Case Study: Future Supply and Demand

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SAMPLE EXCERPT:

[. . .] Thereafter, the supply remains stable until the end of the period. In terms of the net supply of electricity available for export, it doubles during the study period. (Viscusi et al. pp102-06)

The electricity prices are set in regional markets. The consumer price takes particular account of production costs, transport and distribution. They are generally lower in the countries that produce hydroelectricity, where there are a significant proportion of low-cost cultural assets, including hydroelectric plants, which consist of; often have several decades and whose construction costs are largely amortized. (Ammann, pp16-38)

In most jurisdictions, prices are based on the actual cost of providing services to consumers and include a regulated rate of return for generation assets, transmission and distribution. This model is recommended by all countries and territories. Electricity prices are set by the conditions of competitive wholesale markets. (Kemp, pp4-9)

No doubt while the geopolitical equation would change! Technical developments and prices were the determining factors in setting exploitation of unconventional gas. Economically, it is noteworthy that the number drilling has declined along with the wholesale price (between 8 and 15 € / MWh), while in same time the level of production remained stable. The marginal costs of production therefore appear to be declining. Companies do not advertise their breakeven which nevertheless seem to be around 11 € / MWh (or even 5 € / MWh) by the fields. The exploitation of unconventional gas is certainly more expensive and more polluting but new techniques have already divided the cost by two. The extraction requires quantities significant energy, water, or chemicals, degrading the balance sheet Environmental unconventional gas compared to conventional gas. (Douglas and Marek, pp117-28)

Microeconomics of supply and demand

In 2009, the dynamics of supply due to lower prices when demand has declined. Reduced imports of U.S. LNG have had an impact on other markets with the provision of gas quantities diverted to Europe and Asia. The excess gas has challenged some LNG projects not only in North America but throughout the world. Oversupply has arisen because the United States were no longer applicants and many LNG terminals have been commissioned at the same time. Some countries question now on their continued investment in LNG will be subject to spot prices to their lowest level since 2002, and whose markets are uncertain in terms of demand. Price differences between the three main application areas show the surplus U.S.: Asian and European buyers pay the gas near parity energy with oil while in the United States; it is trading at about a third of cost equivalent oil. (Ammann, pp16-38)

In Europe, contracts have a clause indexing of gas prices on the oil. Yet the gas spot prices decreased at the same time as oil rose. In early 2010, spot prices were twice lower than long-term contracts term. Some European consumers have taken the minimum share provided in their contract; the rest of their need was purchased on the spot markets. Without going into debate on long-term contracts in Europe, several gas companies claim an overhaul contract with an escalator on the spot price of natural gas. (Douglas and Marek, pp117-28) The Forum of Gas Exporting Countries is now able to change the trend. Established in 2001, the Forum brings together the leading countries in production natural gas that have agreed to exchange information. (Wengenmayr and Thomas, pp42-43)

No consensus exists for the introduction of production quotas: the members favor their income exports and do not wish to reduce their production volume. The "revolution expected" LNG has not taken place contrary to the "silent revolution" of unconventional gas. (Evans, pp1-6) Discoveries in the United States, first gas consumers natural, have questioned the organization of markets. The gas bubble is born from the oversupply resulting in lower gas prices. The success of unconventional gas limits the development of LNG (except Asia) and its expected consequences. (Viscusi et al. pp102-06)

It entails a new configuration with fewer interactions between regional markets. Growth Asian demand and market development in South America with the findings Brazil are still to be considered. (Evans, pp1-6) The map is redrawn with the gas new discoveries but also with a set of dynamic businesses. The traditional natural gas companies are forced to rethink their strategy with market developments. Stable and predictable markets for natural gas have become an image of the past; they are now uncertain and complex. (Douglas and Marek, pp117-28)

The projections for electricity supply are related to the application. Technological advances, the adoption of new policies and changing perspectives in relation to supply and fuel prices may dictate the choice of forms of production and the energy portfolio in the coming years. In some cases, accepting the social and local electrical infrastructure projects is also an important factor. (Kemp, pp4-9)

Analysis

The relative profitability of new power projects is driven by fuel prices and all capital costs. These components vary with the type of technology considered. It is generally assumed that the cost of fuel in the case of renewable energy is zero and the production of electricity from fossil fuels generally includes a fuel cost above that of nuclear power plants. The uncertainty regarding the cost of fuels used to generate electricity affects the type of technologies and projects that are selected and, by extension, on the composition of future electricity supply. (Ammann, pp16-38)

Currently, the costs of non-hydro renewable, like wind and solar are higher than conventional sources. However, in some markets, it encourages their deployment through financial incentives such as feed-in tariffs guaranteed. Reliability is also an issue, the questions concerning the amount of electricity generated by various forms of renewable energy that can be integrated to the grid. The reduction or elimination of incentives without reducing costs through improvements in technology or questions concerning joining the network may limit the growth of these energy sources. (Douglas and Marek, pp117-28)

Regulation and government policy is impacting on investment and the activities of plants are constantly changing. Projections of supply and energy demand to 2035 provide a look at supply and demand for energy in Global until 2035. (Viscusi et al. pp102-06) Based on information, trends, policies and technologies currently available, the projections show a preview of what will be the Global population energy system over the next 25 years. During this period, new information becomes available, trends and policies will change and technology will be perfected, disproving certain assumptions in the paper. (Marriot, pp33-48)

Double oil production by 2035 and oil sands provide most of this increase. The downward trend in increased exploitation of natural gas is reversed from 2016, driven by the extraction of tight gas and shale gas production grows to record levels at the end of the period analyzed. Electricity production is slowly increasing, and renewable such as wind, hydropower and biomass are needed among the various energy sources. (Ammann, pp16-38) The slowdown in population and economic growth, higher prices of energy and implementation of best efficiency programs and energy conservation are factors that contribute to slowing demand in the residential and commercial and transport sector. (Viscusi et al. pp102-06) In the industrial sector, the sustained production of oil and gas, combined with strong economic growth in many energy-intensive industries, resulting in an increase in demand that exceeds the pace of past years. The offer record and slowing growth cause a surplus of energy available for export. The amount of oil and electricity available for export increases dramatically, while the net availability of natural gas gradually decreases to stabilize at around 2020. (Douglas and Marek, pp117-28)

In addition to the reference scenario, this report contains four sensitivity scenarios designated "low price," "high price," "rapid growth" and "slow growth." These scenarios provide a broader view and consider the uncertainty associated with energy prices and economic growth. Scenarios of low price and high price point to Global's role as a major producer and major consumer of energy. Scenarios of rapid growth and slow growth are examples of how the economy and energy demand are closely linked. (Evans, pp1-6)

Finally, according to projections world population can expect that the energy markets continue to function well. The supply of oil, natural gas and electricity remains above the needs of world population in the foreseeable future. (Bill, pp15)

Conclusion

The future price of natural gas is an element of uncertainty of the first importance in the production projections. The baseline and the four sensitivity scenarios explore a wide range of gas prices for natural gas to evaluate the possible instability of prices in the coming years. Since 2000, annual average prices of gas in North America have fluctuated dramatically, doubling from 2003 to 2005, and then dropped by more than half in 2008 and 2009. These wide variations strongly affect the industry, both in producer incomes in the capital reinvested in the sector. As was mentioned in the chapter on crude… [END OF PREVIEW]

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