Download - Yucel GIC May 2806
Developments in World Energy Markets
Mine YücelFederal Reserve Bank of Dallas
May 29, 2006
Overview
• World energy consumption/production• Vulnerability to oil price shocks• Similar vulnerability to natural gas price
shocks?– Security of gas supply– Feasibility of a gas cartel
World Total Energy Consumption by Fuel
Oil, 39%
Natural Gas, 23%
Coal, 24%
Nuclear, 7%
Other, 8%
World Energy Consumption by Fuel Type, 1970-2025
0
50
100
150
200
250
300
1970 1980 1990 2002 2015 2025
Quadrillion Btu
Oil
Natural Gas
Coal
Renewables
Nuclear
Western Europe: Energy Consumption by Fuel
Oil
Natural Gas
Coal
Nuclear
Other
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 2001 2002 2010 2015 2020 2025
Transitional Economies: Energy Consumption by Fuel
Oil
Natural Gas
Coal
NuclearOther
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 2001 2002 2010 2015 2020 2025
OPEC Dominates World Oil Production
ChinaUnited Kingdom
United States
OPEC
Russia
NorwayMexico
Rest of the World
0
10
20
30
40
50
60
70
80
90
100
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05
Percent
World Oil Reserves Concentrated in the Middle East
NorthAmerica
Centraland
South America
WesternEurope
Africa
Middle East
FormerSoviet Union
Far East/Oceania
58%
6%1%
3%
8%8%
16%
Source: EIA, International Energy Outlook 2005
Natural Gas Consumption Rising
0
10
20
30
40
50
60
70
1980 1990 2002 2010 2015 2020 2025
Mature Market EconomiesTransitional EconomiesEmerging Economies
Trillion Cubic Feet
Source: EIA, International Energy Outlook 2005
Increases in Natural Gas Consumption by Region and Country Group, 2002-2025
0 2 4 6 8 10 12 14 16
Mature Market Asia
Africa
Central and South America
Western Europe
Middle East
North America
Emerging Asia
EE/FSU
Trillion Cubic Feet
Gas Production Geographically Diverse
0
10
20
30
40
50
60
70
80
90
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Rest of the World
Middle East
Eastern Europe & FSU
Western EuropeCentral & South America
North America
Percent
Gas Reserves Geographically Diverse
NorthAmerica
Centraland
South America
WesternEurope
Africa
Middle East
FormerSoviet Union
Far East/Oceania
42%32%
3%
6%
8%4%
4%
Energy Issues
• Energy prices and the economy: How important are energy price shocks? – Oil price studies
• Natural Gas Supply – Secure supply– A gas production cartel
Oil Price Shocks and U.S. Recessions
0
50
100
150
200
250
300
51 56 61 66 71 76 81 86 91 96 01 06
Index, '82-84=100
Classic supply shock
Capital OutputProductionProcess
Energy
Labor
An unfavorablesupply shock
Input Scarcity (Higher Energy Prices)
GDP Growth Slows & Productivity Growth Slows
Wage Growth Slows
Unemployment Rate Rises
Price Level Rises
Interest Rate Rises
GDP and Inflation Effectsof Oil-Price Shocks
• U.S.– 100% oil price hike: 4% to 6% GDP loss
• Euro Area – 100% oil price hike: 1% to 4% GDP loss
• Price level rises by as much as GDP falls
Natural Gas Supply
• Secure supply?– Natural gas reserves– Natural gas exports
• A gas production cartel?– Conditions for a strong gas cartel
Source: Baker Institute ‘Geopolitics of Natural Gas’ Working Paper Series; Cedigaz
World Gas Trade on the Rise
0
100
200
300
400
500
600
700
800
1970 1975 1985 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003
Billion Cubic Meters
LNG
by Pipeline
Total World Cross-border Trade
Natural Gas ReservesDistribution by Region
Russia27.6%
Iran15.5%
Qatar15.0%Saudi Arabia
3.8%
UAE3.5%
US3.1%
Algeria2.6%
Nigeria2.6%
Venezuela2.4%
Other22.1%
Iraq1.8%
Natural Gas ExportsDistribution by Region
Russia28.0%
Canada15.0%
Norway8.0%
Algeria8.0%
Netherlands7.0%
Other 34.0%
Security of Supply
• Natural gas reserves and exports:
– Higher concentration among fewer countries– Geographically diversified
A Gas Cartel
• For a successful cartel:– Small number of producers with large market
share– Establish and enforce quotas– Control capacity expansions
A Gas Cartel
• Cartel stronger if:– Demand inelastic– Fringe supply inelastic– Market share large
Is a Gas Cartel Feasible?
• Unlikely cartel partners: Canada, Norway, Netherlands
• Many substitutes for gas • Potential for increased fringe supply• Enforcement expensive
Future for the Gas Market
• Russia pivotal in global gas market• Competing supply will come on line as
prices increase• May be harder for gas market to become
as fluid as oil market
Conclusion
• Oil-demand growth not abating• Middle East will dominate oil trade• Gas-demand growth fastest among fuels• Gas cartel unlikely in the short run• Growth in LNG trade will facilitate a global
gas market• Interdependence among world economies
means greater stability
Developments in Energy Markets
Mine YücelFederal Reserve Bank of Dallas
www.dallasfed.org