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Dialogue �
Dialogue
Vol. �5, No. 2
Long-Run Relation among Motor Fuel Use, Vehicle Miles Traveled, Income, and Gas Price for the US
The Nuclear Waste Dilemma
6
10
17
23
United States Association for Energy Economics: An Affiliate of the IAEE
13
27
August 2007
Renewed Interest in Demand Re-sponse, But “Wither the Economic Rationale for Efficient Pricing?”
Prospectivity, Productivity, and Profitability on Offshore Oil and Gas Leases: the Case of the US Gulf of Mexico Outer Continen-tal Shelf
Innovation in the Energy Industry: Country Challenges, Solutions, and Models
Book Review : Crude Awakening: Global Oil Security and American Foreign Policy
USAEE Mission StatementThe United States Association for Energy Economics is a non-profit 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 experi-
ences.• Promotes the development and education of energy professionals.• Fosters an improved understanding of energy economics and energy related issues by
all interested parties.
Dialogue �
Developing & Delivering Affordable
Energy in the 21st Century
September 16-19, 2007 Post Oak Hilton Houston, Texas - USA
27th
USAEE/IAEE North American Conference
United States Association for Energy Economics International Association for Energy Economics
Houston Chapter, USAEE
Conference Structure
This year we have chosen plenary session themes that reflect key policy challenges and uncertainties for developing necessary energy
infrastructure in North America and elsewhere. The concurrent sessions will expand on the themes outlined below. 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) [email protected]. The conference will also feature
workshops, public outreach and student recruitment sessions.
LNG
• Upstream access and supply
• Downstream infrastructure development
• Shipping capacity and costs
• Contracts, project financing, gas market integration, risk management
Electricity Market Design
• Importance of market design
• Market design policy evolution in the USA
• Comparison of different market structures
• Efficiency of regulatory versus market structures
Supply and Access
• Oil – conventional & unconventional resources, geopolitics
• Refining – capacity, technology
• Natural gas – access and geopolitics
• Role of National Oil Companies
Electricity Infrastructure
• Building transmission – who? how? New technologies?
• Managing grids: Independent system operators, traditional utilities
• Smart grid and other IT applications
• Building new generation including alternative energy sources
Legal and Regulatory Considerations
• Siting energy facilities
• Increasing regulatory efficiency
• Managing legal uncertainties
• EPAct 2005: an evaluation
Energy Trading
• Oversight – veracity of price data
• Volatility – impact, management
• Oil, gas, coal, electricity price linkages
• Impact of market structure
Alternative Energy & Efficiency
• Mass-scale solar power, wind power
• Coal gasification
• Biofuels – amount, timing, delivery infrastructure
• Energy efficiency
Human Capital
• Trends in skills needed
• Impact of demographics and societal trends on career choice
• Role of educational institutions
• Role of media and reporting on perceptions of the energy sector
Science and Technology
• Role of IT (upstream oil & gas, demand-side management, smartgrid)
• Frontier technologies: nanotechnology, biotechnology, material sciences
• Energy storage and energy efficiency
• Science of climate change and carbon sequestration
Other Energy Delivery Infrastructure
• Refining capacity
• Petrochemicals
• LNG regasification terminals
• Pipelines
Register for this informative conference by visiting our website at: http://www.usaee.org/USAEE2007/
For questions please contact USAEE:
David Williams, Executive Director, USAEE/IAEE, 28790 Chagrin Blvd., Suite 350, Cleveland, OH 44122 USA
Phone: 216-464-2785 / Fax: 216-464-2768 / E-mail: [email protected]
Accommodations: The Hilton Houston Post Oak, our conference venue, is located in the center of Uptown Houston, Texas business district, just
one block from the famous Galleria Shopping Mall. We have a special room block at the following rates per night: Single/Double Room -- $139.00.
Details about accommodations and transportation can be found on the conference website at
http://www.usaee.org/USAEE2007/accommodations.html
Travel Documents: All international delegates to the 27th
USAEE/IAEE North American Conference are urged to contact their consulate, embassy
or travel agent regarding the necessity of obtaining a visa for entry into the U.S. If you need a letter of invitation to attend the conference, contact
USAEE with an email request to [email protected] The Conference strongly suggests that you allow plenty of time for processing these documents.
Visit our conference website at: http://www.usaee.org/usaee2007/
Dialogue �
Contents
FeaturesPresident’s Message 3Editor’s Corner 4Calendar 34
ArticlesLong-Run Relation among Motor Fuel Use, Vehicle Miles Traveled, Income, and Gas Price for the USBrant Liddle 6
The Nuclear Waste DilemmaVito Stagliano 10
Renewed Interest in Demand Response, But “Wither the Economic Rationale for Efficient Pricing?”John Kelly 13
Prospectivity, Productivity, and Profitability on Off-shore Oil and Gas Leases: the Case of the US Gulf of Mexico Outer Continental Shelf (OCS)Omowumi Iledare and Mark Kaiser 17
Innovation in the Energy Industry: Country Challenges, Solutions, and ModelsAndre Lambine 23
Book Review : Crude Awakening: Global Oil Security and American Foreign Policy 27
DialogueVol. �5, No. 2 ($�0.00)
August 2007www.usaee.org
Dialogue
Dialogue is a tri-annual publication of the United States Association for Energy Eco-nomics. Subscriptions are dependant on membership with USAEE. Reprints are avail-able for $�0 US and Canada.
Editor: Wumi Iledare
Submissions
Articles, notices, news of chapter events and relevant energy news can be sent to the editor.
Wumi IledareLSU Center for Energy StudiesEnergy Coast & Environment BuildingBaton Rouge, LA 70803-000�[email protected]: (225)578-454�Tel: (225)578-4552
President’s Message
(continuedonpage4)
It’s hard to believe that there is less than half a year remaining in �007; change and progress continues! We
are in the final days before our North American meet-ing which will be held from September 16-19, �007 in Houston, Texas. Program Co-Chairs Peter Hartley and Troy Thompson, along with Emeritus Chair Michelle Foss, have developed an outstanding program focused on “Developing and Delivering Affordable Energy in the �1st Century”.
I am excited that Ambassador Edward P. Djerejian will be speaking with us on Sunday on energy geopolitical issues. This topic is timely and of considerable importance as we look out at the near term energy horizon. Ad-ditionally, the Program Committee has developed an outstanding set of speakers, including Mayor Bill White of Houston, Almir Guilherme Barbassa, Chief Finan-cial Officer of Petrobras, and Randy Braud, the U.S. Country Controller, Shell Oil Company. There is an impressive list of outstanding speaker too numerous to list here, so please accept my observation that the Plenary Sessions, Concurrent Ses-sions, and cultural events will be stimulating and thought provoking.
Special efforts are planned to attract non-traditional members - educators, press, and business leaders - to help facilitate a continuing dialog and debate on energy issues. This compliments our continuing commitment to students which continues in full force this year. In addition, we are hosting an Industry Outlook Breakfast to examine what the major oil companies see as key energy market trends in the medium to long term, and how they are planning for the future. We have opened this meeting to the general public in an attempt to draw some new members and to support the Houston energy community. If you know someone that would find this valuable, please encourage them to attend.
Many of you have already worked with our Concurrent Session Chair and USAEE President-Elect, Wumi Iledare, and we have received an excellent set of abstracts via our new on-line submission process to support our concurrent sessions. This is a transition year as we work to make many more conference presentations and supporting information available via the web Key among these is the effort to develop a set of Paper Summaries using this new process. Let us know how we are doing!
For the latest developments on this event, I encourage you to visit the confer-ence website http://www.usaee.org/usaee�007/ .
Vice President for Conferences Joe Dukert reports that developments are well under way for next year’s New Orleans conference, to be held December �-5, �008. The next Program Committee meeting will be held Tuesday morning, September 18, �007 in Houston. Additionally, the USAEE received approval from the IAEE in June, 2007 on our proposal for a combined USAEE North American and IAEE International meeting to be held in San Francisco in June, �009. An early Program Committee meeting for this event will be held in Hous-ton on Wednesday morning, September 19, �007. Come join us and make you thoughts known.
Mina Dioun, Vice-President – Chapter Liaison reports that we have a new af-filiate for the USAEE, the Louisville (Kentucky) Chapter. The new President of that affiliate is Eric Yussman. Gaining a new affiliate doesn’t just happen, many folks work very hard to make things like this a reality. Please join me in welcom-ing our newest chapter to the USAEE family.
The Finance Committee, headed by Jonathan Story, has been extremely busy this year with Administrative, Investment, and Sponsorship activities. A major focus has been to develop a model for analyzing future revenue efforts. Addition-ally, we have formalized support for our Sponsorship activities. If any members
Dialogue �
USAEE NewsEditor’s Corner
President’s Message (continuedfrompage3)
Is $100 crude oil price months away or is the recent dec-laration by an OPEC official that a $60-$65 oil price band is equitable rational? What really is the fair price of oil? How do the third party brokers in the spot and futures market feel about the $60-$65 price band? What price range is fair to the stakeholders in the oil and gas business whose motivation for investment is the maximization of stakeholder’s values? These questions point to the uncertainty in the global oil market dy-namics. Equally uncertain, of course, is the sustainability of the unrelenting pressure of increased demand in the global oil market. Is it not paradoxical that despite the fact that crude oil prices have doubled within the last five years, the global oil demand growth has not stalled, neither has rising expectations of oil output materialized. We welcome your perception on oil pricing dynamics within the context of today’s global oil market dynamics using the USAEE blog facility at www.usaee.org.
In this issue of the USAEE Dialogue Online, Brant Liddle examines whether there is a systemic relationship among tech-nology, fuel demand, and prices. The paper shows that mobility demand has a long run systemic relationship with gasoline price and income just as technology choice with gasoline price and income in the U.S.
A short article by Vito Stagliano portrays the nuclear waste dilemma. According to Stagliano, civilian nuclear technology can substantially contribute to electric power generation that is free of carbon and other harmful emissions. He declares, however, that investment in new nuclear capacity hinges on the ability of the U.S. government to sway the public and investors that it is able to meet “its obligation under the law to safely sequester radioactive spent fuel.”
John Kelly of the American Power Association reviews some of the history of marginal cost pricing for electric ser-vices. Further, Kelly reviews the renewed interest in demand response and asks whether the current discussions and analyses stray from the basic notions about economic costs. He suggests that the rationale for demand response adopted in the �006 U.S.DOE report is ambiguous.
An overview of a research report titled, "Competition and Performance in Oil and Gas Lease Sales and Development in the U.S. Gulf of Mexico OCS Region, 1983-1999" is published in this issue of the USAEE Dialogue Online. The report char-acterizes and analyzes lease sales and development in the U.S. OCS using estimated physical and economic performance indi-cators. According to the authors, Iledare and Kaiser, the overall rate of return of investments on leases issued from 198�-1999 is extremely low in comparison to the rate of return in comparable U.S. industries.
Adrian Lambine, a doctoral student from the Norwegian University of Science and Technology, shows how the innova-tion process in the energy industry can be improved to facilitate economic growth and development. The role of government in
are interested in serving as mentors or coaches for this group, Jonathan would welcome your participation ([email protected]).
Jim Smith, Vice President, Academic Affairs, has put in place a number of initiatives to encourage contact between stu-dents and potential employers. Jennie Rosthal, our Student Representative, has worked very hard on these issues with Jim. We believe this will benefit our Houston Conference at-tendees in a major way, and encourage your feedback.
The Communications Committee, headed by Mary Barcella, has made great progress in upgrading our website. Shree Vikas our Blog Editor, encourages all members to post items on timely energy topics to help in growing our discussion community.
Council members also collaborate to further new ideas and initiatives. Recognizing this, I would like to thank Mary and Jim for their continuing efforts to establish a Working Paper Series that, if adopted, would be supported by the USAEE. The basic idea is that this program would support comment and dis-cussion on papers prepared in a non-refereed format prior to formal submission to a publication such as The Energy Journal. Their proposal, currently before Council, suggests that some changes to our website and the establishment of a Series Coor-dinator could allow this idea to become a reality. If our mem-bers would find value in this, and have papers ready or would develop papers to submit, Jim ([email protected]) or Mary ([email protected])would like to hear from you.
If you have ideas, or can contribute your time to any of these efforts, I encourage everyone to contact our Committees and see how you can become a part of the solution.
Energy issues continue at the forefront of the public policy debate. While we are not a policy “making” or “stating” orga-nization, we continue to look for ways that we can provide a balanced viewpoint and increase understanding on these issues. How might we navigate in a carbon-constrained world? Increas-ingly, energy efficiency and conservation are widely viewed as important efforts that can be encouraged through effective policy choices. Are mandates the way to go? Is “decoupling” of utility energy production and earnings a solution? How can a utility earn a return on investment in energy spending?
Often stated are views that demand for energy is going to grow, and energy production is likely to come from existing conventional sources that may not grow fast enough. Against these thoughts, industry asks if price levels are likely to be high enough to support future development? What alternatives make sense under anticipated operating conditions? What role will heavy oil and technologically complex petroleum sources play? How might geo-political factors influence decision-making? Is there a solution to the various and sometimes conflicting views of Arctic resources?
As a start, make your voice heard in Houston and in our blog! Also, let me observe that the USAEE Council is here to serve its members. If you have thoughts for how we can be a more effective and valuable organization, please write ([email protected]) and let me know how.
PeterNance
Dialogue 5
Conference Proceedings26th USAEE/IAEE North American ConferenceAnn Arbor, Michigan – September 24-27, 2006
“Energy in a World of Changing Costs and Technologies”This 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, Conservation & EfficiencyInternational Energy Economics Energy and the EnvironmentEnergy Industry Finance Oil Industry: E&P, Transportation, Refining, etc.
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, �8790 Chagrin Blvd., Suite �50, Cleveland, OH ��1��, USA.
Name ______________________________________________________________________________________________
Address ____________________________________________________________________________________________
City, State, Mail Code and Country ______________________________________________________________________
Please send me copies @ $130 each (member rate) $180 each (nonmember rate).Total Enclosed $ Check must be in U.S. dollars and drawn on a U.S. bank, payable to USAEE
this process is discussed. Lambine shows that factors affecting this process vary between countries.
Finally, we have published a book review in this edition of the USAEE Dialogue Online. Mr. Justin Dargin provides a review of Professor Steve A. Yetiv’s book entitled, Crude Awakening: Global Oil Security and American Foreign Policy, (Cornell University Press U.S., 2004.)
As always, members are requested to submit short articles for publication in the USAEE Dialogue Online. The editor wel-comes policy or analytical debates on topical issues of energy concerns between two experts. Send abstracts of your most re-cent working papers, unpublished or published research papers, news articles, notices, news of chapter events, and relevant en-ergy news to the editor via e-mail at [email protected].
WumiIledare
Career Opportunities for USAEE/IAEE Student Members
Looking for a job in the energy field after graduation? Or an internship before??
USAEE will continue the placement assistance program for student members that was initiated last year at the Ann Ar-bor conference.
If you are a student looking for employment we will be col-lecting resumes in advance of the Houston conference to share with Houston based employers. Please submit your resume to Jennie Rosthal, USAEE Council Student Representative, [email protected] Please make sure to include your degree plan/area of research, anticipated graduation date, contact number and email address, and type of employment sought (e.g., full
!!! Congratulations 2007 USAEE Award Winners !!!Awards committee chair Marianne Kah and her committee
members Stephen Brown, Lynne Kiesling, Glen Sweetnam and Troy Thompson are pleased to announce the following �007 USAEE Award winners:
USAEEAdelman-FrankelAwardAwarded to an organization or individual for unique and
innovating contributions to the field of energy economics.
James L. Sweeney, Stanford University
USAEESeniorFellowAwardAwarded to individuals who have exemplified distinguished
service in the field of energy economics and/or the USAEE.
Wumi Iledare, LSU Center for Energy Studies
James L. Smith, Southern Methodist University
Mine K. Yucel, Federal Reserve Bank of Dallas
The above award recipients will receive their awards and recognition at the �7th Annual North American Conference of the USAEE/IAEE, September 16-19, in Houston, TX.
time, summer internship, etc.). Resumes will be put together in a resume book that will be forwarded to employers prior to the start of the conference.
In addition to the resume book we have also scheduled a meet and greet for students and employers during the confer-ence.
For particulars on these events please email Jennie Rosthal at [email protected]
Dialogue 6
Long-Run Relation among Motor Fuel Use, Vehicle Miles Traveled, Income, and Gas Price for the USByBrantLiddle*
Abstract
Energy used in transport is a particularly important focus for environment-development studies since such use is in-creasing in both developed and developing countries and is a carbon-intensive activity everywhere. Gasoline price and per capita motor fuel consumption (and therefore CO� emissions) are highly correlated, but it may be too simplistic to assume that higher prices will lead to lower use and thus emissions since there may be a systemic relationship among price, technology, and mobility demand. This paper examines whether a systemic, co-integrated relationship exists among gasoline price, income, and both per capita motor fuel consumption and per capita vehicle-miles traveled, using US yearly data from 1919-�00� and the Johansen co-integration test. The paper’s finding of a co-integrating relationship means that gasoline price, technol-ogy, and fuel consumption cannot be easily disentangled in the short-run.
Introduction
Energy used in transport is a particularly important focus for environment-development studies since such use is increas-ing in both developed and developing countries and is (given current technology) a carbon-intensive activity everywhere. (By contrast, for example, electricity generation can be more or less carbon-intensive depending on the energy source used, e.g., coal, natural gas, nuclear, hydro-electric.) Furthermore, understanding the long-run relationship among transport ener-gy use, income, and fuel price in developed countries is impor-tant to project with any accuracy global transport fuel use and carbon emissions. Figure 1 shows that vehicle-miles traveled per capita has increased linearly with GDP per capita in the US since 1946. Yet, fuel price may impact vehicle fuel efficiency (miles per gallon), and thus total fuel consumption (more on the relation between fuel price and use bellow).
Economic growth and energy consumption have been highly correlated historically. This correlation coupled with concerns over energy’s environmental costs (e.g., carbon emis-sions) and security issues (e.g., foreign supply dependence and nuclear technology proliferation) has drawn considerable at-tention to the relationship between energy and development. Some of the literature dealing with this relationship, beginning in the early 1980s, has used statistical techniques from Granger and Sims to reveal the causal direction of the energy-economic growth relationship. More recent advances in the literature have involved improved techniques, like cointegration tests, and up-dated (and, perhaps, improved) data sets. Taken as a whole,
however, the literature on temporal causality between energy consumption and economic growth has offered neither robust results nor convincing rationale.
For example, in the seminal study on the US, Kraft and Kraft (1978) found causality running from GNP to energy con-sumption for the US over the period 19�7-197�. Subsequently, Akarca and Long (1980) shortened the Kraft and Kraft period by two years, while Yu and Hwang (1984) lengthened it by four years, but neither later study detected evidence of causality. A similar history of often contradictory results also emerged for some of the rapidly developing Asian economies. For example, Glasure and Lee (1997) found both cointegration and bi-di-rectional causality for Singapore; however, Masih and Masih (1996), detected neither cointegration nor causality for Singa-pore. Also, Masih and Masih (1996) found cointegration for both India and Indonesia; however, the direction of causality went from energy to GDP in India, and from GDP to energy in Indonesia. By contrast, Soytas and Sari (2003) detected neither cointegration nor causality for India and Indonesia.
Among the reasons cited for the lack of conclusive or theo-retically appealing results are the different data sets, methods for determining lag structure, and statistical techniques (name-ly, testing for cointegration and whether the analysis considers bi- or multi-variable causality). Still another reason may be the very high level of aggregation of the data analyzed. When con-sidering total energy consumption and total GDP, it is not at all clear what direction causality should be in or how it might evolve temporally. Energy is clearly an input in industrial pro-duction; however, in developed countries industry commands a declining share of GDP. Furthermore, a considerable and grow-ing amount of energy consumption in developed countries is for personal transport and use in homes1—activities that are “con-sumptive” in nature, and thus, would be expected to increase with wealth.
In an earlier paper, Liddle (2006), I evaluated the link be-tween GDP and energy for a number of OECD countries, using levels of disaggregation of GDP and energy consumption where
* Brant Liddle is Senior Research Fellow, Centre for Strategic Eco-nomic Studies, Victoria UniversityLevel 1�, �00 Flinders Street Mel-bourne, VIC 8001, Australia. He can be reached at [email protected]
See footnotes at end of text.
y = 0.3062x - 375.65
R2
= 0.9854
0
2000
4000
6000
8000
10000
12000
10000 15000 20000 25000 30000 35000 40000
Per Capita GDP (2000 US$)
Ve
hic
le
-m
ile
s tra
ve
le
d
Figure 1 Vehicle-miles traveled per capita and GDP per capita in
the US, 1946-2004. Trend-line equation and R2 are shown. GDP data are from Johnston and Williamson (2005).
Travel data are from the Federal Highway Administration.
7 Dialogue
causation between GDP and energy consumption could be pre-dicted a priori. For example, industry energy consumption—as an input to production—was expected to cause industry GDP, while GDP per capita, or income, was expected to cause energy use in transport and residential buildings—normal consumption goods. The surprising result of the work reported in that paper was that GDP and energy are not strongly linked in most of the countries studied. This paper examines whether a systemic, cointegrated� relationship exists among gasoline price, income, and both (i) two definitions of transport demand (per capita mo-tor fuel consumption and per capita vehicle-miles traveled), and (ii) transport technology choice (miles per gallon) over the long-run in the US.
This paper expands on my previous work in two impor-tant ways. First, focusing on transport in the US allows for the consideration of much longer data sets (as long as from 1919 to present) than my, or others’, previous work (most analyses are on the order of only 30-40 years). Not having sufficiently long series is a well-known source of spurious results in these types of time series analyses. Second, this paper also consid-ers price and is a multivariate analysis (the previous paper was bivariate, considering only various aggregations of GDP and energy use).
Price is clearly important in determining transport energy use, but a linear causal link between price and such use may not exist. Figure � shows a strong relationship between gaso-line consumption and gasoline price (an R-squared of 0.48) in
IEA countries. However, since these countries are well inte-grated in the world trade system and gasoline is a commodity, the primary reason gasoline price differs among these countries is taxes. For example, the average pump-price of gasoline (in
USD/liter) for the largest eight economies in the OECD was 0.9�, during March �00�; the standard deviation was 0.��, and the range [0.��, 1.��]. However, excluding taxes the average price, standard deviation, and range were 0.��, 0.0�, and [0.�9, 0.42], respectively (data from the International Energy Agen-cy). The ability of (democratic) governments to tax gasoline (and thus, personal transport), must to some degree, reflect rela-tive demand for mobility. In other words, since gasoline price does influence technology choice and mobility demand, and, since gasoline price is heavily influenced by government in both market and non-market economies, technology and mobil-ity demand likely affect price too. Of course, given a particular need for mobility, a higher fuel price might encourage a more fuel-efficient vehicle fleet, and thus lower fuel consumption (See Figure 2)
The following section of the paper introduces the data and methodology used. Section � presents and discusses the results. The final section summarizes the conclusions and addresses some policy implications.
Data and Methodology
The data series used in this study are annual data, converted to natural logs. The series are: real per capita GDP, 1919-�00� from Johnston and Williamson (2005); vehicle-miles traveled per capita, 19�6-�00�, and motor fuel use per capita, 1919-�00�, both from the US Department of Transportation, Federal Highway Administration’s Highway Statistics; miles per gal-lon, 1936-2004 (vehicle-miles traveled divided by motor fuel use); and real retail gasoline price from US Department of En-ergy, Energy Information Agency. Population data (to convert measures to per capita) is from the US Census Bureau. Table 1 summarizes the data series (see Table 1)
The first step is to test for unit roots in each series since all variables in a cointegration test should be of the same order. It is expected, as others have found, that these series (all of which contain noticeable trends) will be nonstationary in levels, but stationary in first differences. To test for unit roots, I use both the Elliott, Rothenberg, and Stock (1996) Dickey-Fuller test with GLS detrending (DF-GLS), and the Ng-Perron test (Ng and Perron, 2001) also with GLS detrending. These tests are particularly appropriate for highly trending data; furthermore, Maddala and Kim (2000) argue that DF-GLS tests are more powerful than the (often used) augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests. Both tests allow for a constant or a constant and a linear time trend in the test regression. For robustness, I report the results from both types of equations and both tests in Appendix Tables A1-a and A1-b. The power of unit root tests is sensitive to the number of lagged terms used. To choose the optimal number of lags, for augmented Dickey-Full-er tests, I employ Hall’s (1994) general to specific rule, where one starts with a maximum number of lags, tests the significance of coefficient on the last lagged term, and reduces the number of lags iteratively until a significant statistic is encountered. For the Ng-Perron tests, the number of lags is determined by the Schwartz information criterion.
Engle and Granger (1987) pointed out that a linear combi-nation of two or more nonstationary series may be stationary.
y = -0.0006x + 1.5963
R2
= 0.4795
0
0.2
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0.8
1
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1.6
1.8
2
0 500 1000 1500
fuel consumption
fu
el p
ric
e
Figure 2 The relationship between gasoline consumption (in liters per capita) and unleaded gasoline price (in US dollars per liter) for IEA countries. Trend-line equa-
tion and R2 are shown. Data is from the International Energy Agency 2005 & 2006.
Dialogue 8
If such a stationary linear combination exists, the nonstation-ary time series are said to be cointegrated. The stationary linear combination is called the cointegrating equation and may be interpreted as a long-run equilibrium relationship among the variables. The purpose of the cointegration test is to determine whether a group of non-stationary series is cointegrated or not. To test for cointegration, I use Johansen and Juselius’ (1990) test for multivariate cointegration. The Johansen cointegration approach produces two statistics (the trace and maximum ei-genvalue statistics), which can conflict—although they do not in the results presented here. To determine the number of coin-tegrating relations, r, one proceeds sequentially from r = 0 to r = k – 1, where k is the number of endogenous variables, until one fails to reject. The two tests of the null hypothesis of r cointe-grating relations against the alternative of k cointegrating rela-tions, for r = 0, 1, …, k - 1 are reported in the results tables.
Results and Discussion
The results of the unit root tests using the modified Dickey-Fuller test appear in Appendix Table A1-a, and the results of the unit root tests using the Ng-Perron test are shown in Ap-pendix Table A1-b. Different unit root tests sometimes produce inconsistent results. However, since I expected (as others have found) all of these series to be order I (1), i.e., stationary in first differences but not in levels, I interpret the results shown in Tables A1-a & A1-b not to show convincing evidence to reject my prior belief that all of these series are I (1).
Three sets of cointegration tests were run: one involving each definition of mobility demand (motor fuel use and vehicle-miles traveled) and one involving technology choice (miles per gallon). Tables 2 and 3 show that, for the two sets of transport demand variables—GDP per capita, price, and motor fuel use in Table �, and GDP per capita, price, and vehicle-miles traveled in Table �—both the trace and max-eigenvalue test statistics in-dicate one cointegrating equation at the one percent significance level. Table 4 shows that, for technology choice (miles per gal-lon), price, and GDP per capita, both the trace and max-eigen-value test statistics indicate one cointegrating equation at the five percent significance level. These findings of cointegration
confirm a long-run, systemic relationship among price, in-come, and transport demand or technology choice in the US (See Tables 2 – 4).
Summary, Conclusions, and Policy Implications
Transport is a major con-sumer of energy and an im-portant source of carbon di-oxide emissions everywhere. The demand for mobility in-creases strongly with income. Although gasoline price and gasoline consumption are correlated across countries, it may be too simplistic to assume that higher gasoline
taxes in high consuming countries would result in much lower
Table 1Variable Definitions and Data Sources.
Variable Definition Observations SourceLGDP Natural log real GDP per Annual, 1919-2004 Johnston and Williamson (2005) capita http://www.eh.net/hmit/gdp/LPRICE Natural log real retail Annual, 1919-2004 Energy Information Agency gasoline price http://www.eia.doe.gov/emeu/steo/pub/fsheets/ PetroleumPrices_files/frame.htmLMFU Natural log motor fuel Annual, 1919-2004 Federal Highway Administration use per capita http://www.fhwa.dot.gov/policy/ohpi/hss/ hsspubs.htmLVMT Natural log vehicle-miles Annual, 1936-2004 Federal Highway Administration traveled per capita http://www.fhwa.dot.gov/policy/ohpi/hss/ hsspubs.htmLMPG Natural log of miles per Annual, 1936-2004 See above gallon, calculated as vehicle-miles traveled divided by motor fuel use
Null Alter- Statistic Critical values native 5 % 1 %Variables: LGDP, LPRICE, LMFU Trace statistic r = 0 r > 0 �7.08** �9.68 �5.65r <= 1 r > 1 9.61 15.�1 �0.0�r <= � r = � �.1� �.76 6.65Maximum eigenvalues r = 0 r > 0 �7.�6** �0.97 �5.5�r <= 1 r > 1 7.�8 1�.07 18.6�r <= � r = � �.1� �.76 6.65
Table 2Johansen and Juselius cointegration test for GDP per
capita, prices, and motor fuel use, 1919-2004
r: Indicates the number of cointegrating relationships. Trace test and maxi-mum eigenvalue statistics are compared with the critical values from Johan-sen and Juselius (1990). ** Indicates rejection of the null hypothesis of no cointegration at the 1% level.
Null Alter- Statistic Critical values native 5 % 1 %Variables: LGDP, LPRICE, LVMTTrace statisticr = 0 r > 0 �9.00** �9.68 �5.65r <= 1 r > 1 1�.�� 15.�1 �0.0�r <= � r = � �.�� �.76 6.65Maximum eigenvaluesr = 0 r > 0 �5.77** �0.97 �5.5�r <= 1 r > 1 8.81 1�.07 18.6�r <= � r = � �.�� �.76 6.65
Table 3Johansen and Juselius cointegration test for GDP per capita, prices, and vehicle-miles traveled, 1936-2004
r: Indicates the number of cointegrating relationships. Trace test and maxi-mum eigenvalue statistics are compared with the critical values from Johan-sen and Juselius (1990). ** Indicates rejection of the null hypothesis of no cointegration at the 1% level.
9 Dialogue
fuel consumption, and thus carbon emissions. The analysis here showed that in the US mobility demand (proxied by either mo-tor fuel use or vehicle-miles traveled) has a long-run systemic relationship with gasoline price and income, as does technol-ogy choice (miles per gallon) with gasoline price and income. And thus, these variables cannot be easily disentangled in the short-run. This paper’s finding of a cointegrating relationship has two important implications for policy. First, in countries like the US, higher standards for vehicle efficiency are prefer-able to higher gasoline taxes since (i) the former may lead to a faster change in overall vehicle fleet efficiency; and (ii) the level of taxes necessary for the latter approach to cause a suf-ficient change in vehicle fleet efficiency via the market would be quite painful. Second, countries like China and India would
Null Alter- Statistic Critical values native 5 % 1 %Variables: LGDP, LPRICE, LMPGTrace statisticr = 0 r > 0 ��.69* �9.68 �5.65r <= 1 r > 1 7.90 15.�1 �0.0�r <= � r = � 0.05 �.76 6.65Maximum eigenvaluesr = 0 r > 0 ��.78* �0.97 �5.5�r <= 1 r > 1 7.85 1�.07 18.6�r <= � r = � 0.05 �.76 6.65
Table 4Johansen and Juselius cointegration test for GDP per
capita, prices, and miles per gallon, 1936-2004
r: Indicates the number of cointegrating relationships. Trace test and maxi-mum eigenvalue statistics are compared with the critical values from Johan-sen and Juselius (1990). * Indicates rejection of the null hypothesis of no cointegration at the 5% level.
be wise to develop a system of prices, technology, and mobil-ity options that help them avoid the difficult choice that the US now faces. Footnotes
1 According to Schipper et al. (2001), space heating followed by electrical appliances account for the greatest share of residential end uses in IEA countries.
� Two or more nonstationary variables are said to be cointegrated if some linear combination of them is stationary. The finding of cointegration among economic variables is interpreted as proof of a long-run, equilibrium relationship. More on cointegration follows
References
Akarca, A.T. and Long, T.V., 1980, On the relationship between energy and GNP: reexamination. Journal of Energy and Development 5, ��6-��1.
Elliott, G., Rothenberg, T.J., and Stock, J.H., 1996, “Efficient tests for an autoregressive unit root,” Econometrica, 6�, 81�-8�6.
Engle, R.F. and Granger, C.W.J., 1987, “Co-integration and error correction: representation, estimation, and testing,” Econometrica, 55, �, �51-�76.
Glasure, Yong U. and Lee, Aie-Rie. 1997. Cointegration, error-correction, and the relationship between GDP and energy: The case of South Korea and Singapore. Resource and Energy Economics 20, 17-�5.
Hall, A., 199�, “Testing for a unit root in time series with pretest data-based model section,” Journal of Business and Economic Statis-tics, 1�, �61-�70.
Johansen, Søren and Katarina Juselius, 1990, “Maximum Likeli-hood Estimation and Inferences on Cointegration-with applications to the demand for money,” Oxford Bulletin of Economics and Statistics, 5�, 169-�10.
Kraft, J. and Kraft, A. 1978. On the relationship between energy and GDP. Journal of Energy and Development �, �01-�0�.
APPENDIX
Table A1-a
Results from unit root tests on levels and first differences of GDP per capita, prices, motor fuel use, vehicle-miles
traveled, and miles per gallon using Dickey-Fuller with GLS detrending
Levels First differences
Trend & constant Constant Trend & constant Constant
LGDP -3.80 [1]*** 1.03 [11] -2.24 [10] -0.97 [10]
LPRICE -3.26 [4]* -0.92 [2] -7.12 [1]*** -6.99 [1]***
LMFU -0.91 [5] 0.77 [5] -1.73 [4] -0.50 [4]
LVMT -2.14 [4] 0.84 [5] -5.10 [0]*** -4.81 [0]***
LMPG -1.24 [0] -0.50 [0] -6.09 [0]*** -2.67 [0]***
The Elliott-Rothenberg-Stock DF-GLS test statistic is shown. The numbers in brackets are the optimal lags
determined by Hall’s general-to-specific procedure. Levels of significance are indicated by ***, **, and *, referring
to the 1%, 5%, and 10% levels, respectively.
Table A1-b
Results from unit root tests on levels and first differences of GDP per capita, prices, motor fuel use, vehicle-miles
traveled, and miles per gallon using Ng and Perron test with GLS detrending
Levels First differences
Trend & constant Constant Trend & constant Constant
Za Z
t Z
a Z
t Z
a Z
t Z
a Z
t
LGDP -23.37 [1]** -3.41 [1]** 0.75 [1] 0.54 [1] -17.87 [0]** -2.98 [0]** -10.07 [0]** -2.20 [0]**
LPRICE -22.76 [1]** -3.03 [1]** -2.83 [0] -1.11 [0] -41.31 [0]*** -4.40 [0]*** -40.11 [0]*** -4.40 [0]***
LMFU 0.63 [3] 0.80 [3] 0.62 [3] 0.80 [3] -22.70 [0]** -3.34 [0]** -0.92 [4] -0.55 [4]
LVMT 0.95 [4] 0.97 [4] 0.95 [4] 0.97 [4] -27.31 [0]*** -3.69 [0]*** -25.40 [0]*** -3.56 [0]***
LMPG -2.29 [0] -1.02 [0] 0.70 [0] 0.53 [0] -31.34 [0]*** -3.95 [0]*** -12.69 [0]** -2.52 [0]**
The Ng-Perron test statistics are shown. The numbers in brackets are the optimal lags determined by the Schwartz
information criterion. Levels of significance are indicated by ***, **, and *, referring to the 1%, 5%, and 10%
levels, respectively.
(Referencescontinuedonpage31)
Dialogue 10
The Nuclear Waste DilemmaByVitoStagliano*
A new generation of nuclear reactors, which could help mitigate climate change, is less likely to be built in the United States if nuclear plant owners and the public are not persuaded that the government is able to meet its obligation under the law to safely sequester radioactive spent fuel. In theory, this could be achieved by certifying, licensing and beginning to operate the geologic repository proposed for Yucca Mountain, Nevada, to which end the Department of Energy (DOE) has been labor-ing since 19871. In practice, it is not at all clear that DOE will be able to satisfy the safety and environmental licensing criteria imposed by law for a repository at Yucca Mountain, now or in the foreseeable future.
DOE was to have submitted a licensing application for Yucca Mountain to the Nuclear Regulatory Commission (NRC) in 2004, and may have difficulty meeting its newly self-im-posed deadline of June �008. Construction license approval is not expected before at least �01�, followed by virtually certain litigation, possibly lasting a decade or longer.� Even aside from regulatory delays, receipt of waste at Yucca Mountain, at the planned rate of approximately �,000 metric tons per year, is unlikely to begin before �0�0.� The Yucca Mountain site may prove difficult to license as a permanent repository because the environmental and safety criteria that the site must eventually satisfy remain under a legal cloud.� If, then, the Yucca Moun-tain repository proves infeasible as a disposal site, or is much longer delayed,5 what are the implications for new investment in nuclear plants, and what alternatives are available to manage the spent fuel that is held at civilian nuclear reactors?
Until other interim storage options are developed, the man-agement of spent fuel at civilian reactor sites remains the re-sponsibility of nuclear plant operators, while the disposal of the spent fuel is a responsibility of government, a function assigned by the Nuclear Waste Policy Act (NWPA) of 1982, as amended in 1987 and 199�. The distinction between the two sets of re-sponsibilities results in asymmetric decision-making authority on the future expansion of civilian nuclear power: The private investors who might finance new nuclear plants have no con-trol over the decisions of Federal legislators and regulators to establish a permanent waste disposal repository. This asymme-try has important consequences, among other reasons because nearly two dozen states have enacted legislation that variously limits or prevents the expansion of nuclear power capacity in their states. Eleven States prohibit new plant construction in the absence of a regulatory finding that there exists a demonstrable technology or means of disposal of high level nuclear waste.6
There are an estimated 5�,000 metric tons of spent fuel at 65 active reactor sites in �1 States.7 The total is projected to reach 80,000 metric tons by the end of existing licenses, and 1�0,000 tons if one assumes 100 percent license renewal. The
legislatively established capacity of Yucca Mountain is 70,000 tons, with 7 thousand tons of that capacity to be used for the dis-posal of military wastes. Importantly, the tonnage limit that was statutorily set for Yucca Mountain was intended to ensure that not all U.S. nuclear waste would be sent to Nevada. Rather, the crafters of the NWPA of 1982 assumed that there would be two national repositories, one in the West and one in the East, the latter being home to the majority of U.S. nuclear power plants. The political balance of the NWPA was fractured by Congress in 1987 with the designation of Yucca Mountain as the sole na-tional repository. Nevertheless, the legislation requires the Sec-retary of Energy to report to Congress between �007 and �010 on the need for a second repository site. .
Experience in the management of spent nuclear fuel is measured in decades, whereas disposal requirements are mea-sured in millennia.8 Spent fuel contains radioactivity with half lives ranging from fractions of a second to millions of years, which explains the requirement for strict standards for 10,000 years and for somewhat more lenient but not less demanding standards for up to 1 million years. Whether DOE can demon-strate compliance with such standards in the context of a liti-gated regulatory proceeding will determine the licensability of the Yucca Mountain repository.
The NWPA assigned distinct regulatory roles to DOE, the Environmental Protection Agency (EPA) and the NRC. DOE is responsible for the siting, design, construction and operation of the repository. EPA is responsible for establishing generally ap-plicable standards for protecting public health and the environ-ment from releases of radioactive material. The NRC is respon-sible for licensing the repository, if DOE’s application shows that the repository can comply with EPA standards.
The Energy Policy Act of 199� instructed the EPA to pro-mulgate “public health and safety standards for protection of the public from releases from radioactive materials stored or disposed of in the repository at the Yucca Mountain site.” Al-though the final standards that will govern the NRC review of a DOE application have not yet been promulgated, it is expected that the standards governing the performance of the repository over the first millennium will have the following characteris-tics:
(1) A reasonable expectation that, for 10,000 years follow-ing disposal, the reasonable maximally exposed individual receives no more than an annual effective dose equivalent to 15 millirems from releases from the undisturbed Yucca Mountain disposal system.
(2) A “human intrusion standard” showing that a human will not receive more than the specified dose even if humans drill, intentionally or otherwise, into a waste package dur-ing the 10,000 year period
(3) A reasonable expectation that for 10,000 years of un-disturbed performance, releases of radionuclides from Yucca Mountain will not cause the level of radioactivity in groundwater to exceed certain stringent limits. DOE may be able to present a case, based on extensive
modeling, that the standards can reasonably be met, but its methods are certain to be challenged in litigation surrounding
* Vito Stagliano, a former Deputy Assistant Secretary of En-ergy, is the author of ‘A Policy of Discontent: The Making of a National Energy Strategy.”
See footnotes at end of text.
11 Dialogue
the NRC licensing process. The satisfaction of a dose stan-dard for an extended period may prove challenging, because the peak dose is not expected to materialize for several hundred thousand years, after the projected collapse of the containers that will hold the spent fuel, and because significant uncertainty surrounds any projections over a period of more than a few hundred years. In sum, DOE confronts a formidable litigation challenge in establishing legal compliance with EPA standards that, not incidentally, remain un-promulgated as a result of out-standing legal challenge.
The scientific and engineering community seems confi-dent that deep geologic disposal can adequately isolate spent fuel from the environment for the necessary long periods of time. However, it is not obvious that any site, including Yucca Mountain, could be licensed under the current regulatory crite-ria. Advances in recycling technology may ease the disposal challenge by removing some of the longer-lived radionuclides that make modeling so difficult, but extensive R&D must be undertaken first to establish this fact, notwithstanding the Bush Administration’s proposal for the nation to commit to a fuel re-cycling program known as the Global Nuclear Energy Program (GNEP).9
GNEP requires the construction of breeder reactors that recycle spent nuclear fuel into a mixture of enriched uranium and plutonium. Although nuclear fuel recycling programs exist in Europe and provide fuel to reactors in Japan and elsewhere, they have been historically rejected as a U.S. policy option. The last national effort in that direction, called the Clinch River breeder reactor that was to have been built in Tennessee, was terminated by President Gerald Ford, re-terminated by Presi-dent Jimmy Carter, resurrected briefly by President Ronald Reagan and finally eliminated from consideration in the early 1980s. the GNEP proposal may suffer a similar, if shorter-lived fate, among other reason because the civilian nuclear industry has shown no interest in building anything other than light or pressurized water reactors of standard design.
Fuel recycling options notwithstanding, nuclear spent fuel storage options are available for the next 50 to 100 years that satisfy prevailing regulatory criteria. These essentially are: • Storage Pools: Spent fuel must be stored in spent fuel pools
for approximately the first five years after the fuel is re-moved from the reactor. There is no regulatory time limit on how long spent fuel can be kept in pools, other than pool capacity, the need to ensure equipment integrity and ongo-ing oversight and security.
•Dry cask Storage: After the initial pool cooling, spent fuel can be stored in casks that have been authorized for use by the NRC.10 Spent fuel may remain in dry casks for up to 60 years under current licenses.11 Cask storage could occur at reactor sites, �7 of which already have it, or at a spe-cifically designed and separately licensed interim storage facility. Senator Pete Domenici of New Mexico has proposed legis-
lation to establish Consolidation and Preparation (CAP) sites in each of the �1 states that currently store spent fuel, with states designating the interim sites. It should be noted that efforts to
establish an interim storage facility at the Goshute Indian reser-vation in Utah and earlier in New Mexico and Tennessee have faced strong opposition. By the same token, the National As-sociation of Regulatory Utility Commissioners (NARUC) has gone on record as supporting centralized interim storage op-tions, but opposing the use of Nuclear Waste Fund1� resources to finance and operate such facilities.
The NRC has taken the position that both pool and dry stor-age are adequately safe and secure. The National Academies have stated that “dry cask storage has inherent advantages over spent fuel pool storage, but it can typically only be used to store older spent fuel.” Current policy does not require the transfer of spent fuel to dry storage for security or other reasons, but licensees have moved forward with dry storage because of the limited capacity of spent fuel pools.
DOE has estimated that Federal liability for spent fuel stor-age at reactor sites is approximately $500 million per year. The Nuclear Energy Institute, which represents the nuclear industry, has indicated that the total cost to the Government arising from its failure to meet its obligation to take possession of the fuel in 1998, as required by law, may amount to $56 billion1�. Be-cause there are also costs associated with the creation of central-ized interim storage and the establishment of such a facility or facilities will take time, the determination of when and whether centralized storage is an economic option requires assumptions about when a disposal facility might be available and a careful analysis of costs.
Recently retired NRC Commissioner Edward McGaffi-gan has described U.S. efforts to establish a permanent nuclear waste repository as follows: “Yucca Mountain has been beset by bad law, bad regulatory policy, bad science policy, bad per-sonnel policy, bad budget policy throughout its history.1� By contrast, Deputy Secretary of Energy Clay Sell has indicated that: “We are confident that a good facility, an adequate facility, can be built (at Yucca Mountain)”.15
Whether optimism or pessimism governs the next stage of action and debate on this issue, and in light of the obstacles that appear certain to complicate the licensing of a repository, whether at Yucca Mountain or elsewhere, consideration should be given to a reassessment of nuclear waste policy, with a view to re-establishing, at least in part, the political consensus re-flected in the initial statute. The Congressional leadership and the President should consider appointing an independent bipar-tisan commission with the mandate to recommend a new di-rection on the management of nuclear waste that will end the present stalemate. Among the considerations that such a com-mission would examine would be:
(1) To reform the Nuclear Waste Policy Act (NWPA) by aligning its requirements with human engineering and scientific capabilities, while simultaneously ensuring ad-equate protection of public health and safety and of the en-vironment. A one million year frame of reference is well beyond human engineering capability and cannot therefore be adopted as a meaningful regulatory criterion.
(2) To amend the NWPA in order to require DOE to site and operate consolidated national or regional interim storage
Dialogue 1�
options, and test the viability of such sites and the capabil-ity to manage them effectively, as a prelude to permanent disposal options.
(3) To undertake research, development and demonstration (RD&D) of technological alternatives to the direct geo-logic disposal of waste from the present once-through fuel cycle. Research would focus on ways to meet commercial requirements as well as non-proliferation objectives, re-duce the volume of waste or the toxicity of some waste streams, and ensure protection of public health and safe-ty.16 The Commission would further examine the extent to which the GNEP program would be likely to contribute to the achievement of any of its multiple objectives17.
(4) To require the Secretary of Energy to take title and pos-session of spent fuel stored at reactor sites, even if nuclear utilities would continue to manage such storage under con-tract. This would be possible only by legislative action that would also authorize the use of Nuclear Waste Fund re-sources for the purpose of financing interim storage.
(5) To legislate confidence-building measures assuring States, the nuclear industry and the public that interim stor-age of nuclear waste would not become a permanent condi-tion as a result of Federal default or avoidance of contrac-tual responsibility, and that permanent disposal sites would be selected by the application of scientific rather than po-litical criteria.In sum, civilian nuclear technology can make a substantive
contribution to generation of electricity that is free of carbon and other harmful emissions. But, investment in new nuclear capacity, which is complex under any circumstances, is ren-dered more problematic by the perception that the establish-ment of a nuclear waste repository at Yucca Mountain is hope-lessly stalemated. It would benefit both enterprises if one were not considered a predicate of the other. Spent fuel can be safely stored at current reactor sites for the next century, thereby pro-viding the timeframe needed to find an acceptable solution to its permanent disposal. By the same token, interim storage op-tions should not be allowed to indefinitely defer Federal respon-sibility for the selection and construction of the two geologic disposal sites – East and West – on which rested the political consensus of the Nuclear Waste Policy Act of 1982. Footnotes
1 In 1987 Congress Amended the Nuclear Waste Policy Act (NWPA) of 1982 and selected Yucca Mountain as the sole site to be evaluated as the permanent U.S. nuclear waste geologic repository.
� Litigation associated with EPA’s promulgation of health and safety standards for Yucca Mountain began in 1986. It was addressed most recently by the U.S. Court of Appeals for the District of Colum-bia in �00�. That Court vacated the EPA standards. A new round of litigation is expected when EPA re-promulgates the standards.
� DOE has established a schedule for opening the facility in �017, but has acknowledged that delayed opening is likely.
� As this is written, the revised EPA standards for Yucca Moun-tain have not been promulgated, but their promulgation is imminent. The legal challenge to the standards in the courts will then no doubt commence.
5 Yucca Mountain might eventually be considered a possible
interim, monitorable and retrievable nuclear waste storage site, even if it proves impossible to license as disposal site.
6 The 11 states are California, Connecticut, Hawaii, Illinois, Kentucky, Maine, Minnesota, Oregon, Vermont, West Virginia, and Wisconsin. For further discussion of the various State statutes on the subject, see Wisconsin Legislative Council Staff Memorandum (#2) at www.legis.state.wi.us/lc
7 The spent fuel is presently stored at 65 active plant sites, 9 sites with no operating reactors, 1 commercial storage site (Morris) and 2 DOE sites.
8 Human history has been recorded for approximately 5,000 years.
9 The GNEP Strategic Plan, issued by DOE in January 2007 calls for a program to (a) “develop, demonstrate and deploy advanced technologies for recycling spent nuclear fuel that do not separate plutonium…”(b) “develop, demonstrate and deploy advanced reac-tors that consume transuranic elements…” (c) “establish supply arrangements among nations to provide reliable fuel services world-wide for generating nuclear energy…”(d) “develop, demonstrate and deploy advanced, proliferation resistant nuclear power reactors…”, and (e) “in cooperation with the IAEA, develop enhanced nuclear safeguards to…monitor nuclear materials and facilities…”
10 1� cask designs have been licensed and it is to be expected that approval for multipurpose casks, which will allow authorizing storage, transportation, and disposal, will be sought in the future.
11 The Surry plant in Virginia recertified its dry cask system for an additional �0 years beyond the original �0-year license.
1� Nuclear utilities and their customers finance the cost of nuclear waste disposal by paying into the Nuclear waste Fund a fee equal to 0.01 cent/kilowatt-hour of power generation. Since incep-tion, the Nuclear Waste Fund has received fees totaling $15.1 billion and has reported returns on investment of $10.9 billion. DOE has spent $6.7 billion on Yucca Mountain, leaving a balance in the Fund of $19.� billion. It should be noted that, like most Federal trust funds, the NWF represents Federal IOUs whose disbursements are subject to annual Congressional appropriations. Estimates are by Brian O’Connell, Director, Nuclear Waste Program Office, NARUC.
1� Under the present statute, DOE was required to begin taking possession of spent fuel at civilian reactor sites starting in 1998.
1� Las Vegas Review-Journal of January 23, 2007, as reported by Steve Tetreault
15 PLATTS of 5 December �006, as reported by Daniel Whitten.16 The recommended pursuit of R&D should not be interpreted
as a change in NCEP policy with regard to the “long-standing U.S. moratoria on commercial reprocessing of spent nuclear fuel and construction of commercial breeder reactors.”
17 The GNEP strategic plan published by DOE in January 2007 lists a multiplicity of objectives, including: expansion of nuclear power, development, demonstration and deployment of advanced reactors that consume transuranic elements and of fuel recycling technologies, provision of world-wide fuel services, design of pro-liferation-resistant reactors, enhanced international (IAEA) nuclear safeguards, reduction of nuclear waste, etc.
1� Dialogue
Renewed Interest in Demand Response, But “Wither the Economic Rationale for Efficient Pricing?ByJohnKelly*
I. Introduction
“When a person doesn’t have much to say about a subject, he or she discusses its history,” according to an old adage. It might also be said that if a person isn’t familiar with the history of a subject then he or she probably won’t have much worth-while to say about it. This article begins by recalling some of the history of marginal cost pricing for electricity service before focusing on current discussions of “demand response” in the United States.
The time for implementing practical marginal cost pricing programs is long overdue, and almost anything that encourages marginal cost pricing is beneficial, whether under the guise of demand response or otherwise. However, it is appropriate to ask whether current analyses and discussions of demand response – which have become a cottage industry – are producing more heat than light on the subject because they stray from basic no-tions about economic costs.
II. Demand Response Proposal More than a Century Old
Professors John Neufeld and William Hausman tell us that in 189� engineer Alfred Gibbings made the case for time-of-use rates in terms that “came quite close to holding that prices should equal marginal costs.” He criticized rates based on de-mand charges on grounds that are essentially the same as those modern economists use to criticize such charges. Neufeld and Hausman go on to note that W.S. Barstow, an engineer like Gibbings, was another early advocate of time-of-use rates and argued for the principle of marginal cost pricing. In 1895 at a meeting of the Association of Edison Illuminating Companies (AEIC), he argued that a utility should charge “customers a low rate during the light load” periods. Particularly interesting is Barstow’s rationale for adopting time-of-day rate structures:
The two-rate system seems to produce two desired results: (1st.) The broadening of the maximum peak, and (2nd.) an equal-ly important result, the increasing of minimum peaks; that is it encourages the forming of peaks during the minimum period of the load curve.
This justification is especially important because it states a central rationale for the principle of marginal cost pricing. It recognizes the implications of such pricing for economic effi-ciency of electricity production and lowering costs, specifically by designing rate structures to improve the utilization of elec-tricity plants and to lower average costs.
It seems that engineers, like Gibbings and Barstow, were the first to recognize the important connection between time-differentiated rates, capacity utilization, and costs. Hausman and Neufeld “found no evidence that professional economists had any input into the electric power industry’s discussions
about rate structures” during the very early years of the indus-try. But when economists eventually enter discussions about rate structures “they immediately embraced time-of-day rates on the basis of marginal cost considerations, even though they did not use the term ‘marginal cost.’” For example, in a 1911 paper titled Rates for Public Utilities, John Maurice Clark ad-vocated prices based on marginal cost:
If consumers can make extra demands on the utility with-out paying as much as the extra expense they are causing, they are likely to make wastefully large demands on it… But any consumers who can not make extra use of the utility without paying many times more than the extra expense they would be causing, will skimp on their use, and the tendency will be to keep the plant in wasteful idleness”
About ten years later, economist George Watkins wrote one of the first books, Electric Rates, devoted solely to the pric-ing of electricity. Hausman and Neufeld found that “the jus-tification for differential rates was clear” to Watkins; it “was to improve the efficiency of resource allocation. Differential rates existed solely to improve the utility load factor and Wat-kins emphasized rates reflecting marginal costs as the way to achieve this greater efficiency and enhance social welfare.” The main reason customers should be charged more during peak pe-riods than non-peak periods, Watkins said, was to encourage consumption during non-peak hours, thereby making better use of utility plants and lowering the average cost of electricity.
The emphasis on the importance of marginal cost as a guide to efficient pricing and the efficient use of existing resources was continued in the 19�0s with Harold Hotelling’s classic pa-per “The General Welfare in Relation to Taxation and of Rail-way and Utility Rates.” James Bonbright at the time considered Hotelling’s “one of the most distinguished contributions to rate-making theory in the entire literature of economics.”
From the late 19�0s to the end of the twentieth century, Professor William Vickrey was among the leading proponents of efficient pricing of utility services. He urged that electric rate structures should “be developed by careful weighing of the rele-vant factors with a view of guiding consumers to make efficient use of facilities that are available.” He argued that electricity should be priced based short-run marginal cost, and although the principle need “not in practice to be followed absolutely, it must play a major and even dominant role in the elaboration of any scheme of rates or prices that seriously pretends to have a major motive of the efficient utilization of available resources and facilities.”
More broadly, marginal cost principles are recognized as the starting point for the proper pricing of goods and services. Thomas Nagle and Ronald Holden tell managers in other indus-tries that “not all costs are relevant for every pricing decision.” Relevant costs are “costs that are incremental (not average), avoidable (not sunk).” They go on to note that relevant costs are “those that actually determine the profit impact of the pric-ing decision.”
Unfortunately, most discussions of demand response ob-scure the compelling economic logic that prices should reflect the time-varying cost – the marginal cost – of electricity service
* John Kelley is with the American Public Power Association. The views expressed here are the author’s and do not necessarily rep-resent those of the American Public Power Association or any of its members.
Dialogue 1�
so that existing facilities are used more efficiently and rates are lower than under existing ratemaking practices based on fully allocated cost accounting practices.
III. A Renewed Interest in Demand Response, But “Wither the Economic Rationale for Efficient Pricing?”
The last time there was such high interest in demand re-sponse as there is today was in the late 1970s after the Public Utility Regulatory Policies Act was enacted. A large part of the recent interest is due to the disconnect between the time-vary-ing prices of electricity in spot markets and the essentially non-varying prices charged in retail markets.
In 2004, the Government Accountability Office issued a report that concluded that increased use of demand response would improve efficiency in the electric utility industry and rec-ommended that state utility commissions do more to promote demand response programs. The Energy Policy Act of �005 directed the Secretary of Energy to provide “Congress with a report that identifies and quantifies the national benefits of de-mand response and make a recommendation on achieving spe-cific levels of such benefits.” The U.S. Department of Energy (DOE) early the following year issued a report titled Benefits of Demand Response in Electricity Markets and Recommenda-tions for Achieving Them. The Act also instructed the Federal Energy Regulatory Commission to assess the use of demand response programs and related metering technologies in the na-tion, and in August 2006 the FERC released the results of an industry-wide survey. In addition, states have showed renewed interest in demand response. For example, the state of Califor-nia commissioned a study to evaluate the benefits of so-called “critical peak pricing” that would allow sharply higher prices during critical peak times.
But what does the term “demand response” mean? The term is variously defined, but DOE’s definition is representa-tive:
Changes in electricity usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.
The DOE report says that states should consider aggres-sive implementation of price-based demand response a “high priority.” They should do this because “flat, average-cost retail rates that do not reflect the actual cost to supply power lead to inefficient capital investment in new generation, transmission, and distribution infrastructure and higher electric bills for con-sumers.” More specifically, it says:
...[the] disconnect between short-term marginal electric-ity production costs and retail rates paid by consumers leads to an inefficient use of resources. Because customers don’t see the underlying short-term cost of supplying electricity, they have little or no incentive to adjust their demand or supply-side conditions. Thus, flat electricity prices encourage customers to over-consume relative to an optimally efficient system in hours when electricity prices are higher than average rates, and un-der-consume in hours when the cost of producing electricity is lower than average rates. As a result electricity costs may
be higher than they would otherwise be because high-cost gen-erators must sometimes run to meet the non-price responsive demands of consumer.
This rationale for demand response is a thoughtful one and in keeping with the views of engineers and economists who recommended early on the use of marginal cost principles in designing electric rates. Unfortunately, rather than elaborating on the point that prices should reflect marginal costs and mak-ing the logic and necessity of the connection between costs and prices more accessible to laypersons, the report adopts a more ambiguous rationale for demand response..
DOE’s rationale for demand response programs shifts from costs to value. Such programs are recommended because they “reflect the value” of electricity in different periods as well as its cost. Then, prices based on value are given first rank: “The most important benefit of demand response is improved re-source efficiency of electric production due to closer alignment between customers’ electricity prices and the value they place on electricity (emphasis added).” Later, time-of-use pricing is discussed in the context of “time-varying value of electricity,” and the fact that prices should track time-varying costs is all but abandoned.
In its recommendations to foster price-based demand re-sponse programs, the DOE report says that states with retail competition “should consider adopting [real-time-pricing] as their default service option for large customers (emphasis added),” and states that do not allow retail competition should consider offering real-time pricing programs on an “optional basis (emphasis added).” For medium and small business cus-tomers, it calls for more studies to determine if “homogeneous sub-sectors” of this group may be “better candidates for price-based demand response” programs. Similarly, for residential customers the report calls for more studies to investigate the cost-effectiveness of time-of-use pricing and critical peak pric-ing programs in particular.
IV. Problems with Current Characterizations of Demand Re-sponse
Implicit in the popular definition of demand response is the basic economic fact that demand curves slope downward; when prices go up, demand goes down. But this elementary fact is couched in terms that make it abstract and elusive. As a result, discussion of demand response, especially in regard to time-of-use pricing, does not get off to a clear start.
Basic notions about economic costs do not play a promi-nent role. The insights of previous, prominent economists seem to be forgotten. Current characterization of demand response as “changes in electricity usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time ….” obfuscate rather than clarify the basic economics of what is going on. They mask the fact that “normal consumption patterns” are in fact abnormal by eco-nomic standards because consumption of electricity is based on prices that stray significantly from economic costs. During peak hours prices may be half or a third of what they should be, using economic costs as the benchmark, and during non-peak periods two or three or more times more than they should be.
15 Dialogue
Discussions of demand response seldom focus on the “wasteful idleness” Clark identified that results when at times consumers fail to pay “as much as the extra expense” of elec-tricity service while at other times they “forgo extra use of” electricity service because the price is “much more than the extra expense.” Nor is much said about the benefits of encour-aging consumption during non-peak hours to make better use of utility plants, or, as Vickrey put it, “to make efficient use of facilities that are available.” Instead, discussions emphasize value-based pricing.
One reason the term cost is seldom heard in discussions of demand response is that it is assumed that wholesale power markets are competitive and that market prices reflect economic costs. But markets may not be sufficiently competitive so that prices reasonable approximate the economic cost to society of producing another kilowatt-hour of electricity.
The emphasis on market prices and the short shrift given to the question of whether market prices reflect economic costs are legitimate concerns of consumers. And when consumers are told that the most important benefit of demand response is the increased efficiency that results from “a closer alignment be-tween” the electricity prices they pay “and the value they place on electricity,” it is reasonable for them to be wary of such demand-response pricing proposals. The average consumer doesn’t have to know the subtleties of theories about consumer surplus and price discrimination to figure out that something is wrong.
Finally, another consequence of discussions of demand response becoming un-tethered from their economic moorings is that recommendations to improve the pricing of electric ser-vice lack the importance and imperative force they should have. For example, while the DOE report urges states to consider ag-gressive implementation of time-based rates and give imple-mentation of such rates high priority, its recommendations are restrained and fail to follow the logical consequences of its as-sertion about the “disconnect between electricity production costs and retail prices.”
States with retail competition are urged to “consider adopt-ing” real-time-pricing as the default service for large customers, and states without retail competition are encouraged to “con-sider offering real-time-pricing on an ‘optional basis.’” The clear suggestion is that customers should be given an option of paying the real economic cost of electricity or traditional rates which don’t reflect such costs. Although such an option con-tradicts basic economic notions about the relationship between costs and prices, many advocates of demand response propose such an option.
V. Changing the Rhetoric of Demand Response
Posing the rationale for demand response programs — es-pecially time-of-use pricing programs — more directly and concretely as simply a matter of matching prices to the real economic costs of electricity would make it easier for consum-ers and policy makers to understand and accept. They are not likely to completely understand the subtleties of marginal costs and marginal revenues, but they will readily understand that
prices have to at least cover the variable cost of producing an additional kilowatt-hour of electricity.
The fact that the relevant, additional cost is the cost of the last unit produced has to be explained to them in terms they can understand and with analogies from other industries. For example, other businesses don’t sell products for less than the cost of the latest addition to their inventories nor in a competi-tive market can they sell them at prices significantly above the cost of the latest increment of inventory.
The point that needs to be driven home is that if prices don’t at least cover the extra cost of producing electricity or are too far above such costs, bad economic things happen. Too much capacity is built and it is underutilized to boot. The result is significantly higher average prices. Too few kilowatt-hours are spread over too much capacity instead of more kilowatt-hours being spread over relatively less capacity.
This is all, of course, old hat to economists. But despite this there is a continual call for more studies on demand response and time-varying pricing, in particular. Though there may be room for specialized studies that deal with implementation of specific time-of-use rates, the studies churned out at academic institutes only confirm what most economists already know is true. Fully allocated cost pricing causes grossly inefficient use of existing resources and substantial cross-class subsidies, and prices that reflect economic costs correct such problems.
The economic concepts and adequate information are al-ready available to justify and implement time-based pricing in a practical and effective way. There is no need for more stud-ies on the efficacy of time-varying prices or on price elastici-ties before moving forward. Educating consumers about basic economic realities and designing practical and useful pricing programs based on marginal cost principles are needed.
To the extent that retail electricity prices are tied to market prices, consumers need assurance that the market prices reflect the economic costs to society of producing an additional kilo-watt-hour of electricity rather than significant markups in prices due to the exercise of market power. Economic efficiency not only requires efficiency in producing electricity but also in pric-ing it.
The main impediments to adopting time-varying rates are: the lack of understanding by consumers and policy mak-ers about what the real costs of electricity are and the negative economic consequences of not setting prices to approximate the time varying economic costs of electricity; and the political will to jettison the baggage of average, fully allocated cost pric-ing. Educating consumers on the economic costs of electricity and assuring them that time-based rates are not being used as a pretext for exercising market power will promote consumer acceptance of such rates. And this in turn should increase the political will of policy makers to gradually, but deliberately, shift from average, fully allocated cost pricing to time-based pricing.
VI. A Practical Approach to Employing Marginal Cost Principles
Discussions of time-varying prices for electricity often focus on what might be ideal or possible rather than on what
Dialogue 16
Announcement10th Annual USAEE/IAEE/ASSA Meeting
New Orleans, Louisiana, USA January 4-6, 2008
HotTopicsinEnergyModelingPresiding: Carol Dahl, Colorado School of Mines
Reid W. Click and Robert J. Weiner, George Washington University – ResourceNationalismMeetstheMarket:ModelingPoliticalRiskandtheValueofPetroleumReserves
Erin Baker, University of Massachusetts, Haewon Chon, University of Maryland, Leon Clarke, Joint Global Change Re-search Institute, and Jeffrey Keisler, University of Massachusetts –Uncertainty,ClimateChange,andAdvancedSolarR&D
Thomas K. Lee, Marymount University and John Zyren, U. S. Energy Information Administration – TheSourceandTrans-missionofVolatilityinPetroleumMarkets
Cynthia Lin - University of California, Davis -- DoFirmsInteractStrategically?:AStructuralModeloftheMulti-StageInvest-mentTimingGameinOffshorePetroleumProduction
Discussants: Douglas Reynolds, University of Alaska-Fairbanks James L. Smith, Southern Methodist University Frederick L. Joutz, George Washington University Wumi Iledare, Louisiana State University
Abstracts will be posted soon at http://www.iaee.org/en/conferences/
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. Also watch for the USAEE/IAEE Cocktail Party.
is necessary or desirable. The best becomes the enemy of the good. Or, from the opposite perspective, discussions focus on metering and billing requirements to implement time-varying prices and they are presumed to be too costly. In regard to the latter concerns, increased metering and billing costs are likely to be relatively minor in the scheme of things. Metering and billing costs must be viewed in the context of billions of dollars of generating capacity that remains idle almost half the time, and billions of dollars of peaking capacity that is unnecessary or could be replaced with more efficient capacity if capacity factors were improved.
Time-varying prices can be implemented at numerous de-grees of precision ranging from real-time pricing to season rates with little variation. But time-of-use metering does not require state-of-the-art technology, or need to meet the standards of optimum efficiency contained in theoretical models of perfect competition. Nor does it have to entail significant increases in administrative complexity or cost. It can build on the time-of-use pricing programs already in place.
One practical approach might be for a utility to identify three or four seasons of the year that reflect significant changes in electricity demand. For each season there would be three or four times during that day that prices would vary. Each Janu-ary, the utility would send customers a small card (perhaps a magnetic one that could be attached to a residential customer’s refrigerator) that displays a matrix with four columns for the
seasons and three or four rows for the times of the day. Sea-sonal, time-of-day prices would be printed in the boxes of the matrix. Some prices would not vary greatly but others would, especially during peak periods.
Prices would reflect the utility’s recent and anticipated ex-perience in relevant wholesale power supply markets, and would establish the basic structure of prices for the year. This basic structure could then be updated annually and further refined where appropriate. More precise time-based prices (by the hour, for example) could be implemented at industrial or commercial facilities that use relatively large amounts of electricity.
There is nothing fundamentally new about what is being proposed here. Time-of-use pricing programs are currently of-fered by many utilities. They only need to be expanded and refined. They need to be expanded by doubling or tripling the number of time-based pricing periods, and refined by a closer alignment of prices to marginal costs.
These modest adjustments to existing TOU pricing pro-grams would pay large economic dividends. What is needed to implement them is educating consumers and policy makers about: the real economic costs of electricity; the economic ben-efits of having prices track costs; and the economic penalties if prices don’t track costs. The biggest hurdle may be convinc-ing people that time-of-use pricing isn’t another way of saying higher average prices. Also, the political will to do so is essen-tial. No more studies, please!
17 Dialogue
Prospectivity, Productivity, and Profitability on Off-shore Oil and Gas Leases: the Case of the US Gulf of Mexico Outer Continental Shelf (OCS)ByOmowumiIledareandMarkKaiser*
Introduction
In the early 1990s, petroleum industry analysts thought the Gulf of Mexico (GOM) region could only attract the small E&P investors. However, the GOM OCS has re-emerged as the key focal point of oil and gas activity in the U.S. The reason for this turn around has been attributed to several technical advance-ments in offshore drilling and production technology. Because of innovation in technology, areas in the Gulf of Mexico once thought beyond reach in terms of water depth are now explored and developed successfully. Several other factors underly-ing the turn around in the attractiveness of the GOM region to E&P investors might have included the changing structure of the OCS oil and gas industry, government regulatory programs and fiscal incentives, technical progress, and market conditions resulting in high oil and gas prices (Iledare, 1995)
Subsequent to these economic and policy factors, leasing activity in the Gulf OCS increased significantly, especially in the deepwater. New incentives to encourage E&P firms to ex-plore and develop petroleum resources, especially, natural gas in the more difficult areas of the Gulf of Mexico have also con-tributed to the rising trend in leasing activity in the region. It is estimated that without the increase in GOM oil and gas activi-ties, the overall decline in U.S. oil production over the past five years would have been more than double (Baud et. al, 2000). Thus, the prospect of increasing petroleum reserves and sup-ply in the U.S. continue to hinge significantly on making new, sizable, and profitable discoveries in the Gulf of Mexico OCS region, especially in the OCS deepwater.
The objectives in this paper are to characterize and analyze petroleum lease sales and development in the U.S. Gulf of Mex-ico OCS using estimated physical and economic performance measures. The physical performance measures we estimated include lease prospectivity index, lease expeditious index and lease development productivity. In addition, we estimated two economic performance measures, which are profitability index and internal rate of return. The framework we adopted in this paper is called discounted cash flow method. The purpose of a cash flow analysis is to assess whether or not the revenues generated by the project cover the capital investment and ex-penditures and whether or not the return on capital investment is consistent with the risk associated with the project and the strategic objectives of the corporation.
Data Sources and Description
The lease-specific data for this paper are primarily from the Minerals Management Service (MMS), an agency of the U.S. Department of the Interior. Borehole files in the MMS well information database provided data on drilling activity, number of wells completed, and statistics on well status. Information on lease status, effective lease date, lease ownership and des-ignated lease operator were retrieved from MMS Leasing In-formation Data files (U.S. Department of the Interior, Minerals Management Service, 2006). Oil and gas production data were obtained from the production information database, and other relevant information on platforms in the Gulf of Mexico was collected from MMS platform masters, platform structures, and platform locations files.
The source of data for estimating drilling costs per lease was the Joint Association Survey (JAS) of the U.S. Oil and Gas Producing Industry (American Petroleum Institute, 2003). The survey reports well drilling costs for various areas of the U.S. JAS reports drilling for different well depth ranges and for four different types of wells—dry, gas, oil and total. We used MMS well production and borehole data to classify OCS wells into well types. For the purpose of this report, wells with no report-ed production were classified as dry. Further, if the reported gas production over an entire well production history expressed in BOE unit is greater than liquid production, the well is classified as gas. Such wells are classified as oil, otherwise. The aggre-gate cost estimates for capital expenditures—platform instal-lation and removal and operating or production expenses—are from published public reports and studies.1
To estimate gross revenue, first we collected actual histori-cal data on lease-specific hydrocarbon production through 2004 for all leases purchased by firms during OCS lease sales from 198� to 1999. We then projected hydrocarbon production on a lease-specific basis to shut down, using EIA adjusted oil and natural gas price trends forecasted for the Gulf of Mexico OCS region in �00�. Finally, we estimated gross revenue as the sum of the product of natural gas prices and gas production and oil prices and oil production. The revenue series has two compo-nents. The historical revenue from 198� to �00� is based on the adjusted historical oil prices in current dollars reported by the EIA. The projected revenue from �005 to �017 for any lease that has not reached its economic life limit is based on projected oil and gas prices in �00� and projected production using expo-nential production decline functional approach.
Physical Measures of Lease Sales and Development Performance
Lease Development Prospectivity: An after the fact mea-sure of prospectivity by lease category for leases issued from 198� -1999 as of year end �00� is presented in Table 1. In an aggregate sense, �6 percent of 1�,6�1 leases issued from 198�-1999 reported some drilling activity as of year end �00�. Of the 3,581 leases with reported drilling, 43 percent qualified as producible leases from 198� to �00�. Approximately one out of nine leases acquired during this period produced hydrocarbons in the Gulf of Mexico OCS as of year end �00�. Variations in lease prospectivity within a group are evident in Table 1.
* Omowumi Iledare and Mark Kaiser are with the Center for Energy Studies, Louisiana State University, Baton Rouge, LA 70803, USA. For further correspondence: Telephone: (225) 578-4552, Fax: (225) 578-�5�1, Email: [email protected]. An expanded version of this paper is available by request from the authors.
See footnotes at end of text.
Dialogue 18
ExpeditiousDevelopmentIndex: Figure 1 portrays the av-erage aggregate lag from sales to first drilling activity (spud) and from spud to first production by lease category. These mea-sures are called expeditious development indices. The indices provide insights on the perception of owners regarding the eco-nomic potential of a given lease.
The timing of lease sales and development is also impor-tant. The global market conditions do affect rig availability and hence the delay in activity on leases in petroleum producing regions of the world, including the Gulf of Mexico OCS. Figure 1 depicts the aggregate trend in the promptness of lease de-
Table 1Aggregate Prospectivity of Leases Issued from 1983-1999 at Year End 2004
Lease Prospectivity
Leases
Drilled
Ratio
Development
Index
Drilling
Risk
Group/Lease
Category Issued Drilled Producible (%) (%) (%)
Lease Type
All 13,641 3581 1553 26.25% 11.38% 56.63%
Wildcat 12821 3291 1403 25.67% 10.94% 57.37%
Drainage 820 290 150 35.37% 18.29% 48.28%
Firm Size
Top4 5675 907 281 15.98% 4.95% 69.01%
Top5-8 1937 414 200 21.37% 10.32% 51.69%
Top9-20 2510 741 334 29.54% 13.30% 54.98%
Top21-last 3515 1517 737 43.16% 20.97% 51.40%
Water Depth
Depth≤ 60m 5365 2116 1018 39.44% 18.97% 51.89%
60m<Depth≤ 200m 2183 768 313 35.18% 14.34% 59.24%
200m<Depth≤ 900m 2143 430 141 20.07% 6.58% 67.21%
Depth>900m 3950 267 81 6.76% 2.05% 69.66%
Bonus Size
Bonus ≤ $200,000 3528 419 190 11.88% 5.39% 54.65%
Bonus ≤ $400,000 3249 521 220 16.04% 6.77% 57.77%
Bonus ≤ $1,000,000 2749 747 324 27.17% 11.79% 56.63%
Bonus > $1,000,000 3768 1877 817 49.81% 21.68% 56.47%
Firm Type
Independent 6508 2339 1166 35.93% 17.91% 50.15%
Integrated 7128 1240 386 17.40% 5.42% 68.87%
Biding Structure
Competitive 3615 1568 765 43.37% 21.16% 51.21%
Non-Competitive 9679 1996 786 20.62% 8.12% 60.62%
Bidding Conduct
Joint 4063 1996 786 49.13% 19.35% 60.62%
Solo 9231 2150 969 23.29% 10.50% 54.93%
Planning Area
EGM 347 17 2 4.90% 0.58% 88.24%
CGM 8213 2473 1137 30.11% 13.84% 54.02%
WGM 5081 1091 414 21.47% 8.15% 62.05%
velopment index for leases issued from 198�-1999. Declining trends with time in the lag from sales to production on leases are evident in Table � for all lease categories.
If we assume that lease owners are rational economic be-ings, then, leases with expected high cost of development will be delayed for action. It took, on average, 77.� months from effective lease sale time to spud a well on deep water leases. In contrast, it took on average 26.3 months from first drilling to first production on leases in the shelf (water depth of 0-200 meters) for all leases issued from 1983-1999. It is also evident in Figure 1 that the average lags in months from lease sales
19 Dialogue
the slope and deepwater.• On average, integrated firms reported higher profitability
ratios than independent firms.• The estimated index for solo bidders on aggregate is higher
than the index for joint bidders for leases issued from 198� to 1999.
• Profitability ratio of leases in the Central Gulf is higher in magnitude than leases in the Western Gulf, but the differ-ence does not seem to be statistically significant.It is interesting to note further that the impact of bonus pay-
ments, which have been suggested to be regressive in nature, is significant in our analysis with respect to the economic perfor-mance of lease development.
The overall internal rate of return for all 1�,6�1 leases is-sued from 198� to 1999 in the U.S. Gulf of Mexico OCS is es-timated as 6.9 percent. This estimate is extremely low in com-parison to the historical before taxes average rate of return for corporations in the NAICS manufacturing sector according to the U.S. Census Bureau is 17 percent.
The reported low profitability measures in terms of internal rates of return notwithstanding, we found the following quite interesting and significant: (See Table 3)
• In aggregate, leases issued in 1990-199� have a higher annual rate of return on average than leases issued in the 1980s. However, leases issued in the late 1990s, on aver-age, have a lower annual rate of return.
• On the other hand, the average rate of return for productive leases from 1990 to 199� is less than the rate of return in the 1980s and the late 1990s.
• The aggregate average annual rate of return for leases is-sued in the 1980s is higher for leases with single bids than for leases with at least two bids. The reverse, however is the case for the 1990s.
• From 198� to 199�, the rate of return rises with water depth and across time for all productive leases. The same pattern
to first lease production increases with water depth and firm size. Further evaluation of Figure 1 shows that the aggregate lag from sales to production for integrated leases is more than the lag for leases acquired by independent firms from 1983-1999 as of �00�.
LeaseDevelopmentProductivity: Productivity for the pur-pose of this paper is measured as the ultimate hydrocarbons producible (historical plus projected) per lease drilled. No pro-duction is projected for undeveloped leases at the end �00�. Accordingly, the key findings with regards to the productivity of OCS leases issued from 1983-1999 include (see Table 2): • The overall aggregate productivity per drilled lease in the
Gulf of Mexico OCS declined significantly from a high of �,5�6 MBOE for leases issued from 198�-1987 to �,86� MBOE for leases issued in the early 1990s.
• Lease productivity by structure shows higher productivity ratio for drilled solo venture leases in the 1980s and early 1990s than drilled joint venture leases. The reverse, how-ever, was the case for leases issued in the late 1990s, on average.
• There is a strong statistical evidence to suggest that leases receiving at least two bids on the Gulf OCS were more productive than leases that received single bids from 198�-1999.
• Lease development productivity rate as defined above also seems to show an increasing pattern with water depth in the aggregate sense. Lease development productivity rises with water depth, but declines across time significantly.
• A comparison of aggregate lease productivity by bonus size shows a less discernable pattern. In the 1990s, how-ever, there seems to be increasing lease productivity with lease value as expected.
• The estimated aggregate lease development productivity for integrated firms is significantly greater than productiv-ity of leases issued to independent firms and the aggregate lease development productivity shows a declining pattern by firm size from big to small size firms. A declining trend over time is unmistakable for the top eight firms.
• For all categories of leases, the productivity ratios in the early 1980s were significantly higher than productivity ra-tios in the early 1990s, notwithstanding the fact that more leases were issued and drilled in the 1980s than in the early 1990s.
Economic Measures of Lease Development Performance
For the purpose of this paper, we adopted two of the more popular economic performance measures to analyze the perfor-mance of OCS leases issued from 198� to 1999 and developed from 1983 to 2004. The two measures, profitability index and internal rate of return, recognize the time value of money.
The key finding in profitability index analysis is that the estimated indices were significantly low for all categories of leases as defined above. This low finding notwithstanding, we found some notable patterns in this study:
• Profitability index rises from the shelf to the slope and the deepwater, just as lease productivity rises from the shelf to
33.0
32.1
77.3
38.8
31.5
25.9
27.5
37.6
40.1
50.1
29.3
47.1
33.6
29.1
31.7
28.2
63.0
47.0
29.7
24.3
28.9
30.6
28.9
39.2
28.9
37.5
30.3
25.5
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0
Joint Bidder
Solo Bidder
>900m
200m - 900m
60m - 200m
< 60m
Non Top 20
Top 9 - 20
Top 5 - 8
Top 4
Independent
Integrated
Wildcat
Drainage
Conduct
Water D
epth
Firm
Size
Firm
Type
Lease
Type
Aggregate Expeditious Development Index (months)
Sales to Spud
Spud to Production
Figure 1 Aggregate Expeditious Development Index
Dialogue �0
is not evident in the late 1990s, probably because of data limitations.
• The aggregate annual average rate of return rises with firm size in the 1980s, but no definitive trend is apparent across firm size in the 1990s.
• The estimated rate of return for all lease developments by
Table 2 Trend in Productivity by Lease Category, 1983-1999
(Aggregate Annual Average in Million BOE / Drilled Lease)
Group
Lease
Category
1983-
1987
1985-
1989
1990-
1994 1995-1999
Type Drainage 2.899 2.797 2.685 12.927
Wildcat 4.753 4.532 2.874 2.717
Conduct Single Bid 4.516 4.441 2.272 1.921
> 2 Bids 4.681 3.958 3.696 3.741
E&P Type Integrated 6.180 7.145 5.177 4.150
Independent 3.249 2.452 1.908 2.649
E&P Size Top 4 7.259 8.609 4.794 3.291
Top 5 - 8 3.991 2.038 1.808 1.977
Top 9 - 20 3.532 3.323 4.387 3.249
Non Top 20 2.257 2.018 1.831 2.964
Water Depth < 60m 2.440 1.684 1.513 1.800
60m - 200m 2.169 2.418 1.946 1.379
200m - 900m 8.072 10.671 9.746 4.171
>900m 27.819 16.929 16.135 8.688
Structure Solo Bidder 5.112 4.616 2.923 2.640
Joint Bidder 4.093 3.538 2.730 3.438
Bonus Size < $200K 12.673 5.138 2.056 1.851
$200K -
$400K 2.278 1.789 1.350 2.332
$400K -
$1000K 4.264 3.047 3.345 2.445
>$1,000K 4.498 5.208 4.675 3.966
Area Aggregate 4.536 4.268 2.864 2.904
CGOM 5.046 4.568 3.212 2.876
EGOM 0.085 4.422 0.000 0.000
WGOM 3.741 3.638 1.841 2.983
the top four firms declined from 12.7 percent in 1985-1989 to 10.7 percent in 1990-199�, and dropped to 5.7 percent for leases issued from 1995 to 1999.
• All leases issued to integrated firms, on average, have a higher rate of return than independent firms across the lease effective year.
�1 Dialogue
• There is evidence to suggest that the rate of return for pro-ductive leases in the Western Gulf planning area is higher, on average, than for leases in the Central Gulf over the study period. The evidence, however, does not suggest a similar trend for aggregate rate of return for all leases.
Table 3Annual Average Internal Rate of Return Dynamics, 1983-1999
Group Lease Category 1983-87 1985-89 1990-94 1995-99 1983-99
Type Drainage 6.0% 5.4% 10.1% * 7.8%
Wildcat 9.2% 9.2% 9.3% 5.2% 7.1%
Structure Single Bid 10.1% 9.7% 8.7% 4.1% 8.1%
> 2 Bids 5.5% 8.5% 13.4% 10.1% 9.2%
Firm Type Integrated 11.0% 12.2% 9.7% 7.4% 9.7%
Independent 3.4% 5.1% 4.2% 6.7% 4.9%
Firm Size Top 4 11.6% 12.7% 10.7% 5.7% 5.6%
Top 5 - 8 4.2% 9.0% 10.7% 4.3% 9.6%
Top 9 - 20 9.9% 8.0% 13.6% 8.5% 6.9%
Non Top 20 0.6% 0.9% 1.4% 16.5% 7.2%
Water Depth < 60m 1.0% 2.0% 1.8% 2.8% 2.1%
60m - 200m 3.4% 3.4% 9.8% 0.9% 5.5%
200m - 900m 15.0% 16.5% 13.6% 21.5% 15.9%
>900m 22.2% 18.7% 27.2% 12.6% 20.6%
Conduct Solo Bidder 8.8% 8.8% 7.7% 5.4% 13.3%
Joint Bidder 7.9% 9.7% 19.3% 9.2% 9.6%
Bonus Size < $200K 25.3% 15.0% 3.9% 13.3% 10.4%
$200K - $400K 6.3% 4.7% 4.4% 7.2% 5.8%
$400K - $1000K 10.2% 10.6% 15.3% 6.0% 10.6%
>$1,000K 6.9% 8.1% 10.1% 9.4% 8.4%
Area Aggregate 8.1% 8.2% 9.1% 6.2% 7.4%
CGOM 8.9% 8.6% 6.2% 8.8% 7.6%
EGOM 0.0% 17.2% 0.0% 0.0% 17.2%
WGOM 8.2% 9.0% 10.2% 5.2% 9.8%
Summary & Conclusions
The framework adopted in this paper is such that each an-nual portfolio of leases is treated as a unique but interdependent investment decision by firms at different points in time. Thus, in an aggregate sense, the rates of return earned from investment
* Limited data effect.
Dialogue ��
by leases, and also by important lease categories in the Gulf of Mexico OCS region, are estimated.
Regarding prospectivity of OCS in terms of lease develop-ment index, we found that approximately one out of nine leases issued from 198�-1999 produced hydrocarbons in the Gulf of Mexico OCS of �00�.
Our study shows evidence of declining trends over time in the average lag from sales to production on leases issued from 198� to 1999. On average, it took about 78.9 months prior to first production on leases sold from 1983 to 1987. In compari-son it took approximately 50.� months on average from sales to production for leases sold from 1995 to 1999.
Regarding productivity we found evidence that for all categories of leases, the productivity ratios in the early 1980s were significantly higher than productivity ratios in the early 1990s, notwithstanding the fact that more leases were issued and drilled in the 1980s than in the early 1990s.
The profitability index for several categories of leases add-ed positive benefits to initial investments using 17 percent dis-count factor. The positive benefits added for the most part are only marginal for several of these lease categories. When we discounted operating cash flow by 12.5 percent, several lease categories added value to the investment. The results suggest that the choice of discount rate in the determination of project viability is significant.
Finally, the overall internal rate of return for all leases is-sued from 198� to 1999 is estimated as 6.9 percent. This es-timate is extremely low in comparison to the rate of return in comparable U.S. industries. The reason for this low return is most likely due to the number of productive drilled leases (1,567 out of 13,641). The return for productive leases, on the aggregate, is also low at 1�.0 percent.
Acknowledgments
The authors would like to acknowledge the excellent re-search assistance provided by Hui Wang and Dmitry Mesyan-zhibov. Ric Pincomb and Barbara Kavanaugh provided great assistance in obtaining data information. We acknowledge Kristen Strellec of MMS for her support. The editorial com-ments provided by Ric Pincomb are also appreciated. Our sponsors, MMS and LSU Coastal Marine Institute and the LSU Center for Energy Studies, however, have not reviewed this paper. All opinions, errors, findings and recommendations expressed in this paper are those of the authors. They do not necessarily reflect the views of our sponsors or LSU’s Center for Energy Studies.References
American Petroleum Institute. �00�. �00� Joint Association Sur-vey on Drilling Costs. American Petroleum Institute, Policy Analysis and Statistics Department, Washington, D.C.
Baud, R.D., R.H. Peterson, C. Doyle, and E. Richardson. 2000. Deepwater Gulf of Mexico: America’s Emerging Frontier. U.S. Department of the Interior, Minerals Management Service, Gulf of Mexico OCS Region, New Orleans, LA. OCS Study MMS 2000-022.
Dismukes, D.E., W.O. Olatubi, D.V. Mesyanzhinov, and A.G. Pulsipher. �00�. Modeling the economic impacts of offshore oil and gas activities in the Gulf of Mexico: Methods and applications. U.S.
Department of the Interior, Minerals Management Service, Gulf of Mexico OCS Region, New Orleans, LA. OCS Study MMS 2003-018.
Iledare, O.O., A.G. Pulsipher, and R.H. Baumann. 1995. “Effects of an increasing role for independents on petroleum development.” The Energy Journal. 16(2):59-76.
Kaiser, M. J., D. V. Mesyanzhinov, and A. G. Pulsipher. �00�. Long-term oil and gas structure installation and removal forecasting in the Gulf of Mexico: A decision- and resource-based approach. U.S. Department of the Interior, Minerals Management Service, Gulf of Mexico OCS Region, New Orleans, LA. OCS Study MMS 2004-009.
Standard & Poor’s NetAdvantage. 2005. Industry Surveys. In-ternet Website: http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/showIndustrySurvey.do?code=ogp
U.S. Department of Commerce, U.S. Census Bureau. �00�. Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations. U.S. Government Printing Office, Washington, D.C.
U.S. Department of Energy, Energy Information Administra-tion. �006. Oil and Gas Lease Equipment and Operating Costs 1987 Through �005. Internet Website: http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/cost_indices_equip-ment_production/current/coststudy.html
U.S. Department of the Interior. Minerals Management Service. 2006. Gulf of Mexico Region, Production Information, Royalty Relief Information. Internet Website: http://www.gomr.mms.gov/homepg/offshore/royrelef.html
U.S. Department of the Interior. Minerals Management Service. 2006b. Gulf of Mexico Region, Products/Free Data, Leasing Infor-mation and Data Available in ASCII Files for Downloading. Internet Website:
http://www.gomr.mms.gov/homepg/pubinfo/freeasci/leas-ing/freeleas.html
Footnotes1 U.S. Energy Information Administration (EIA) Oil and Gas
Lease Equipment and Operating Costs, JAS Survey of Drilling Costs, Dismukes et al. (2003) and Kaiser et al. (2004).
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�� Dialogue
Innovation in the Energy Industry: Country Chal-lenges, Solutions, and ModelsByAndreLambine*
Abstract
This paper discusses innovation in the energy industry at country levels, and will show how the innovation process in countries or areas can be improved to better facilitate economic growth through startups in the energy sector. Governments are responsible for laying the fundament of the innovation policy in their country. However, there is often a lack of targeted policy for small new companies in the energy sector as majority of policies and focus is on universities and research institutions, both often publicly funded; and utility companies, which also has interest to the public sector through ownership, security, and other issues. Today, a large quantity of research and in-novation is conducted by small and medium sized companies, who are thriving as a result of high energy prices. This paper presents suggestions how an area’s innovation policy should be conducted, based on traditional theory and input from startup companies based upon results from a recent survey of energy startups.
Background
Various bustling hubs around the world where entrepre-neurs are successful, such as Silicon Valley and Route 128, have long been a study ground for other areas that wants to copy the innovation process occurring. A plain copy of policies usually does not fit with the local area where this is implemented due to differences in industry, government, culture etc. There are however three layers of entities that usually are considered cru-cial in generating innovation in an area.
First, one needs entrepreneurs. These are the people who see opportunities and actually do something about it. One of the earliest definitions of entrepreneurship is from France, and actually means to do something. Second, one needs a frame-work of entities that helps facilitate entrepreneurship growth. These are organizations such as business incubators, providers of capital, and network meetings. Third, the public sector and the private sector jointly must be interested and participating in the process of establishing the framework needed in the second point above. This can be initiation of incubators and venture capital sources, lending of expertise and facilitating of industry cluster network meetings etc. The private and public sectors must also be able to pull in other players to make the entre-preneurs populate. These are institutions such as universities, research institutions, patent offices, and members of the exist-ing industry. Other local entities such as the major’s office and the local newspaper or TV station can also be drawn into the process.
As this paper will discuss in the coming paragraphs, these entities usually depend on each other and one layer of entities
cannot function properly without the other layers. One can also describe it as a three layer cake; it is not complete without all layers present
The Entities
The public and private sectors should both contribute with a wide range of assistance in providing entrepreneurial growth for an area. Both sectors can contribute with funding, expertise, and other things to facilitate an entrepreneur friendly area. This chapter will discuss the different entities in detail.
BusinessIncubators
Business incubators are usually defined as a place where a newly started company, or even a person with just an idea, can have an office. Usually, occupants share meeting rooms, secretaries, copy machines etc, so it is a cheaper alternative than each company having their own individual office. Besides from providing cost savings, good business incubators are also experts in assisting small companies with a wide variety of is-sues. The incubator should have good connections with venture capital firms, angels, and other providers of capital. Further, they often facilitate or participate in network meetings, where the newly started companies can meet other entrepreneurs and players that both inspire and can generate business opportuni-ties. Also, the business incubator should also be able to draw on a network of specialists in accounting, legal, patents, business consultants, and other issues that entrepreneurs need. Often a business incubator focus on the facility, i.e. providing office space, however a recent survey shows that finding office space is the least challenging task entrepreneurs have when starting up5. The same survey shows that obtaining capital, marketing, and product development are the three most challenging areas for a startup company. Therefore, a business incubator should focus on the services it can provide the entrepreneurs, as this is the key for success.
VentureCapital
As already mentioned, venture capital is very important for the entrepreneurs to grow their companies, and also the most challenging issue when starting a new company1. Typically, venture capital comes from two sources; Angels and Venture Capital Firms. Both private and public entities can supply capi-tal and assist in running funds and grant schemes for startup companies.
Angel capital is probably the more common source for new ventures in the very earliest stages. Angels are private, wealthy individuals who invest in risky projects. For the most part, an-gels are unorganized and like their privacy, making them hard to locate. To reach most, you must network through acquain-tances to find wealthy individuals. Wealth is not sufficient, as you will need to find individuals who have some previous connection with your market arena and thus are more likely to find the market risk of your project acceptable. Some angels operate in organizations. In these organizations, angels meet to hear presentations by entrepreneurs seeking funding and, if they are convinced, put together a financing package from some combination of members. To be one of the lucky few chosen to
* Andre Lambine is a Doctorate Student, Norwegian University of Sci-ence and Technology.
See sources at end of text.
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present to the group, you must be sponsored by a member. Net-working to reach a member can build your chances appreciably, though most have a formal application process that, in theory, is open for anyone.
Venture capital firms raise money for venture funds from large investors, for example pension or insurance funds, and then invest these funds in risky ideas or companies with poten-tially high returns. A given venture fund might be invested in for example 5 to 15 companies over a couple years, and each partner (a “VC”) is responsible for a few investments per year1. These partners collect a salary plus a share of returns to the fund over a minimum level. Typically a venture capital firm invests in an entrepreneurial company after the product or service has been tested and initial market information has been collected. Depending on its size, a typical venture capital firms receive over 1000 requests for funding each year, of which they fund � to 5, or under a half a percent1. Each partner receives many business plan summaries to review each week. Unless the plan comes to them with the recommendation of someone they know or the business idea addresses a market they have already iden-tified as interesting, they typically scan them very quickly and move on to the next.
NetworkMeetings
Network meetings are meetings where people with the same interest come together. It can be entrepreneurs, venture capital firms, industry participants, etc. Usually there is a speaker with a talk that appeals to most participants, and light appetizers and drinks might be served. There is usually a mingle session before or after the presentation. It is very important for entrepreneurs in most countries to have these types of meetings facilitated for them. For example when identifying key success factors for more entrepreneurial activity, energy entrepreneurs in Norway considers this as an more important factor than better access to capital5.
Universities
Universities can play a central role in the entrepreneurial process. Many colleges have successfully integrated entrepre-neurship classes in their curriculum; others have moved along to for example have entrepreneur idea competitions, while some even have their own incubators on campus. Further, some uni-versities have adjusted their intellectual property rights to help generate startups. For example, a lecturer with a patent can use the patent for free if starting a company taking advantage of the patent in the business process. Also, a lecturer might obtain a leave of absence if venturing out to get a business started. There are many things a university can do to assist in generating startups, both from a practical point of view with topics such as education and incubators, and also by implementing entrepre-neur friendly policies.
ResearchInstitutions
In many ways, research institutions can work as univer-sities in promoting entrepreneurs. On one level, research in-stitutions can adopt policies that encourage entrepreneurship activity. On a second level, these institutions can teach entre-
preneurship classes to employees, as well as establish own in-cubators and other offices that focus on bringing research to commercialization.
CultureandAppreciation
Some cultures might find it beneficial to encourage entre-preneurs beyond the reward of earning money, being their own boss, and working for a cause. Some things that can be done to promote entrepreneurship in the culture are for example having entrepreneur of the month invited to eat lunch with the local major; this event together with other events such as network-ing meetings and major deals made by startups can be covered by local media. Local organizations of many types should be visited and asked to assist in any way they can to create an en-vironment that is good for entrepreneurs.
Government Challenges
The OECD published a report in �006 named Governance of Innovation Systems� which discussed the findings of a study of several OECD countries in the area of innovation. Some of the conclusions of the report points to a number of prob-lems that the government faces when establishing innovation friendly policies. Three of the main issues found in the report are discussed below:
First, there are tensions between cultures, priorities and constituencies that show the traditional governance structures are under pressure. Governments must manage these tensions to create a basis for agenda setting.
Second, History plays a major role how policies are estab-lished. Governments must renew governance and institutions; however these tasks are difficult to induce as other influences participate in prioritization.
Third, some countries believe they need to develop long-term strategies for growth and change, but they lack the institu-tional resources and mechanisms to do so.
Government Solutions
PolicyCrafting
There are many areas to consider for a government when establishing innovation policy for the energy sector; for ex-ample environmental consequences, social impact, and others. Some countries will prioritize unemployed people when giving grants for new business establishments, while common wisdom in the business world points to prioritizing the best ideas or best people. Further, a new way to get more coal up from mines might not be good for the environment, while it might be an excellent business idea. To obtain the best results of new in-novation policies, government should consider focusing on the energy innovation part, and leaving other dilemmas and issues out of the process all together.
EstablishingNewGovernmentAgencies
Existing government agencies and employees might not know the entrepreneurship process well enough to make deci-sions that will promote innovation. Therefore, appropriately educated people with good expertise and industry experience should be included in the new agencies. They should develop
�5 Dialogue
realistic goals and means how to reach them, and also estab-lish monitoring systems to control the process. For example the department of trade could have been successful in the past handling traditional industry issues, but when it comes to in-novation in the energy business they might not be familiar with all the issues at hand and should bring in new resources to help in the process. A real-life example is VINNOVA, the Swedish Governmental Agency for Innovation Systems, which is a state authority that aims to promote growth and prosperity through-out Sweden�. The agency’s particular area of responsibility comprises innovations linked to research and development, and its tasks are to fund the needs-driven research required by a competitive business and industrial sector and a flourishing so-ciety, and to strengthen the networks that are such a necessary part of this work.
EstablishingNewInstitutionsandUtilizingExistingOnes
Setting policies that promotes entrepreneurship is a large process that involves many different parties; therefore the gov-ernment must delegate some of the process to private parties. Joint effort by public and private sectors might even form new entities such as the Economic Development Corporation of Ho-nolulu�, which worked to promote new jobs and new companies in the city of Honolulu in Hawaii. The organization brought in experts of business development from both public and private organizations, and obtained funding from both sectors.
Besides from delegating to private sector and providing capital, the most common form of public involvement is to lean on organizations that they can influence. For example, both research institutions and universities will often listen to govern-ments of potential steps to take to be incorporated into a bigger scheme of things. Of course, the government often contributes with substantial funding to these organizations, so they will lend an ear if approached.
Models in National Innovation Systems
There exist many models of national innovation systems; some are very complex with flow chart diagrams5 and spider-web graphs�, while others are very simple. All can be very use-ful. Below are three examples of models one can use when studying, analyzing and improving innovation systems.
Flow chart diagrams and spider-web graphs can both be useful when estimating how processes work and where im-provement is needed most. The flow chart diagram describes how the different entities interact with each other; this is a very helpful model to use when deciding where new processes or flows of information need to be initiated.
The spider-web graph shows how a country ranks on twen-ty-five identified factors that impacts innovation, relative to an average of a group of countries. Among other issues, the figure identifies venture capital as a factor this particular country does
better compared to the average, and some weak spots might be number of PhDs per 10000 inhabitants and basic research. This type of model is a very useful benchmarking tool when identifying strengths and weaknesses in a country’s innovation system. The model is maximized when doing a full SWOT analysis.
A more simplified graph that provides an understanding on how the innovation system should work is presented below6. The public and private sectors together with interest groups makes the foundation of the system, on which the three inter-connected groups of Business Incubators, Network Meetings, and Venture Capital draw their strength from. These two levels are what are needed for entrepreneurs to succeed. As earlier mentioned in this document, there are also other entities in this system, such as universities and research centers, local gov-
Figure 1: Flow Chart of Innovation Process5Figure 1: Flow Chart of Innovation Process5
Figure 1: Flow Chart of Innovation Process5
Figure 2: Spider-Web Chart of Ranking of Innovation Factors2
Dialogue �6
ernment and media, and they all belong in the first group that makes the foundation of the innovation system.
When conducting research into a country’s innovation sys-tem, one should utilize all types of models mentioned above. Firstly, one should make sure all entities are present as described in the simplified model; second, one should benchmark entities with other factors of innovation as described in the spider-web graph. Finally, one must make flow charts of processes and in-formation flows in all areas that impacts innovation to discover where one must implement improvements. These three models is a great way to study, analyze and improve upon a country’s energy innovation system.
Innovation in the Energy Industry
Fast growth in energy demand, and growing concerns about energy security and the environment, has brought high interest to the sector from a wide range of entities. New and im-proved energy technologies are important to secure the future demand of energy. Therefore, it is important to understand how to stimulate innovation and development in energy technolo-gies and services.
Both industry and government invest large sums of money into R&D of new and improved energy technologies. The bal-ance of the sources varies among countries; however a histori-cally large percentage of public funds seem to be the case in most areas�. New energy technologies include internal combus-tion engines, solar power, wind power, micro turbines, small gas turbines, bio, and fuel cells. Lately, there has been a surge of money going into the solar energy arena as a consequence of public subsidies in many countries including Germany, Japan, and USA. Traditionally, large utilities, universities, and research institutions have conducted research and development into these new energy technologies. Recently, more and more research and development comes from small and medium sized companies.
A recent entrepreneurship survey7 in three countries, Ja-pan, Norway and USA, shows how startup companies in the energy field rank innovation factors when it comes to generat-ing more entrepreneurial activity in the energy industry. The entrepreneurs surveyed were either founders or CEOs of �67 energy startup companies. The higher country-based average score the factor receives, the more important it is ranked by the entrepreneurs in that country. The innovation factors selected in the study were: high energy prices, further deregulation, bet-ter access to capital, tax breaks and subsidies, improvement of regulatory issues, stricter environmental regulations, improve general perspective of entrepreneur, creation of network meet-ings, improvement of patent procedures, better entrepreneur-ship education, and better access to business incubators.
The spider-web graph shows that in general high energy prices and further deregulation are what the entrepreneurs be-lieve will assist in generate more energy entrepreneurial start-ups. One can also see that the factor labeled improvement of patent procedures is considered the least important factor in generating more entrepreneurs in the energy industry. Further, the graph clearly shows that there are major differences between the countries averages. For example Norwegian entrepreneurs believe better entrepreneurship education is an important factor
Figure 3: Simplified Model of Innovation Process6Figure 3: Simplified Model of Innovation Process6
Figure 4: Ranking of Innovation Factors in Japan, Norway and USA7
What can Create More Entrepreneurship Activity in the Energy Industry?
0
1
2
3
4
5
High Energy Prices
Further Deregulation
Better Access to Capital
Tax Breaks and Subsidies
Improve Regulatory Issues
Stricter Environmental Regulations
Improve General Perspective of
Entrepreneur
Creation of Network Meetings
Improvement of Patent Procedures
Better Entrepreneurship Education
Better Access to Business Incubators
USA Norway Japan Average
Sources
Global Energy Hub “Management Teams, VCs, and An-gels” Web Site, May �007
OECD “Governance of Innovation Systems: Synthesis Report” ISBN 9264011021, 2006
VINNOVA ”About VINNOVA” Web Site, May 2007 A.A. Smyser “Cybertech World Blossoms in Hawaii”
Honolulu Starbulletin, August ��, 1996Arnold, E. and S. Kuhlman “RCN in the Norwegian Re-
search and Innovation System”, Background Report No. 12 in the Evaluation of the Research Council of Norway, Technopo-lis, Brighton, �001
Global Energy Hub “Simplified Innovation Model for the Energy Industry” Web Site, May �007
Andre Lambine “Entrepreneurs and Deregulation – An International Perspective” �rd Annual Silicon Valley Global Entrepreneurship Research Conference, San Francisco, CA, March �8-�1, �007.
in creating more startup activity in the energy sector, while their Japanese counterparts rank this factor very low. The average values also show that American companies need better access to venture capital, while this is less of a problem in Japan and Norway.
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�7 Dialogue
Book Review Crude Awakening: Global Oil Security and American Foreign Policy ByProfessorSteveA.Yetiv,OldDominionUniversity,Cor-nellUniversityPressU.S.2004
In Crude Chronicles (Crude), Steve Yetiv, demonstrates quite poignantly that to truly understand the contemporary oil market requires an interdisciplinary focus of politics, econom-ics, sociology, and even psychology. Psychology is mentioned because the market feeds upon perception. The author admira-bly points out that, while reality is important, perceived threats to the oil supply are equally important. However irrational the perception may seem to an industry professional, these percep-tions have a tangible effect on the actions of those involved.
Crude, although not a historically spanning analysis of the energy industry as the industry bible, The Prize, by Daniel Yer-gin, it is still an informative, extremely lucid read for the lay-person and the specialist. And what it lacks in breadth, it makes up for in depth. For the layperson, it offers uncluttered prose, backed by personal interviews the author conducted with count-less high ranking officials representing the energy industry, de-fense, and politics, to name a few. For the specialist, Crude of-fers a more politically charged view of how the oil markets are affected, and discloses the intricate, global, political dance that affects the perception and reality of energy supply.
Early on in Crude’s introduction, Yetiv recognizes that market forces contribute to energy crises if demand outpaces supply, and if other technical issues are manifest. He argues that a more significant unknown is contained in the realm of politics interlocked with security. Yetiv lauds the interdisciplin-ary approach which combines market analysis, security studies, political economy, and area studies, to present a holistic view of how the oil market operates.
The book not only reinforces certain core concepts that most energy professionals know, but adds depth to these well established principles. Although some of the conclusions are likely to be controversial, Yetiv argues with clarity, backed by solid scholarship. Yetiv contends that the sky is not falling on oil consuming nations, but asserts, rather, that our oil supplies are more stable now than in the past. Yetiv rests his argument on the contention that the unipolarity expressed by US World dominance is a greater stabilizing force than the multipolarity expressed in a myriad of power epicenters. He argues, how-ever, that unipolarity must stand on global interdependence. He further strengthens the argument by presenting several key historical moments to the reader, and argues that global power struggles, the relentless jockeying for power between the super-powers, destabilized the global markets of the turbulent 70’s.
Yetiv views oil stability as a hegemonic system that under-bids global oil security, so long as it has the support and trust of other international actors who share the belief that the hege-mony will, even with momentary failings, work in a more or less impartial way. Crude contrasts sharply with the simplistic, catastrophe-mongering books that fed off of the public’s inse-
curity after �000, in its optimistic tone... In Chapter Two, Yetiv analyzes Saudi Arabia’s pivotal role
in the international oil system, and asserts that any discussion of oil stability must naturally include that nation’s immense reserves. Not only is Saudi Arabia the only producing nation with the potential to be a large swing producer, it has the sol-id infrastructure required to quickly move vast quantities oil quickly onto the world market. Yetiv thoroughly analyzes the Saudi Arabian security situation and patiently explains why the kingdom is not in immanent danger of collapse. Many oil spe-cialists would conclude that these dangers existed, if at all, in the late 1970’s and early 80’s, from Iraqi ambition and Iranian extremism. Chapter two focuses almost exclusively on the pe-riod from the late seventies until the terrorist attacks of Septem-ber 11, �001. With the massive infusion of billions of dollars of military hardware, the creation of the Gulf Cooperative Council (GCC), and renewed American commitment to its security, the regional situation improved markedly.
The author points out that Saudi Arabia is now the third leg of the regional power structure, with a weakened Iraq and a hampered Iran. He tempers the analysis with a warning that while external threats indeed decreased; internal threats have increased on an inverse scale. He argues that internal distur-bances will at best be mere irritants to the monarchy that pos-sess no long term danger to the House of Saudi.
Yetiv points out that, only recently had Riyadh began to view Iraq as the preeminent threat, and that for most of the pe-riod covered it was Iran. It is intriguing to note that the GCC countries have always viewed Iran as an ambitious power, re-gardless of its present political orientation.
Yetiv analyzes in excruciating detail the regional balance of power; with a focus on Iraq and Iran vis-à-vis the GCC states. He analyzes the shifting fortunes of Iraq and Iran during the eighties, and concludes the Iran-Iraq war left Iraq in a stronger position militarily, later nullified by the first Gulf war and a de-cade-plus of debilitating sanctions. During the same time, Saudi Arabia invested billions of dollars in its military infrastructure to develop its own forces and provide basing options for the U.S. to protect the kingdom, and its immense oil reserves.1
Yetiv points out that the Iran-Iraq role allowed Riyadh play a more energetic role in regional oil protection. Yetiv argues the security situation stabilized with Saudi Arabia taking a more assertive role, in direct contrast to Saudi Arabia’s recent history of appeasement. Crude stresses that the situation is not static, because Iraq and Iran have historically played a balancing role against each other, and a weakened Iraq may embolden Iran to exert its will on the energy market.
In Chapter �, Crude focuses on the rise of U.S. dominance in the region, and discusses how the U. S. took on its role as global cop on the oil beat. Here again, Yetiv points out that perceptions are just as important as reality in soothing over-anxious markets. Yetiv contends that the strong U.S. role has encouraged other actors to believe that it has the direct and indi-rect ability to provide oil security, and that this belief decreases the potential for market instability. While this is largely correct, Yetiv has failed to examine in great detail what a potential fail-ure in stabilizing Iraq will mean for oil security and the actors See footnotes at end of text.
Dialogue �8
in the region. Crude charts the U.S. role in the Gulf and terms these dy-
namics “the new Great Game,” resurrecting the term of the struggle for control in central Asia and the Middle East between Great Britain and Czarist Russia. Yetiv states that the game con-tinued during the Cold War, with the U.S. representing Western interests, and the Soviet Union fulfilling its imperial role in an-other mask...
Crude presents a fascinating twist, contending that when the U.S. played a muscular, assertive role, it generally had un-favorable outcomes. Yetiv argues that the U.S. intervention in Iranian politics during the 1950’s- with the fall of Prime Minis-ter Mossadegh- and propping up the Shah, led eventually to the Iranian Revolution. He implicitly asks: Will history repeat itself with a high profile U.S. presence? The chapter ends reiterating that the U.S became much more able and willing to use direct force to protect oil supplies during the period of 1979-�00� and increased its ability to directly leverage oil markets. With a line of reasoning that is certain to be controversial, Yetiv closes stat-ing with all things being equal, it would be difficult to argue that the oil market was more stable in the 1970’s and 1980’s, when the U.S. had a limited role than it is now. And in
Yetiv’s words: to have a global gendarme on patrol is much better than a Hobbesian struggle for control.
Chapter five relates in more detail previous American ac-tivity in the Middle East, and its changed outlook to those who would act contrary to the goal of oil stability, with 9/11 held to be the defining factor. Chapter six and seven analyze the role of Russia and China in the international oil system. Yetiv asserts in another example that the Soviet collapse increased stability, and undercut the balance of power theory.[i] Yetiv contends that one powerful actor is preferable to two confrontational ones. Looking towards the future, Yetiv predicts China will be a wild card that has the potential to radically alter the landscape if a new cold war erupts.
Yetiv states, and I concur, that due to the interdependence of Russia and China on U.S. Trade, and its support in interna-tional financial institutions, these nations will more likely to seek cooperation than direct confrontation. He fleshes out his thesis that a global hegemony with global interdependence in-creases energy stability. These two chapters were well reasoned, and in my view, provided the appropriate historical examples to support his argument. Crude did go a bit afield with its use of military terminology while discussing Chinese arms sales in the region, but even these digressions, which did not distract from his thesis, could serve a an illuminating e role to special-ists. Crude summarizes by stating that even though Russia and China would like to see a lessening of U.S. influence over oil markets, each would be loath to openly challenge Washington due to the trade linkages with American interests.
In Chapter Eight Yetiv looks at oil markets in a much more direct light, and weighs the possibility for oil to be politicized, and used as a weapon. Chapter Eight presents a detailed analy-sis of the effects of the 197� OAPEC � oil embargo on the world oil system. Yetiv explains that the 1973 oil embargo was sig-nificant because:
• It resulted in the largest peaceful transfer of wealth from industrialized countries to developing ones.
• It had unintended consequences for the OAPEC members by causing a global recession that directly impacted their economies.
• It destroyed global trust in the international energy system and pushed the development of alternative energy coopera-tive networks and technology
• It benefited the U.S., since the OAPEC members recycled their petrodollars in the U.S. economy Crude details the delicate balance that oil producers en-
dure, because even as they want a reasonable return on their re-sources, extremely high prices will cause a backlash and result in a lessening in global demand. Conversely, prices too low will cause their one-resource economies to collapse. Crude posits that while the threat of oil being used as a weapon has not dis-appeared, it has been mitigated...
Chapters Nine and Ten, which examine OPEC and list multiple oil cushions, explains why Yetiv believes a significant oil shock is unlikely in the near future. Recently, Saudi Arabia became a committed oil stabilizer, dedicated to ensuring mar-ket stability. Not only has non-OPEC oil production increased markedly, the creation of national strategic petroleum reserves (SPRs) brings an additional layer of protection. Taken in the ag-gregate, these factors offer an unprecedented level of security.
Privatization and liberalization of monopolistic oil markets have performed as an added layer of protection. Why? Because according to Yetiv, private companies will be less likely to fol-low political dictates, and will operate pragmatically. Further, Iraq is offered as an X-factor, whereby if the situation improves, it has the ability to double its oil production and dramatically increase world-wide production. This is a double-edged sword as Crude points out, because if Iraq fails and degenerates into chaos, the U.S. ability to guarantee oil supplies will be called into question.
Chapter Eleven and Twelve end with a future oriented ex-amination of the role technology and environmental concerns will have on oil consumption. Yetiv looks upon advanced tech-nology in two lights: one, increasing our ability to produce, lo-cate and refine petroleum, and the other, in lessening our reli-ance on oil by producing energy efficient cars and alternative fuels. Although this chapter is hardly revelatory for an energy professional, it neatly ties up the preceding chapters.
I found the final Chapter, i. e., Twelve, to be quite informa-tive, because it presented thinking points for industry special-ists. Dealing mainly with Gulf politics, Iraq, Iran, and Saudi Arabia, Yetiv, posits some “what-if” situations and makes rec-ommendations that could stabilize the situation. Central to this chapter is the fulcrum of Yetiv’s argument, in what he terms ‘complex stability.’ This specialized term indicates that, while each of the factors that make up the global market is important in itself, combined, they create synergy. Should one of the fac-tors collapse, the rest play a supporting role. I believe that the idea has some merit, but it tends to mitigate the effect that in-ternal Middle Eastern politics plays in oil security, and fails to adequately consider that non-OPEC oil is projected to decrease
�9 Dialogue
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in the coming years, not to mention the high costs associated with its extraction. Gulf oil is predicted to become even more important in the coming years, not less so. Even so, presently the complex stability argument holds merit.
Yetiv discounts recent arguments that the current Saudi discontent mirrors Iran before the Shah fell. He undermines this argument by in-depth analysis of the House of Saud, and Saudi internal politics.
Crude ends with a positive note, reiterating Yetiv’s idea that although things look bleak, today is much more stable than the rocky seventies and eighties. Yetiv tempers his argument by illustrating that we will not be able to rest on our laurels,
because energy stability is an active process that must be con-tinually renewed.
JustinDargin
Footnotes
1 The balance of power theory in international relation is a ‘realist’ theory, which posits that a balance of power exists when there is parity or stability between competing forces. The theory holds that as soon as one nation achieves relative power over the other nations, the antagonist will work to equalize that power position.
� OAPEC is the Organization of Arab Exporting Countries, is composed of the core Arab members of OPEC as well as Syr-ia, Bahrain, Egypt and Tunisia. However, Tunisia is currently on suspended membership since 1986.
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Dialogue �0
USAEE/IAEE Communication Team Launches a Live Blog Capability for the 27th USAEE/IAEE North American Conference
In early �007, the USAEE launched an enhanced blog site with live news feeds and “Ask an Expert” features. The blog site can be accessed from the main page by clicking the blog icon as shown below at the website http://www.usaee.org.
Alternatively, the blog site can also be directly accessed at http://blog.usaee.org. For details of the general setup of the blog site, the look-and-feel of the blog site and ways to post entries on the blog site, take a look at the article published in March �007 issue of Dialogue “USAEE/IAEE Launches Energy Blog - A Frequent, Interactive, Chronological Publication of Your Comments, Thoughts, Random Discourse”. You can find the article at http://www.usaee.org/pdf/Mar07.pdf#38d.
USAEE/IAEE blog is a member-generated website where energy related news, entries, and articles of interest are meant to be more impetuous, more colloquial and are displayed in a reverse chronological order. The USAEE Dialogue welcomes its members to engage in thought provoking energy related debate and discussions through the blog site. The ability for our members to provide casual discourse and comments in an interactive format has tremendous value in extending our collective knowledge and thinking on hot topics of discussion. As a blog editor, I will ensure the entries and discussions are professional in nature.
In order to increase the participation level on the blog site, USAEE is launching, for the first time ever, a live blog capability for the upcoming 27th USAEE/IAEE North American Conference to be held in Houston in September 2007. We are hoping that this effort will serve a number of purposes including energizing the USAEE/IAEE blog site with blogs and commentary, as well as providing real-time coverage of the conference for members who are unable to attend. The blog site will also give attendees a forum for discussion and comment while the session discussions are fresh in their minds.
We are trying to have blog coverage for all the plenary sessions, but especially for the dual Plenary sessions, so attendees can learn about the session they are unable to attend.
In addition, we will also have several energy polls running on the blog site during the conference and announce the poll results periodically during the conference.
For the conference, we are planning to have several people writing blogs and post on the USAEE website commenting on in-dividual conference events and sessions. If you are attending the conference and are interested in blogging a session, please inform Mary Barcella immediately. Mary is Vice President for Communications for USAEE and can be reached at [email protected].
You can write your blog during the session/event itself if you have your own laptop with you. Alternatively, you can blog im-mediately after the session on the same day. Bloggers will get a free WIFI access code at the conference as well as a portable thumb drive. We ask the bloggers to obtain the presentation files used by the speakers in their sessions and to upload the presentations along with the blog commentary on the thumb drives. Bloggers will turn in the thumb drives to USAEE staff at the registration desk, who will upload the contents on USAEE website.
I hope that the upcoming live blog feed of the conference will be useful and interesting to you. I welcome feedback, so please post these in a blog or email me at [email protected] or Dave Williams at [email protected].
Shree Vikas is Director, Market Intelligence & Strategy at ConocoPhillips and is USAEE/IAEE Blog Editor.
�1 Dialogue
Anna Marie AeloizaSchlumberger
Nelson Anaback
Patrick A Avato
Gopal Bandyopadhyay
Lisa Barrick-UchytilFreeman
Christopher BettiniLPL Financial
Nazeer BhoreExxonMobil Corporation
Ilya BourtmanPFC Energy
Stephen M Brochu
Alamelu BrooksPortland State University
Jennifer L BrownEastern Connecticut State Univ
William BuddingTechnology Training Corporation
Bruce BullockSouthern Methodist University
David BunnellUniversity of Texas Permian Basin
Jon CampbellGeneral Electric
Zakaria Chehab
Andrew ColemanElectric Power Research Institute
Matthew CommonsHarvard Business School
Daniel CoughlinCoughlin Associates
Clay Davis
Joeri F de Wit
Avik DeyFirst Reserve Corporation
Jayesh D’SouzaFlorida Intl Univ
Can ErbilBrandeis Univ Dept of Econ
Frank ErzingerChemLogix LLC
Emmanuel Omoniyi O FalobiBYTEX Systems Inc
Elaine F FreyGeorge Washington Univ
John Goodenough
Jonathan Grammer
Isolda GriffithsShell Oil Exploration and Prod
Christopher GulickBates White LLC
Lenneal J HendersonUniversity of Baltimore
Aylyffe Hines
Jeffrey HopkinsRio Tinto
John JensenEl Paso Exploration and Production
Steven K JonesDominion Resources Services Inc
Merrill Jones BarradaleUniv of California at Berkeley
Tim KomarekMichigan State University
George Kovacs
Adam KreczkoSAIC
Sarah O LadislawCenter for Strategic and Intl Studi
David A LagunaaponteShell Oil Co
Derek LemoineUC Berkeley
Eric Lewis
C Y Cynthia LinUniversity of California Davis
Darren LincolnSAIC Business Consulting
Mark LivelyUtility Economic Engineers
Douglas Margossian
Milko T MarkovMarkov Independent Researches
Thomas Allen Martin IV
Brian MegaliArgus Media
Chris MenefeeHoefler Consulting Group
J Kevin Morgan
Frank Moseley
Matthew Motland
Declan O’CleirighLower Colorado River Authority
Eko A Pandowo
Victoria PaoPlatts
Daniel PeacoLa Capra Associates
Tamantha PetersCoBank ACB
Scott Peterson
Jonathan PoorRich Consulting LLC
Amery PoreArgus Media Group
B Jeffrey PriceMontgomery County Public School
Allan PulsipherLouisiana State University
Kiet Quach
Raja RamachandranMarathon Oil Company
Bill F RobertsEconomic Sciences Corporation
Michelle Schiff
Bradley SchoenerThe MITRE Corp
Robert SchulzGolden Energy LLC
Laurence SeidmanUniversity of Delaware
Sean Shafer
Arun SharmaMaersk Oil America Inc
David Ray Shaw
Anup SinghSapient Corporation
Flemming SorensenChevron
Kathleen SpeesCarnegie Mellon Univ
Jacob StrumwasserCasimir Capital
Beth TaylorEnergy Management Institute
Michael J ThompsonWright and Talisman PC
Natasha TkachenkoRTA
Tanner TrimblePFC Energy
Mark UlrichPace Global Energy Services
Matt van Steenwyk
Jonathan WardEmerging Markets Group
Jill WatzVulcan Inc
Henry D WellingHondo Energy Resources LLC
Edward YoungCERA
Welcome !! The Following Individuals Joined USAEE from 2/1/07 – 6/30/07
Liddle(continuedfrompage9)
Louis D. Johnston and Samuel H. Williamson, �005, “The Annual Real and Nominal GDP for the United States, 1790 - Present.” Economic History Services,URL : http://www.eh.net/hmit/gdp/
Liddle, B., 2006, “How Linked are Energy and GDP: Reconsidering Energy-GDP Cointegration and Causality for Disaggregated OECD Country Data,” International Journal of Energy, Environment and Economics, Vol. 13, No. 2, pp. 97-113.
Maddala, G.S. and Kim, In-Moo, 2000, Unit Roots, Cointegration, and Structural Change, Cambridge University Press, Cambridge, UK.
Masih, Abul M.M. and Masih, Rumi. 1996. Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniques.
Energy Economics 18, 165-18�.Ng, Serena and Pierre Perron. 2001. “Lag Length Selection and
the Construction of Unit Root Tests with Good Size and Power,” Econometrica, 69(6), 1519-1554.
Schipper, Lee, Unander, Fridtjof, Murtishaw, Scott, and Ting, Mike. �001. “Indicators of energy use and carbon emissions: Explaining the energy economy link.” Annual Review of Energy and Environment, �6, �9-81.
Soytas, Ugur and Sari, Ramazan. 2003. Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Economics �5, ��-�7.
Yu, E.S.H. and Hwang, B.K. 1984. The relationship between energy and GNP: further results. Energy Economics 6, 186-190.
Dialogue ��
11-12 September 2007, Carbon Markets USA at San Fran-cisco. Contact: Annie Ellis, Green Power Conferences. Phone: 00�� �07 801 6��� Email: [email protected] URL: http://www.greenpowerconferences.com/carbonmarkets/index.html
12-13 September 2007, Oil & Gas Exchange US 2007 at Renais-sance Greenway Plaza, Houston, TX. Contact: Elizabeth McAleer, Senior Marketing Manager, IQPC Email: [email protected] URL: WWW.IQPC.COM/US/OILANDGASEXCHANGE/ED-IARY
16-19 September 2007, 27th USAEE/IAEE North American Conference at Houston, TX. Contact: David Williams, Executive Di-rector, USAEE, �8790 Chagrin Blvd Ste �50, Cleveland, OH, ��1��, USA. Phone: �16-�6�-�785. Fax: �16-�6�-�768 Email: [email protected] URL: www.usaee.org
18-19 September 2007, 4th Law of LNG Conference at Wes-tin Galleria Hotel, Houston, Texas. Contact: Deena Siddiqi, Market-ing Manager, The Center for American and International Law, 5�01 Democracy Drive, Plano, Texas, 750��, USA. Phone: 97�-���-��19. Fax: 97�-���-��01 Email: [email protected] URL: http://www.cailaw.org/iel/IEL_Law_of_LNG_07details.html
22-23 October 2007, Renewable Energy Project Finance at New York. Contact: Matthew Carbone, Euromoney Training - Amer-icas, 225 Park Avenue South, New York, NY, 10003, USA. Phone: �1�-8��-5��5. Fax: �1�-�61-��99 Email: [email protected] URL: http://www.euromoneytraining.com/default.asp?Page=16&productid=6385
28-29 November 2007, Renewable Energy in America: Phase II Policy Forum at Capitol Hill Club & Cannon Caucus Room, Cannon House Office Building. Contact: Tom Weirich, ACORE, PO Box ��518, Washington, DC, �00��-�518, USA. Phone: �0�-�9�-0001 ext. 758� Email: [email protected] URL: www.acore.org
22-24 January 2008, Distributech 2008 at Tampa, FL. Con-tact: Conference Secretariat, DistribuTECH Conference and Exhibi-tion 2008, 1421 S Sheridan Rd, Tulsa, OK, 74112, USA URL: www.distributech.com
1-8 March 2008, Washington International Renewable Ener-gy Conference (WIREC 2008) at Washington Convention Center, Washington DC. Contact: William Armbruster. Phone: �0� 6�7-1��7 URL: www.wirec�008.org
3-5 December 2008, 28th USAEE/IAEE North American Conference: Penetrating Energy Frontiers at New Orleans, LA. Contact: David Williams, Executive Director, USAEE, �8790 Chagrin Blvd Ste �50, Cleveland, OH, ��1��, USA. Phone: �16-�6�-�785. Fax: �16-�6�-�768 Email: [email protected] URL: www.usaee.org
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Each issue features a Message from the President, articles written energy professionals, listings for upcoming conferenc-es, a calendar of events, and other news relating to USAEE and the energy field. The articles are central to Dialogue’s mission of communicating recent research or analysis on topical energy sector issues in a concise manner to the widest possible audi-ence.
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