A Numerical Analysis of Optimal Extraction and Trade of ......A Numerical Analysis of Optimal...
Transcript of A Numerical Analysis of Optimal Extraction and Trade of ......A Numerical Analysis of Optimal...
![Page 1: A Numerical Analysis of Optimal Extraction and Trade of ......A Numerical Analysis of Optimal Extraction and Trade of Oil Under Climate Policy. Fabio Sferra, Fondazione Eni Enrico](https://reader033.fdocuments.in/reader033/viewer/2022052021/6036653a1a2f570bb866dfa4/html5/thumbnails/1.jpg)
A Numerical Analysis of Optimal Extraction and Trade of Oil Under Climate PolicyFabio Sferra, Fondazione Eni Enrico Mattei
joint work with Emanuele Massetti
FEEM - IEFE Joint Seminar SeriesFEEMMilan, 12 November 2009
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PRESENTATIONTITLE1
1- Motivations and New Developments of the Model
Without a description of regional trade and investment of oil sector, regional stabilization cost might be biased
We introduce endogenous investments for oil extraction capacity
We can track how financial flows associated with the international trade of oil change when climate policy is introduced
Eight grades of oil are considered
Both importing and exporting regions are price takers
With these new features, in a climate policy regime oil-exporting countries bear costs twice as large if compared to previous estimates, while oil-importing regions have lower costs
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PRESENTATIONTITLE2
The Equations
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PRESENTATIONTITLE3
2- The Model: Supply and Demand
( ) ( )( ) ),(,,, ntNIPOILgtnOILPRODntOILg
+=∑ ( ) ( ) ( )n,tOILn,tOILn,tOIL NELEL +=
( ) ( )gntOILCAPgntOILPROD ,,,, ≤
(1)
Oil supply:
(2)
(3)
(4)
(5)
Oil demand:
( ) ( )( ) ( )gntADDOILCAPgntOILCAPgntOILCAP ,,1,,,,1 +−=+ δ
( ) ( )( )g,n,tCOST_OILCAP
g,n,tIg,n,tADDOILCAP OILCAP=
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PRESENTATIONTITLE4
2- The Model: The Oil Market, Oil and Non-Oil GDP
( )∑ ∀=n
tn,tNIPOIL 0
( ) )n,t(Y)n,t(Yn,tY OILNONOIL +=
( ) ( )( ) ( ) ( ) ( )[ ] ( )n,tXn,tMKUPtPn,tOIL
n,tn,tYn,tY
zzOILOILNONOIL
NONOIL ∑−+−Ω
=
Equilibrium in international market of oil:
(6)
Oil and Non‐Oil GDP:
(7)
(8)
(9)
(10)
( ) ( )( ) ( )tPgtnOILPRODntY OILg
OIL ∑= ,,,
( ) ( ) ( ) ( ) ( )( )∑
∑∑∑−
−−−=
k k
gg OILCAPj j
n,tW
COSTS_M&Og,n,tOILCAPg,n,tIn,tIn,tYn,tC
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PRESENTATIONTITLE5
2- The Model: The Oil Cost Function
( )
[ ]ψ
ψ
ψ
λαα
α
⎟⎟⎠
⎞⎜⎜⎝
⎛−++
⎪⎭
⎪⎬⎫
⎪⎩
⎪⎨⎧
+⎥⎥⎦
⎤
⎢⎢⎣
⎡−⎟⎟
⎠
⎞⎜⎜⎝
⎛
=
⎟⎠⎞⎜
⎝⎛
)g,n,t(RES_OIL)g,n,t(CUMOILPROD)g()g(
g,n,tCAP_ADDOIL)g,n(CAP_ESP
)g,n,t(CAP_ADDOIL)g(
)g,n,t(CAPCOST_OIL
1
11
• We model the cost of oil extraction capacity, for eight grades of oil• Two components:
•Short term component: avoids over-extraction in the short term•Long term component: costs increase as the resource is exhausted
Short term component
Short term component
(11)
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PRESENTATIONTITLE6
2- The Model: The Oil Cost Function
Oil Capacity Cost - USA
0
100
200
300
400
500
600
700
800
0.00
21.01
42.71
62.09
70.11
72.91
73.88
74.22
74.29
74.29
Cumulative production (Billion Barrels)
USD
per
Bar
rel o
f oil
capa
city
G1
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PRESENTATIONTITLE7
2- The Model: The Oil Extraction sector
The oil extraction sector:
( ) ( )∑ −
==
1
1
t
sg,n,tOILPRODg,n,tCUMOILPROD (12)
(13)
(14)
( ) ( ) ( )( ) ( ) 0 now1,,,,1 =+=+ ttgntOILRESgntOILRES gg μμ
( ) ( )gntOILRESgntCUMOILPROD ,,,, ≤
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PRESENTATIONTITLE8
Data
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PRESENTATIONTITLE9
3- Data: Cost of Extraction Capacity
Us $ 2005 per barrel of oil equivalent
Min Max
G1 - 18
G2 18 29
G3 29 38
G4 38 53
G5 53 57
G6 57 78
G7 78 93
G8 93 240
Us $ 2005 Cost of extraction capacity
(α)
G1 120
G2 190
G3 250
G4 350
G5 380
G6 520
G7 620
G8 1600
Source: Rogner 1997
Oil Cost: $ per barrel of installed capacity
G1= Proved Recoverable ReservesG2= Estimated Additional ReservesG3= Additional Speculative ResourcesG4= Enhanced Recovery
G5= Unconventional Recoverable ReservesG6= Unconventional ResourcesG7= Unconventional Additional OccurrencesG8= Unconventional Additional Occurrences
( )( )( )
( ) ( )δα
δαα
+=
+=
=
rbarrelper cost ,
1r,barrelper cost
capacity extraction ofcost ,
gn
gngn
Production Cost ranges
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PRESENTATIONTITLE10
3- Data: Oil Resources
Source: Adapted from Rogner, 1997Billion Barrels
G1= Proved Recoverable ReservesG2= Estimated Additional ReservesG3= Additional Speculative ResourcesG4= Enhanced Recovery
G5= Unconventional Recoverable ReservesG6= Unconventional ResourcesG7= Unconventional Additional OccurrencesG8= Unconventional Additional Occurrences
Region s \ Oil grades
USA WEURO EEURO KOSAU CAJAZ TE MENA SSA SASIA CHINA EASIA LACA
G1 74 41 2 3 13 125 644 29 7 37 21 128
G2 75 15 1 2 13 100 125 25 2 34 12 65
G3 59 26 4 4 10 141 161 36 4 60 18 114
G4 139 37 5 5 24 172 412 40 6 54 25 139
G5 19 10 0 27 173 24 163 10 1 17 4 19
G6 800 56 4 189 570 142 290 37 2 309 35 671
G7 639 97 7 331 570 249 508 65 4 541 61 1174
G8 639 254 28 442 570 921 2045 218 26 870 169 1985
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PRESENTATIONTITLE11
Results: BaU
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PRESENTATIONTITLE12
4- Results: BaU
Total oil production (all categories) - BaU
0
10
20
30
40
50
60
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Bill
ions
Bar
rels
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
CAJAZ and USA will increase oil production troughout the centuryOil Production in LACA remains rather constant
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PRESENTATIONTITLE13
4- Results: BaU
Consumption of oil - BaU
0
10
20
30
40
50
60
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
ons
Bar
rels
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
CHINA and SASIA are going to increase oil consumptionOil consumption in USA and Europe remained constant
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PRESENTATIONTITLE14
4- Results: BaU
Oil production - USA
0.0
5.0
10.0
15.0
20.0
25.0
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Oil production - TE
0.0
5.0
10.0
15.0
20.0
25.0
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Oil production - MENA
0.0
5.0
10.0
15.0
20.0
25.0
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Oil production - CAJAZ
0.0
5.0
10.0
15.0
20.0
25.020
0520
1520
2520
3520
4520
5520
6520
7520
8520
95
Bill
ion
Barr
els
G8G7G6G5G4G3G2G1
Oil production in MENA is mainly from Conventional oil (G1)
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PRESENTATIONTITLE15
4- Results: BaU
Investments in the Oil Sector (all categories) - BaU
0
1000
2000
3000
4000
5000
6000
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
ons
2005
USD
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
Investments are concentrated in MENA at the beginning of the century.
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PRESENTATIONTITLE16
4- Results: BaU
Oil Investments- MENA
0
200
400
600
800
100020
0520
1520
2520
3520
4520
5520
6520
7520
8520
95
Bill
ion
2005
US
D
G8G7G6G5G4G3G2G1
Oil Investments- USA
0
200
400
600
800
1000
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Bill
ion
2005
USD
G8G7G6G5G4G3G2G1
Investments in non conventional oil are dominant in the USA
Investments in MENA are related mainly to conventional oil (G1)
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PRESENTATIONTITLE17
4- Results: BaU
Oil Market - Net Imports - Bau
-25
-20
-15
-10
-5
0
5
10
15
20
25
Bill
ions
Bar
rels
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
Oil imports in the USA remained rather constantCAJAZ will became an oil exporter region in 2050
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PRESENTATIONTITLE18
Results: Stabilization Scenario
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PRESENTATIONTITLE19
4 - Results: Stabilization Contraction and Convergence
International market for carbon permits starting at 2010
Additional CO2 emissions of non-conventional oil (grades 5 - 8) wrt to conventional are attributed to the extraction process and thus to countries that produce non-conventional oil
It is possible to have spare capacity, but it is never an optimal choice
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PRESENTATIONTITLE20
4 - Results: Stab
Price of Carbon Allowances
0
200
400
600
800
1000
1200
1400
2005 2025 2045 2065 2085
$/tC
O2e
Stab
Carbon price is going to increase in a climate policy regime
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PRESENTATIONTITLE21
4 - Results: Stab
Total oil production (all categories) - Stab
0
10
20
30
40
50
60
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Bill
ions
Bar
rels
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
Oil production decrease over time.MENA, CHINA, TE, LACA are the main producers at the end of the century
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PRESENTATIONTITLE22
4 - Results: StabConsumption of oil - Stab
0
10
20
30
40
50
60
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
ons
Barr
els
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
Oil is mainly consumed in SASIA, LACA and CHINA at the end of the century
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PRESENTATIONTITLE23
4- Results: Stab Oil production by grade – selected countries
Oil production - MENA
0.0
5.0
10.0
15.0
20.0
25.0
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Oil production - USA
0.0
5.0
10.0
15.0
20.0
25.0
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Oil production - TE
0.0
5.0
10.0
15.0
20.0
25.0
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Oil production - CAJAZ
0.0
5.0
10.0
15.0
20.0
25.020
0520
1520
2520
3520
4520
5520
6520
7520
8520
95
Billi
on B
arre
ls
G8G7G6G5G4G3G2G1
Non conventional oil is not produced
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PRESENTATIONTITLE24
4- Results: Stab
Investments in the Oil Sector (all categories) - Stab
0
1000
2000
3000
4000
5000
6000
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
ons
2005
US
D
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
Investments are decreasing over time from 2020
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PRESENTATIONTITLE25
4- Results: Stab
Oil Market - Net Imports - Stab
-25
-20
-15
-10
-5
0
5
10
15
20
25
Bill
ions
Bar
rels
LACAEASIACHINASASIASSAMENATECAJAZKOSAUEEUROWEUROUSA
TE and MENA are the main exporter countriesSASIA is the main importer at the end of the century
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PRESENTATIONTITLE26
Comparison: BaU and Stab
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PRESENTATIONTITLE27
4- Results: Comparison
World Oil Consumption
0
10
20
30
40
50
60
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Bill
ion
Barr
els
BaU
Stab
This result tend to conferm the theoretical model proposed by HOEL (2009)
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PRESENTATIONTITLE28
4- Results: Comparison
How will investment decisions be affected when a cap on
emissions is imposed throughout the century?
Total world Investments: Oil Sector (all categories)
0
1000
2000
3000
4000
5000
6000
2005 2025 2045 2065 2085
US$
Bill
ions
BaU Stab
Oil Investments - World
0
1000
2000
3000
4000
5000
6000
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Billi
on 2
005
USD
G8G7G6G5G4G3G2G1
Oil Investments - World
0
1000
2000
3000
4000
5000
6000
2005
2015
2025
2035
2045
2055
2065
2075
2085
2095
Bill
ion
2005
US
D
G8G7G6G5G4G3G2G1
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PRESENTATIONTITLE29
4- Results: Comparison
Oil Traded Internationally
0
5
10
15
20
25
2005 2025 2045 2065 2085
Bill
ions
Bar
rels
BaU Stab Bau no oil
How will these investments decisions shape oil supply and how will they affect international trade of oil and oil price?
Price of Oil
0
50
100
150
200
250
300
2005 2025 2045 2065 2085
$ pe
r Ba
rrel
BaU Stab
International trade of oil is mainly driven by oil consumption
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PRESENTATIONTITLE30
4- Results: Comparison
Average Cost of Additional Oil Extraction Capacity(all categories)
0
200
400
600
800
1000
1200
1400
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Cumulative Production (Biilion Barrels)
$ pe
r Bar
rel o
f Cap
acity
BaU
Stab
The cost of additional oil extraction capacity is lower in the stabilization scenario.
Under climate policy, cumulative oil production is about one half if compared to the BaU
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4- Comparison with previous version of the model
Price of Oil
0
50
100
150
200
250
300
2005 2025 2045 2065 2085
$ pe
r Ba
rrel
BaU Stab Bau no oil Stab no oil
Oil Supply
0
10
20
30
40
50
60
70
2005 2025 2045 2065 2085
Billi
on B
arre
ls
BaU Stab Bau no oil Stab no oil
World CO2 Emissions (GtC)
0
5
10
15
20
25
2005 2025 2045 2065 2085
GtC
BaU Stab Bau no oil Stab no oil
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4- Results: Comparison
World2005 2025 2045 2065 2085 2105
Oil GDP (% of total GDP)BaU 2.1% 2.3% 2.3% 2.4% 2.4% 2.4%Stab 2.1% 1.8% 0.7% 0.3% 0.2% 0.5%
Oil Investments (%of total Investments)BaU 6.9% 7.7% 8.9% 8.7% 8.4% 8.8%Stab 7.5% 4.9% 1.2% 0.9% 0.5% 0.4%
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4- Results: Comparison
To what degree will oil exporting countries be able to re- structure their production activities, to counter-act the threat to
their economies, that a low-carbon world will poses ?
Discounted Stabilization Policy Costs (3% declining)
-25%-20%-15%-10%-5%0%5%
10%15%20%25%
USAWEUROEEUROKOSAUCAJA
ZTE MENASSASASIACHIN
AEASIALACA
% o
f GD
P
WITCH OIL WITCH
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Conclusion
Introduction of a detailed description of the oil sector does not change global mitigation costs significantly but regional costs do vary greatly.
The value of oil traded decrease significantly in a climate policy regime.
Oil investments decrease significantly
Oil-exporting countries bear costs twice as large if compared to previous estimates.
When carbon emissions are constrained non conventional oil (grades 5 - 8) is not extracted.
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THANK YOU!