Resource Curse: Assessing the Empirical Evidence

Discussants: Silvia Pariente David - PA Consulting Group Warren Young – Bar Ilan University Ian Sue Wing – Boston University Thorvaldur Gylfason – University of Iceland and CEPRAbstracts are posted at http://www.iaee.org/documents/2005/

assa-abstracts.pdf The meeting is part of the Allied Social Science Association

meetings (ASSA) For program information and pre-registration forms on the larger meeting (usually available in September) go to http://www.vanderbilt.edu/AEA/anmt.htm

Dialogue 18

25th USAEE Annual North American Conference: Dual Plenary Session on Various Non-Conventional EnergiesKristi Darby Reporting*

The 25th USAEE/IAEE North American Conference’s dual plenary session titled “Non-Conventional Energies: Probable to Proven” was held on Tuesday, September 20 at the Omni Interlocken Resort outside Denver, Colorado. Participants in-cluded presider John Edwards, Geology Professor at University of Colorado Boulder; Philip Herald Stark, Vice President of Industry Relations at HIS Energy Group; and Robert Alfred Lamarre, President of Lamarre Geological Enterprises, LLC.

Edwards’ presentation focused on the potential of uncon-ventional oil production from Canadian tar sands using steam-assisted gravity drainage, U.S. oil shales in the Green River formation, and Venezuela’s Orinoco tar belt. A student of the geologist King Hubbert, known for his peak oil predictions, Ed-wards derived his own bell curve to predict when the world’s oil will peak. He gave the year 2010 as world oil peak, but using different modeling scenarios he has also produced alternative world oil peaks of 2020, 2030, and 2040.

In his presentation “Transforming Gas Resources to Sup-plies,” Stark discussed how the changing dynamics of the gas industry in the 1990s, such as higher prices, demand, and a shift from oil to gas emphasis, have transformed gas in general into a conventional resource. Non-conventional sources of gas include coal-bed methane, tights sands, shale gas, and gas hydrates; given the unknowns associated with these, remaining recoverable reserves in conventional gas resources are higher. Stark emphasized the significance of stranded gas becoming marketable through LNG, even as U.S. gas production declines continue to increase (to 2.5 TCF base decline in 2002). Stark also warned of the potential for overcapacity in terms of LNG facilities after 2007.

Lamarre’s presentation highlighted coal-bed methane (CBM) as offering the greatest potential resource when com-pared to tight gas and conventional gas. Lamarre defined CMB as naturally-occurring methane gas generated by pressure and time within underground coal beds. CBM makes up 10% of the U.S. natural gas production (conventional gas production, which is decreasing, accounts for 74%) and proved reserves are 18.7 TCF.

EIA Administrator Gives Keynote Luncheon Ad-dress at the 2005 USAEE/IAEE North Ameri-can ConferenceKristi Darby Reporting*

Guy Caruso, Administrator for the Energy Information Ad-ministration, spoke on “The EIA’s Role in Energy Economics” at the 25th USAEE/IAEE North American Conference luncheon on Monday, September 19. Created in 1977, the EIA is tasked with the role of delivering reports and analyses to legislators and the current administration, while also maintaining energy data quality and objectivity in a budget-constrained environ-

ment. Caruso stressed that EIA’s NEMS (National Energy Modeling System) requires constant updating in order for EIA to fulfill these responsibilities. EIA data is critical in influenc-ing energy-driven markets; this enhances the pressure on the EIA to produce data in an accurate and timely manner. Caruso provided statistics on EIA’s customers by country and sector, and also summarized world events which have affected the U.S. energy economy during his tenure at EIA.

In addition to covering EIA’s role, Caruso reported on the recent impacts to the U.S. energy economy from Hurricane Ka-trina. He summarized Katrina’s disruption to energy infrastruc-ture and markets in terms of lost oil and gas production, lost refining capacity, damaged pipelines and ports, and customers without electric power. Caruso highlighted natural gas storage as problem as the country approaches the winter heating sea-son. The current state of shut-in gas production in the Gulf of Mexico may inhibit reaching 3-3.1 TCF, the number generally needed to support the country through the heating season. Ca-ruso proposed possible solutions to achieving this goal, such as importing more LNG at the 5 U.S. receiving terminals, self-ra-tioning, and conservation. Due to Katrina’s impacts, the EIA is revising its winter outlook and forecasts, attempting to factor in the affect higher prices will have on demand. Caruso predicts high natural gas prices for the upcoming winter, in addition to a substantial increase to the end user in terms of heating oil and natural gas.

* Kristi Darby is Research Associate and Geologist, Louisiana State University, Center for Energy Studies

!!! Congratulations 2005 USAEE Award Winners !!!Awards committee chair Adam Sieminski and his commit-

tee members Kevin Forbes, Herman Franssen, Shirley Neff and Sam Van Vactor are pleased to announce the following 2005 USAEE Award winners:

USAEE Adelman-Frankel Award

Awarded to an organization or individual for unique and innovating contributions to the field of energy economics.

Energy Modeling Forum, Stanford University

USAEE Senior Fellow Award

Awarded to individuals who have exemplified distin-guished service in the field of energy economics and/or the USAEE.

Leonard Coburn Coburn Int’l Energy Consultants LLCArlon Tussing University of AlaskaRobert Ebel Center for Strategic & International Studies

The above award recipients received their awards and rec-ognition at the 25th Annual North American Conference of the USAEE/IAEE, September 18-21, in Denver, CO.

19 Dialogue

The 25th USAEE North American Conference: Kim F. Coffman Reporting*

One of the themes at the September 2005 USAEE North America Conference in Denver was energy policy. That topic was timely, given the enactment of the Energy Policy Act of 2005 and the energy supply disruptions caused by Hurricane Katrina the previous month. It was too early for any of the sessions to include analyses of the effects of hurricane damage to energy infrastructure but not too early for luncheon speaker Michael Lynch to bemoan the specter of a major U.S. city cov-ered with slime and the nightly news coverage of politicians pointing the finger of blame at each other. He then promptly expressed his condolences to fellow speaker John Felmy for having to live in that city, Washington, DC.

With oil prices well above US$60 per barrel, even before Katrina, two obvious questions about energy policy—at least in the United States—were whether the Energy Policy Act of 2005 would reduce dependence on oil and whether any reduction in demand would be achieved in part by shifting toward greater use of renewable energy sources. It’s been clear for a long time that there is no one action that the U.S. Government could take to reduce the nation’s dependence on oil, and particularly on imported oil, whether on the demand side or on the supply side. In the plenary session, “National Energy Policy for the 21st Century,” the panelists seemed to agree that the EPA of 2005 made small strides on both sides of the equation but—on the whole—would not dramatically change the nation’s energy production and consumption patterns. Susan Tierney compared the provisions of the energy bill with the recommendations of the independent National Commission on Energy Policy. Shir-ley Neff and Joseph Dukert pointed out that we should not have expected this bill, or any other single document, to be part of a grand, national energy policy. There are far too many juris-dictions involved. While the U.S. Congress is responsible for providing funding, most of the provisions depend on various regulatory bodies and state and local governments for imple-mentation, and some of them may face legal challenges to their actions by utilities or other affected parties.

The highlight of the luncheon session, “Energy Policy Gone Awry,” (my apologies to the non-celluloid speakers) was a 1977 Fred Flintstone film that Robert Ebel dug out of the Cen-ter for Strategic & International Studies archives. Although its statistics were a bit dated, the film, created during a period of wrenching change and narrated by Charleton Heston, provided a good basic education in the fundamentals of energy produc-tion and consumption. Just as we need to find alternative ener-gy sources today, we saw a stone-age entrepreneur discover that those “black rocks” Fred kept chipping away at could be burned in place of the biomass (trees) that Fred and his neighbors were using at an unsustainable rate. John Felmy recalled his experi-ence from the 1970s, when returning from a college debate at

Harvard on the topic of whether the Government should control energy supply, the bus carrying him and his fellow debaters ran out of gas because Government regulators had not allocated enough gasoline to that part of the country. Unfortunately, he noted, many members of the media who present energy-related news and analysis to the public are too young to remember what actually happens when the government does control prices, and then allocates supply when shortages result.

While not always explicit, this energy policy theme extend-ed through most, if not all, other sessions. On Tuesday morn-ing, Amory Lovins presented a vision of a future not dependent on petroleum; a goal he stated was achievable and economi-cally profitable for industry with existing technology. James Sweeney disagreed that this was realistic today but presented statistics indicating that a major shift to reliance on renewable fuels could be achieved with improvements to existing technol-ogy, even without huge technological breakthroughs. David Freeman also disagreed that current technology was sufficient and stressed the need to focus now on advancing technology for wind, sun, and other forms of alternative energy, because even a concerted effort would take 10-15 years to get us where we need to be. This can be left to neither the private sector nor to the environmental groups, and we can’t afford to wait on advances in fuel cell technology. In the concurrent session “Economics of Renewable Energy Systems,” Hermann-Josef Wagner, Michael Canes, Colin Cockroft, and Toshihiko Nakata considered costs, feasibility, and sustainability of natural gas, solar, wind, waste-to-fuel, hydrogen, and wind-to-hydrogen energy systems. In the final plenary session, Daniel Kammen and Rich Halvey pointed to progress being made by states in promoting development of clean and renewable fuels; Michael Moore discussed obstacles to, and opportunities for, further development of alternative energy sources in Canada; and Her-mann-Josef Wagner discussed the integration of offshore wind energy in Europe, particularly in Germany.

For those who stuck around, the conference “ended” with an informative guided tour of the National Renewable Energy Laboratory (NREL). Participants received briefings on the work at NREL and advances in technology, visited the wind turbine testing facility, toured a biomass testing laboratory, and viewed exhibits in a new building designed to use passive solar lighting, among other activities provided along the way.

I discovered at my first USAEE North American Confer-ence in Boston many years ago that one of the benefits of at-tending these meetings are the opportunities to meet and talk with other people in the energy field from around the world. In addition to the lunches, dinners, breaks, and receptions on the conference program, the shuttle ride to the airport provided one such opportunity for me. I sat across from Sergio Galina of the Mexican Petroleum Institute, whom many of you may remem-ber from the conference in Mexico City. I had heard numerous presentations focused on the U.S. and a few on Canada, but I was not able to attend the conference in Mexico City, so this conversation about Mexico and the United States was a wel-come way for me to wrap up the North American Conference.

* Kim Coffman is an economist with the U.S. Minerals Manage-ment Service, where he will soon take on additional responsi-bilities as a result of the enactment of the Energy Policy Act of 2005.

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25th North American Conference Dual Plenary Ses-sion on Decoding the Future: An Overview of Shell’s New Global ScenariosBy Andrew Slaughter, Presiding*

In a well-attended plenary session on Tuesday September 20th, Shell presented its new global scenarios, describing potential paths for the global business environment over the next 20 years and the implications for the energy business. Wim Thomas ex-plained the basis for the scenarios and the major themes, followed up by Andrew Slaughter who spoke about the North American business and energy context with respect to the new scenarios.

Shell’s experience with scenario development as a major element of its business planning and strategy spans over thirty years. Its long-term scenarios explore potential future devel-opments of society, the business environment and the energy industry. Scenarios are not forecasts, projections or the descrip-tion of deterministic cause and effect patterns. They are devel-oped more as frameworks in which to challenge conventional wisdom, identify plausible alternative futures for the societal and business environment and bring critical uncertainties into the open. Shell uses these scenarios to think about the future and to test strategies, plans and projects across the full range of geographies and businesses in which Shell is active.

The new Shell Global Scenarios build on previous scenario rounds developed in the late 1990s, which saw no alternative to continuing progress in market liberalization, globalization and technology (trends summed up by Margaret Thatcher’s rally-ing call “There is No Alternative”). In the 1990s, these trends looked as if they would lead to a diminishing role for states and their governments in societal and market development. Howev-er, early in this decade shocks to the global system from threats to security (after 9/11 and other attacks) and to confidence in markets (after Enron and other corporate scandals) have led to a resurgence in the fundamental role of states as guarantors of security and market trust. The war on terrorism, the Iraq war, the Sarbanes Oxley Act, corporate prosecutions and the resur-gence of hydrocarbon nationalism in countries like Russia and Venezuela all bear witness to this new world.

The new Shell scenarios describe a world in which there are constant tensions between aspirations for economic efficiency, social cohesion and security. Since these three aspirations can-not all be completely satisfied concurrently, the world operates via trade-offs in which two of the aspirations become more dominant relative to the third. We have therefore described three possible worlds in which these tensions play out.

The first scenario, named Low Trust Globalization, is a world of “Carrots and Sticks” in which the aspiration for market efficiency remains strong but in which the state exerts a strong role in providing security, influencing choices, via regulation and other oversight instruments aiming to guarantee public and investor security. Institutional barriers and slower innovation result in economic growth, slightly below the his-torical average, with world energy demand growing at about

the same rate as has historically been the case. Energy markets in this scenario are focused on responding to policy objectives of achieving energy security, e.g. by proactively pursuing di-versity of supply, being of the same commodity or alternative fuels, and by supporting interconnection of infrastructure net-works, increasing regulation to accommodate cleaner fuels, like renewable energy, in the market and by demand policies.

The second scenario, named Open Doors, explores a world of “Incentives and Bridges” in which the drive for market ef-ficiency is in balance with civil society’s ongoing concerns to maintain or improve social cohesion, inclusiveness and access to equity. In this world states prefer to operate via incentives. Pragmatic regulatory harmonization, strong independent me-dia, voluntary best-practice codes and close links between investors and civil society support open markets, coopera-tion, high innovation and rapid economic development. Open markets combined with strong free trade growth facilitated by multilateral lowering of trade barriers allow world economic growth to follow a strong path, above the historical average, and consequently requiring a high energy demand growth path. Energy markets in this scenario evolve following free market principles, responding to consumer preference for cleaner fuels and equitable resolution of environmental externalities via the pricing mechanism. International natural gas trade expands most rapidly in this world allowing greater access to a cleaner fuel. Renewable energy and clean coal technologies also become more prominent in response to societal preference for environmental values, but need to be competitive as well. Take-up is consequently slower than in the other scenarios.

The third scenario, named Flags, describes a world of “Nations and Causes” in which the strong role of the state focuses more on social cohesion than on market efficiency. Here national preference is more prominent; regulation tends to be more fragmented and tailored purely to national concerns; trade is conducted on a bilateral basis; and latent tensions in international and inter-community relations are sustained. The more fragmented nature of international economic relations in this scenario leads to a low annual economic global growth rate, almost a percentage point below historical averages, and consequently a low rate of world energy demand growth. For energy markets, this could mean a reversion to national policies promoting domestic energy sources and securing imports by bilateral contracts; global environmental initiatives would lose impetus with the focus shifting back to local pollution issues, leading to fragmentation of approaches to mitigation; and com-petition for access to energy resources and markets could favor energy companies which are either state-controlled or which receive strong support from their home governments.

While there are common elements across all three scenari-os (such as the rise of China as a global economic powerhouse, the increase of cross-border litigation in all sectors and the perception of threats to the sustainability of the global environ-ment and economy), it is also striking that different regions of the world are not uniformly positioned with respect to the three scenarios. North America seems to be developing in the Low Trust Globalisation scenario as it continues to strive for balance between trade and security; the EU, at the level of the Euro-

* Senior Economics Advisor, Shell Exploration and production, Hous-ton TX.

Dialogue 20 21 Dialogue

USAEE Student Scholarship Fund: A Call for Support

USAEE is proud to continue its student scholarship fund. Funds are used to cover the cost of registration fees for students attending the annual conference of the USAEE/IAEE. Students must submit a written application and letter from their student advisor requesting that funds be granted. At the Denver Con-ference, forty-two students qualified to have their conference registration fees waived in an effort to share our conference experience, the field of energy economics and networking op-portunities with other students. Further, inviting student par-ticipation at our conferences is one of the best mechanisms for recruiting new members to the USAEE.

2005’s student scholarship fund has been generously provided by the support of the following organizations/individuals:

ConocoPhillips ExxonMobil CorporationIAEE Leonard CoburnJoseph Dukert Andre PlourdeJurgis Vilemas

Recognizing the need for interested and qualified gradu-ates, many funding organizations view the program as support-ing education as well as recruitment. The USAEE has started its campaign for scholarship funds for the 2006 North American meeting in Ann Arbor, MI, September 24-27. Contributions have ranged from $75 to $2500. If you would like to receive information on how your or your company can become a sup-porter of this program, please contact Dave Williams, USAEE Executive Director at (p) 216-464-2785, (f) 216-464-2768, or usaee@usaee.org

pean Commission rather than individual countries, constantly pushes Open Doors policies, reconciling economic growth and efficiency with social concerns; and some resource rich coun-tries, like the Middle East, Russia and Venezuela seem to be in a Flags world, dominated by national preference. The challenge for organizations operating across geographies is to understand that objectives, perceptions and aspirations may be different and to be able to adjust the dialogue accordingly.

The United States seems to be set on a Low Trust Globali-sation course for now, but could diverge to Open Doors with the successful resolution of global trade issues and a dimin-ishing security threat; conversely it could move into Flags if trade tensions and competitive protectionism escalate and if the global terrorism threat remains strong. The challenge for the US energy sector and for energy policy making will be to ensure se-curity of energy supply in growing global and domestic energy markets and to be responsive to the potential for growing public concern on carbon and climate issues. Volatile oil markets and tight North American natural gas markets could add additional tension to these policy choices.

The potential role of unconventional hydrocarbons, renew-able energy and greater openness to international natural gas trade were discussed in this context all of which have potential to con-tribute to a greater diversity and security of US energy supply.

In a lively Q&A session following the presentations, there was discussion of diverse topics including the process of devel-oping and using scenarios within Shell; the benefits to business of using the scenario approach; the positions of Canada and Mexico with respect to the scenarios; OPEC strategies; the role of nuclear power; and the future of economic growth.

More information on the current Shell scenarios is avail-able at www.shell.com/scenarios.

Conference Proceedings on CD Rom24th North American Conference

Washington, DC, USA, 8-10 July, 2004This CD-Rom publication includes articles on the following topics:

Natural Gas Industry Energy Data and Modeling Demand EstimationEconomics of Electric and Gas Utilities Economics of New Energy Technologies & ConservationInternational Energy Economics Energy and the EnvironmentEnergy Industry Finance Oil Industry: E&P, Transportation, Refining, etc.Regulation of Energy and Mineral Leasing Market Power in Deregulated Electricity MarketsThe Role of Solar Energy Sustainable EnergyClimate Policy Uncertainty Electricity Reliability in the StatesOPEC Production and Reserves Gas Supply Security in Europe

Single Volume $100.00 - members $150.00 - non-members

Payment must be made in U.S. dollars with checks drawn on U.S. banks. Complete the form below and mail together with your check to Order Department, USAEE, 28790 Chagrin Blvd., Suite 350 Cleveland, OH 44122, USA.Name __________________________________________________________________________________________Address ________________________________________________________________________________________City, State, Mail Code and Country __________________________________________________________________

Please send me ____ copies @ $100.00 each (member rate) $150.00 each (nonmember rate). Total enclosed $_________ Check must be in U.S. dollars and drawn on a U.S. bank, payable to IAEE.

Dialogue 22 23 Dialogue

25th Annual North American Conference Plenary Session Report: Dual Plenary on Electricity Market Restructuring By Fereidoon P. Sioshansi (Presiding)*

The dual plenary on electricity restructuring featured three prominent speakers sharing their considerable experience in different segments and aspects of electricity markets in North America.

The first speaker was Joe Desmond, Chairman of the Cali-fornia Energy Commission (CEC) and California Governor’s Chief Energy Advisor. Mr. Desmond broadly reviewed the sys-tem that California has inherited having gone through a major “crisis” in 2000-01 and outlined what efforts are underway to put it back together.

Desmond briefly described a 10-point plan endorsed by Governor Scwharzenegger to get California’s wobbly electric-ity grid on solid footing.

• Minimum 15-18% reserve margin for all suppliers by 2006;

• Competitive wholesale power procurement through a transparent process;

• Increased investments in transmission;• Rate relief through refunds from Federal Energy Regula-

tory Commission;• Increased in-state natural gas storage, production and

import capability (presumably through LNG terminals – although not specifically mentioned);

• 20% renewable energy mix by 2010 (as opposed to the original deadline of 2017);

• Additional energy conservation efforts;• Deployment of dynamic pricing and advanced interval

meters to all customers;• Allowing large customers to choose competitive suppliers; and• Additional investment in R&D.

Stressing the urgency of implementing these and other objectives, Desmond pointed out that supply-constrained Southern California alone would need roughly 1,000 MW of new generation to keep up with demand growth and retirements of old and inefficient units. But California’s problems extend beyond in-state generation. The state imports some 9,000 MW of power from neighboring regions on peak days, and the trans-mission network to deliver is sorely stressed at time.

Jay Zarnikau, President, of Frontier Associates based in Austin, TX discussed the significantly more successful experi-ence of the ERCOT Market and explored whether we can call it a success.

Texas market is generally regarded amongst the most robust in the US since introducing competition in 2002. Not surprising-ly, Texas has the highest rates of customer switching in the US.

Even in the difficult residential segment, where other states have had modest to limited success, Texas stands tall, with sig-nificantly higher switchover rates. This, however, may be in

Source: California Energy Commission, California Public Utilities Commission, California Independent System Operator

part attributed to the introduction of a price-to-beat (PTB) scheme, designed to make it easier for new suppliers to take customers away from the incumbent utilities. PTB, essentially a default service for customers who fail or decide not to switch suppliers, is due to expire in January 2007, or sooner if the in-cumbent loses 40% of its customers.

In contrast to California where a capacity crunch exasper-ated flaws in the market design leading to run away prices, Texas went on a building frenzy. Roughly $15 billion was invested to build 26 GW of new generation capacity, nearly all highly efficient combined-cycle gas turbines (CCGT) between 1998 and 2004.

With all these factors in their favor, consumer bills must have dropped precipitously. The indications are that many large, sophisticated consumers have fared well by pitting sup-pliers against each other – as they do in all markets where they are allowed to shop around.

But the picture is less clear when it comes to residential consumers. While those who have switched suppliers have fared better, customers who have remained with their incum-bent utilities have seen significantly higher prices.

The main culprit, of course, is the price of natural gas, which coincidentally has risen significantly since the market opened in January 2002. Since natural gas accounts for roughly half the generation in ERCOT, the impact on electricity prices has been noticeable. Clearly, this cannot be blamed on the new market structure. But that is not all. Under the prevailing rules, the gen-eration component of the PTB default price charged by incumbent utilities serving customers who have not switched is indexed to natural gas prices. This has tended to exaggerate the effect of rising gas prices reflected on PTB rates. Prices appear to have increased at greater rates in the areas of Texas that have offered retail choice than in other areas of the state.

According to Zarnikau it is too early to draw final conclusions. “We are still in a transition phase with regulated PTB rates in place, and customers learning how to exercise their choices. The recent rises in PTB rates are likely to encourage more customers to switch – which would be good for competitive suppliers. By the same to-

Keeping the lights on in California not easy:Southern California is projected to be capacity-short in

2005-09

* Fereidoon “Perry” Sioshansi is president of Menlo Energy Econom-ics

Dialogue 22 23 Dialogue

ken, if natural gas prices remain unchanged, that would change the dynamics of the market.”

The last speaker, Taff Tschamler of Kema based in Burl-ington, MA discussed the state US retail electricity markets and addressed where do we stand and where are we heading?

Long road to the marketSpectrum of different types of default service offered in selected US states where retail competition is allowed

Models of Default Service

Source: Taff Tschamler, Kema

Pointing out that the single most significant driver of cus-tomer participation in retail competition is the proper design and implementation of default service, he reviewed the spotty progress in retail competition programs offered in different parts of the US along a spectrum from negotiated rates to mar-ket-determined prices. Tschamler stressed that despite the obvi-ous disappointments, supply competition nevertheless accounts for some 70 GW of load, roughly 10% of US installed peak capacity. As of August 2005, 3.7 million accounts, roughly 15% of total, have switched suppliers. The growth continues, albeit at a lower pace.

By all accounts, the Texas market stands out as the most vibrant, accounting for a significant percentage of the load switched to competing suppliers among the states that allow re-tail choice. Had it not been for the dramatic failure of California market and the collapse of Enron, Tschamler believes we could have been in an entirely different position today.

Despite these setbacks, all is not lost. A number of firms are competing in both commercial and industrial (C&I) market as well as the mass residential market in states where customers can switch suppliers.

Are customers benefiting from switching suppliers? All indications are that they are – especially the large C&I custom-ers – but recent increases in the price of natural gas makes it difficult to say by how much. In Texas, for example, where the market opened in 2002 and where much of the action has been concentrated, it is difficult to say how much consumers have

benefited since it is hard to determine what the prices would have been had there been no competition. Another problem is that the states that have introduced competition have tended to be high cost states, and most remain more expensive than those who have maintained regulated rates. So it is difficult to compare just how much better off they are relative to where they would have been. Third, Tschamler points out that all US markets, except for above 1MW market in Texas, are subject to heavy handed price controls, hence it is not really meaningful to talk about the success of retail competition.

Going after contestable load

Top 5 suppliers in commercial/industrial and residential market in the US, peak load (MW) and number of customers served, respectively

Source: Taff Tschamler, Kema

Source: Jay Zarnikau

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Peak MW

Business Markets Top 5 Suppliers Served

Constellation NewEnergy 15,600 Reliant Energy 8,600 TXU Energy 5,700 Strategic Energy 3,500 Suez Energy Resources 3,200 Residential Markets Top 5 Suppliers CustomersTXU Energy 2,150,000Reliant Energy Retail 1,650,000Centrica North America 950,000Green Mountain Energy 600,000Energy Savings Income Fund 425,000

Dialogue 24

SECURING ENERGY IN INSECURE TIMESJune 7-10, 2006 Kongresshotel am Templiner See Potsdam/Berlin, Germany

29th IAEE International Conference

Conference Chair: Prof. Dr. Georg Erdmann, Berlin Univ of Technology (georg.erdmann@tu-berlin.de)Program Chair: Prof. Dr. Ulf Hansen, Rostock University (ulf.hansen@uni-rostock.de)

Sponsorship Chair: Dr. Andreas Auerbach, CEO Mitgas GmbH, Halle (andreas.auerbach@mitgas.de)

Conference Objectives and Aims

The management of energy industries has become subject to new insecurities and uncertainties: imbalance between energy supply and demand due to insufficient investment; regulation uncertainties, particularly with regard to grid access and greenhouse gas policy after Kyoto; strategic supply insecurity; market entry of renewables and distributed power generation; integration of power and gas; nuclear resurrection; new and efficient energy technologies and emerging markets for power; new challenges to corporate goernance; and geopolitical rifts and risks.

Plenary Sessions

Energy in an Insecure World Securing Oil and Gas supplies Kyoto and BeyondLong-term Contracts, Vertical Integration, and Competition in Electricity and Gas Markets

Sustainable Transportation Renewables’ Role in Securing Energy Long-term Technology and Policy Choices

**** CALL FOR PAPERS ****Abstract Submission Deadline: January 15, 2006

Concurrent sessions will be organized from accepted abstracts. Please submit abstracts of one to two pages in length, comprising (1) overview, (2) methods, (3) results, and (4) conclusions. Please attach a short CV. For a sample abstract please visit http://www.gee.de/2006-IAEE/sample-abstract.doc. Accepted abstracts will be published in the printed abstract volume. At least one author of an accepted paper must pay the registration fee and attend the conference.

Authors will be notified by February 17, 2006 of their paper status. Authors whose abstracts are accepted will have to submit their full-length papers (10 page limit suggested) by April 15, 2006 for publication in the CD-ROM conference proceedings. While multiple submissions by individual or groups of authors are welcome, the abstract selection process will seek to ensure as broad participation as possible: each speaker is to deliver in general only one presentation in the conference. If multiple submissions are accepted, then a different co-author will be required to pay the reduced registration fee and present the paper.

Abstracts should be prepared in MS Word (not PDF) and emailed to Prof. Dr. Georg Erdmann, TU Berlin (TA 8), Einsteinufer 25, D-10587 Berlin, Germany, Email georg.erdmann@tu-berlin.de. The lead author submitting the abstract must provide complete contact details: mailing address, phone, fax, e-mail etc.

IAEE Best Student Paper Award ($1,000 cash prize plus waiver of conference registration fees). If interested, please contact http://www.iaee.org/en/students/best_paper.aspx. Student Participants: Please inquire about scholarships for conference attendance at http://www.iaee.org/en/conferences.

25 Dialogue

Giselle AboudColorado School of Mines

Matthew AdkinsColorado School of Mines

Vineet AggarwalICF Consulting

Oscar Aguado TevarIFP/OU

Roberto AguileraColorado School of Mines

Ayed Al-QahtaniColorado School of Mines

Rezki AnindhitoColorado School of Mines

Yahya AnoutiUniversity of Texas at Austin

Douglas ArentNREL

Vikram BalasubramanianColorado School of Mines

Leah BartonShell

Holly BenderBooz Allen Hamilton

Frank BevcSiemens Power Generation

Adam BrandtEnergy & Resources Group

Jennifer BurtonAnadarko Petroleum Corporation

Cliff ChenUniversity of California

DeAnn CraigColorado School of Mines

Robert CraigCorning Inc

Lelia DagherColorado School of Mines

Ron DavisColorado Public Utilities Comm

Matthieu DelabyColorado School of Mines

Mari DeminskiUniversity of Denver College of Law

Diana DenisonRed Rocks Community College

Scott DimetroskyQuantec

Jennifer EllefsenNYSERDA

Mark EllisSempra Energy

Azuka EnenmoColorado School of Mines

Steve EngerPetrie Parkman & Co

Adriana FernandezFederal Reserve Bank

Julianna FessendenLos Alamos National Laboratory

Gerardo FrancoColorado School of Mines

Howard GellerSW Energy Efficiency Project

Michael GratzNewBio System Inc

Dianne GreenColorado Public Utilities Comm

Peter HartleyRice University

Amr IbrahimISO-NE

Dan JohnsonColorado School of Mines

Christopher JuniperNatural Capitalism Solutions Inc

Lanny KirkpatrickSiemens Power Generation

Ryan KurlinskiCarnegie Mellon University

Ichiro MaedaTokyo Electric Power Company

Aubin Merat

Christopher Milkie

Pedram MokrianStanford University

Raj MrigEUCI

Carol MulhollandAcademy for Educational Development

Doug Newell

Thomas O’DonnellUniversity of Michigan

Timothy OkonExxonMobil Exploration Company

Lindolfo PedrazaSAIC

Rami Ramadan

Peter ReineltSUNY Fredonia

Elodie RenaudColorado School of Mines

Jerome RollandFrench Embassy

Nichols SchovilleAnadarko Petroleum

George SeiboldSeibold Energy

David ShinBP America Inc

Pete StarkIHS Energy

Bill SteigelmannAspen Systems

Frank SternPA Consulting

Jonathan StoryFederal Reserve Bank

Toshiyuki Sueyoshi

New Mexico Tech

John TaberCornell University

Branko TerzicDeloitte Services LP

Prakash ThimmapuramArgonne National Laboratory

Sue TierneyAnalysis Group

Abigail TinkerColumbia University

Derek TrebilcockColorado School of Mines

Tom TuckerEnVise LLC

Brian TurnerUC Berkeley

Alibek UmbetaliyevUniversity of Oklahoma

Rocio UriaUniversity of California Davis

Dmitry Volkov

Steve WaasUBS Financial Services

Ned White

James WhiteheadBlack Stone Minerals Company

Dena WigginsSutherland Asbill & Brennan LLP

Abdellatif YacoutArgonne National Laboratory

Welcome !! The following individuals joined USAEE from 7/1/05 – 9/30/05

Dialogue 26

In today’s economy you need to keep up-to-date on energy policy and developments. To be ahead of the others, you need timely, relevant material on current energy thought and comment, on data, trends and key policy issues. You need a network of professional individuals that specialize in the field of energy economics so that you may have access to their valuable ideas, opinions and services. Membership in the IAEE does just this, keeps you abreast of current energy related issues and broadens your professional outlook.The IAEE currently meets the professional needs of over 3100 energy economists in many areas: private industry, non-profit and trade organizations, consulting, government and academe. Below is a listing of the publications and services the Association offers its membership.• Professional Journal: The Energy Journal is the Association’s distinguished quarterly publication published by the Energy Economics Education Foundation, the IAEE’s educational affiliate. The journal contains articles on a wide range of energy economic issues, as well as book reviews, notes and special notices to members. Topics regularly addressed include the following:

Alternative Transportation Fuels Hydrocarbons Issues Conservation of Energy International Energy Issues Electricity and Coal Markets for Crude Oil Energy & Economic Development Natural Gas Topics Energy Management Nuclear Power Issues Energy Policy Issues Renewable Energy Issues Environmental Issues & Concerns Forecasting Techniques

• Newsletter: The IAEE Newsletter, published four times a year, contains articles dealing with applied energy economics throughout the world. The Newsletter also contains announcements of coming events, such as conferences and workshops; gives detail of IAEE international affiliate activities; and provides special reports and information of international interest.• Directory: The Annual Membership Directory lists members around the world, their affiliation, areas of specialization, address and telephone/fax numbers. A most valuable networking resource.• Conferences: IAEE Conferences attract delegates who represent some of the most influential government, corporate and academic energy decision-making institutions. Conference programs address critical issues of vital concern and importance to governments and industry and provide a forum where policy issues can be presented, considered and discussed at both formal sessions and informal social functions. Major conferences held each year include the North American Conference and the International Conference. IAEE members attend a reduced rates.• Proceedings: IAEE Conferences generate valuable proceedings which are available to members at reduced rates.To join the IAEE and avail yourself of our outstanding publications and services please clip and complete the application below and send it with your check, payable to the IAEE, in U.S. dollars, drawn on a U.S. bank to: International Association for Energy Economics, 28790 Chagrin Blvd., Suite 350, Cleveland, OH 44122. Phone: 216-464-5365. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _____Yes, I wish to become a member of the International Association for Energy Economics. My check for $65.00 is enclosed to cover regular individual membership for twelve months from the end of the month in which my payment is received. I understand that I will receive all of the above publications and announcements to all IAEE sponsored meetings.

PLEASE TYPE or PRINT

Name: ___________________________________________________________________________________________Position: __________________________________________________________________________________________Organization: ______________________________________________________________________________________Address: __________________________________________________________________________________________Address: __________________________________________________________________________________________City/State/Zip/Country: ______________________________________________________________________________Email: ____________________________________________________________________________________________

Mail to: IAEE, 28790 Chagrin Blvd., Ste. 350, Cleveland, OH 44122 USA orJoin online at http://www.iaee.org/en/membership/

Join theBroaden Your Professional Horizons

Dia305

International Association for Energy Economics

27 Dialogue

ANNOUNCEMENT8th Annual USAEE/IAEE/ASSA Meeting

Boston, Mass., USA January 6 - 8, 2006Current Issues in Energy Economics and

Energy Modeling Presiding: Fred Joutz, George Washington UniversityDates: Saturday, January 7 – Hilton/Copley Hotel – 2:30 Speakers:

Youngho Chang, National University of Singapore – Modeling Pricing Behavior with Vesting Contracts in a Deregulated Electricity Market

Young Yoo and Bill Meroney, Federal Energy Regulatory Com-mission – A Regression Model of Gas/Electricity Price Relationship and Its Application for Detecting Potentially Anomalous Electricity Prices

Margaret Taylor and Greg Nemet, University of California, Berkeley –The Interaction Between Policy and Innovation In Renew-able Energy Technologies

Graham A. Davis, Colorado School of Mines – The Resource Curse: Assessing the Empirical Evidence

Discussants: Silvia Pariente David - PA Consulting Group Warren Young – Bar Ilan University Ian Sue Wing – Boston University Thorvaldur Gylfason – University of Iceland and CEPRAbstracts are posted at http://www.iaee.org/documents/2005/

assa-abstracts.pdf The meeting is part of the Allied Social Science Association

meetings (ASSA) For program information and pre-registration forms on the larger meeting (usually available in September) go to http://www.vanderbilt.edu/AEA/anmt.htm

Conference Proceedings on CD Rom23rd North American Conference

Mexico City, Mexico - - October 19-21, 2003The Proceedings on CD Rom from the 23rd Annual North American Conference of the USAEE/IAEE held in Mexico City, Mexico are now available from USAEE Headquarters. Entitled Integrating the Energy Markets in North America: Issues & Problems, Terms & Conditions, the price is $100.00 for members and $150.00 for nonmembers (includes postage). Payment must be made in U.S. dollars with checks drawn on U.S. banks. Please complete the form below and mail together with your check to: Order Department, USAEE Headquarters, 28790 Chagrin Blvd., Suite 350 Cleveland, OH 44122, USA.Name _______________________________________________________________________________________________ Address _____________________________________________________________________________________________City, State, Mail Code and Country _______________________________________________________________________

Please send me ____ copies @ $100.00 each (member rate) $150.00 each (nonmember rate). Total enclosed $_________ Check must be in U.S. dollars and drawn on a U.S. bank, payable to USAEE.

Do You Want to Start Your Own USAEE Chapter?

The requirements for starting a USAEE Chapter are straightforward – You must have a viable group of at least 20 individuals or 1/3 of the membership of the group, whichever is less, become members of the USAEE and have organized to the point of adopting a set of bylaws as well as have elected a group of officers. Sample bylaws can be requested and ob-tained by visiting http://www.usaee.org/chapters/start.asp or calling USAEE Headquarters at 216-464-2785. USAEE dues are $65.00 per person, per year for a subscription to The USAEE Dialogue, The Energy Journal and IAEE Newsletter. Student membership is $35.00. USAEE bills members directly for their membership in the Association. Chapter membership must be open to all individuals whose interest is in the field of energy economics. If you have any further questions regarding the establishment of a USAEE Chapter, please do not hesitate to contact USAEE Headquarters, phone: 216-464-2785; email: usaee@usaee.org A complete Chapter start-up kit can be mailed to you.

Dialogue DisclaimerUSAEE is a 501(c)(6) corporation and neither takes any position on any

political issue nor endorses any candidates, parties, or public policy proposals. USAEE officers, staff, and members may not represent that any policy position is supported by the USAEE nor claim to represent the USAEE in advocating any political objective. However, issues involving energy policy inherently involve questions of energy economics. Economic analysis of energy topics provides critical input to energy policy decisions. USAEE encourages its mem-bers to consider and explore the policy implications of their work as a means of maximizing the value of their work. USAEE is therefore pleased to offer its members a neutral and wholly non-partisan forum in its conferences and web-sites for its members to analyze such policy implications and to engage in dialogue about them, including advocacy by members of certain policies or positions, provided that such members do so with full respect of USAEE’s need to maintain its own strict political neutrality. Any policy endorsed or advocated in any USAEE conference, document, publication, or web-site posting should therefore be understood to be the position of its individual author or authors, and not that of the USAEE nor its members as a group. Authors are requested to include in an speech or writing advocating a policy position a statement that it represents the author’s own views and not necessarily those of the USAEE or any other members. Any member who willfully violates the USAEE’s political neutrality may be censured or removed from membership.

Dialogue 28

25th Annual North American Conference: Best Students Paper Award Recipients

In past years, USAEE has offered one cash prize for the winner of the USAEE Best Student paper at its annual North American Conference. However, the USAEE council expand-ed the scope, format and funding for this award for the Denver Conference for the first time in their drive to increase student participation.

Thus, a forum for four selected students to present their papers on energy economics and compete for four designated prizes at its 25th North American Conference in Denver, CO. The cash prizes combined with the waiver of conference reg-istration fees of $355 has a prize value ranging from approxi-mately $450 to over $1,000.

The winner of the 2005 Best Student Paper Competition, Xiaoyi Mu of Oklahoma University received a cash prize of $750. The first runner up of the competition, Olusegun Ola-dunjoye from the University of Guelph, Canada, received a cash prize of $500. Peck Yean Gan, Nagaoka University of Technology, Japan received a $250 cash prize as the second runner up, and the third runner up, Shoko Nakano, Hitotsubashi University, Japan, received a $100 cash prize.

In the picture below are from Left to Right, Olusegun, Xiaoyi, Profesor Iledare, chair of the Best Student Paper Com-mittee, Peck Gan, and Shoko during the award ceremony.

USAEE Dialogue United States Association for Energy Economics28790 Chagrin Boulevard, Suite 350Cleveland, OH 44122 USA

PRSRT STDU.S. POSTAGE

PAIDRichfield, OHPermit No. 82

Calendar6-8 December 2005, Asia Biofuels Conference

& Expo at TBA. Contact: Wendy Vincent, Global Events Manager, The Stratton Group, 100 S. Dakota Ave., Sioux Falls, SD, 57104, USA. Phone: (605) 338-6829. Fax: (605) 332-4880 Email: wendyv@thestratto

ngroup.com URL: www.asiabiofuels.com7-9 December 2005, Using Real Options to Value & Manage

Natural Resource Projects at Simon Fraser University Conference Center, Vancouver BC. Contact: Graham Davis, Associate Professor, Colorado School of Mines, 1600 Arapahoe, CSM Annex, Golden, CO, 80401, USA. Phone: 303-273-3321. Fax: 303-273-3314 Email: space@mines.edu URL: www.mines.edu/outreach/cont_ed/options.html

26-27 January 2006, NCSE’s 6th National Conference: Energy for a Sustainable and Secure Future at Ronald Reagan Building and International Trade Center, Washington, DC. Contact: Mary Shockley, National Council for Science and the Environment, 1707 H St, NW, Suite 200, Washington, DC, 20006, U.S.. Phone: 202-530-5810. Fax: 202-628-4311 Email: conference2006@ncseonline.org URL: www.ncseonline.org/ncseconference/2006conference

24-26 February 2006, 32nd Annual Conference of the Eastern Economic Association at Philadelphia, PA. Contact: Dr. Mary Lesser, Conference Coordinator, Eastern Economic Association, Iona College, 715 N Avenue, New Rochelle, NY, 10801, USA. Phone: 914-633-2088. Fax: 914-633-2549 URL: www.iona.edu/eea

24-27 September 2006, 26th USAEE/IAEE North American Conference at Ann Arbor, MI. Contact: Dave Williams, Executive Director, USAEE, 28790 Chagrin Blvd. Ste. 350, Cleveland, OH, 44122, USA. Phone: 216-464-2785. Fax: 216-464-2768. Email: usaee@usaee.org URL: www.usaee.org

PublicationsFrom Edison to Enron – The Business of Power and What it

Means for the Future of Electricity. Richard Munson (2005). 216 pages. Price: US$39.95. Contact: Greenwood Publishing Group, Customer Service, 88 Post Road West, P.O. Box 5007, Westport, CT 06881-5007. Phone: 203-226-3571 ext. 3441. Fa Below is a sample publication listing for the Newsletter - do not run this add only use it as a template

The Politics of the Global Oil Industry An Introduction. Toyin Falola and Ann Genova, Eds. (2005). 280 pages. Price: US$44.95/paper or US$49.95 E-Book. Contact: James Lingle, Publicity Manager, Greenwood Publishing Group, 88 Post Road West, Westport, CT 06881-5007 USA. Phone: 203-226-3571. Fax: 203-222-1502. Email: james.lingle@greenwood.com URL: www.praeger.com