Texas Tech University.

ENCO 4312: Energy Economics

2014 Spring

Instructor

Michael Giberson (website)

Email

michael.giberson @ ttu.edu

Office

BA W324

Office phone

(806) 834-3161

Office hours

MTWR 2:00-3:00 PM, F 12:00-1:00 PM, and by appointment .

Class

MWF 11:00-11:50 AM, BA 029

 

Jump to Syllabus online (on this page below the Course Outline); Syllabus and Course Outline in pdf format.

 

Students should follow the U.S. Energy Information Adminstration's daily "Today in Energy" series. (Recommended: Sign up for email service at www.eia.gov/tools/emailupdates.)


Students are invited to follow Giberson's ENCO List on Facebook.

Latest Updates

Apr. 1: The final exam in this class is scheduled for Tuesday, May 13, at 7:30 AM. The information posted below was initially incorrect, but now has been fixed. Also, the reading assignment schedule for mid to late April has been revised.

Mar. 3: Schedule adjusted for extra day spent on crude oil exports. HW #5 and Midterm Review to be sent this afternoon. A pair of links on Monte Carlo methods have been added for Wednesday.

Feb. 22: Oil export readings have been emailed to students and posted below.

 

Course Outline

ENCO 4312: Energy Economics
2014 Spring

This online version of the course outline will be updated and should be considered authoritative for information on assignments and due dates.

Topics

Assignments and Resources

Date

Economic Fundamentals

 

 

Introducing the course 

 

 Jan 15

Economic value; Gains from trade

Kling, "International trade," The Concise Encyclopedia of Economics, 2008. Focus on section "Gains from trade."

ASSIGNMENT #1: Predicting oil prices (by email, due Jan 22 in class.)

 Jan 17

   
Oil Resources-economic issues

 

 

a. Introduction to discounted cash flow analysis

Texas Comptrollers Office, "Manual for Discounting Oil and Gas Income" (read up to section "Using the three techniques") and "Appendix 1".

SPE et al., Petroleum Resources Management System - Guide for Non-Technical Users, 2007.

ASSIGNMENT #1 DUE in class.

ASSIGNMENT #2: Intro DCF (Due Jan 26, 5 PM, by email)

Jan 22

b. Reserves and resources

SPE et al., Petroleum Resources Management System, 2007, pp. 2-15, p. 21. (Sections 1, 2, and 3.1).

Jan 24

 

ASSIGNMENT #2 DUE Jan 26 at 5 PM.

 

c. Forecasting oil prices, arbitrage, speculation

Hamilton, "Understanding Crude Oil Prices," Energy Journal, 30:2. Sections 1 , 3.1, 3.2, and 3.3.

Cook, "Oil players stockpile cheap crude on tankers," Houston Chronicle, January 30, 2009.

Jan 27

 

Hamilton, "Understanding Crude Oil Prices," Energy Journal, 30:2. Section 3.4.

Hamilton, "Fundamentals, speculation, and oil prices," Econbrowser, August 28, 2011.

ASSIGNMENT #3: More DCF (Due Feb 2, 5 PM, by email)

Jan 29

d. Oil markets and prices

Hamilton, "Understanding Crude Oil Prices," Energy Journal, 30:2. Section 2 (Statistical predictability). 

Optional example: Noguera, "Oil Prices: Breaks and Trends," Energy Economics, forthcoming 2013. [Take a quick scan through this article.]

Jan 31

 

ASSIGNMENT #3 DUE Feb 2 at 5 PM.

 

e. Oil demand

Hamilton, "Understanding Crude Oil Prices," Energy Journal, 30:2. Section 4.

Norris, "Oil Supply Is Rising, but Demand Keeps Pace and Then Some," New York Times, November 23, 2012.

Feb 3

f. Oil supply

Hamilton, "Understanding Crude Oil Prices," Energy Journal, 30:2. Sections 5.2, 5.3

Weber, "Oil companies read the tea leaves (and lots of data)," Fuelfix.com, January 15, 2013.

Example: MIT Energy Initiative, The Future of Natural Gas, Appendix 2C, "Supply curve additional material," June 2011.

Feb 5

g. Supply and demand

In class activity

Feb 7

h. OPEC

Hamilton, "Understanding Crude Oil Prices," Energy Journal, 30:2. Sections 5.1, 6.

"The OPEC Cartel: Price by Ukase," Time, October 1974.

Victor, "OPEC is Irrelevant," Newsweek, July 2008.

Herron, "OPEC Hamstrung by Events Beyond its Control," Wall Street Journal, June 17, 2012.

Background: EIA, "What Drives Crude Oil Prices."

Feb 10

Natural gas resources

 

 

a. More on DCF; Sensitivity analysis and scenario analysis

MIT Energy Initiative, The Future of Natural Gas, Chapter 2, "Supply," section titled "U.S. Resources,"  pp. 30-34, June 2011.

OGJ editors, "Encana veers to expand oil, liquids recoveries," Oil & Gas Journal, June 2, 2012.

ASSIGNMENT #4: DCF with sensitivity analysis (Due Feb 16 at 5 PM).

Feb 12

b. Gas markets and oil markets

Brown, "Natural gas prices: Do oil prices still matter?" Southwest Economy, July 2005.

Possibly relevant EIA data: Oil price, gas price, gas storage

Feb 14

 

ASSIGNMENT #4 DUE Feb 16 at 5 PM.

 

c. More on DCF: Economic limit; discounting, treatment of salvage value and remediation expenses.

 

Feb 17

d. Prospects for a natural gas cartel

Vladimir, "A gas OPEC to dominate GECF summit in Doha, Russia not present," The Voice of Russia, November 14, 2011.

 Feb 19

e. Natural gas imports and exports; LNG

EIA, "Project sponsors are seeking Federal approval to export domestic natural gas," EIA's Today in Energy series, April 24, 2012.

Levi, "The Case for Natural Gas Exports," New York Times, August 15, 2012.

Cicio, "The 10% 10% in 2016 Gas Export Problem," National Journal Energy Experts Blog, September 27, 2012.

(See many more viewpoints on natural gas exports at the NJ debate "Sizing up the Role of Natural Gas.")

Feb 21

f. Should the U.S. allow crude oil exports?

Weiss and Peterson, “Keep American Crude Oil at Home,” Center for American Progress report, January 28, 2014. (PDF version)

OPTIONAL: Congressional Research Service, "U.S. Crude Oil Exports: Licensing and Data Issues," Memorandum, October 28, 2013.

Feb 24

 

Lincicome, "License to Drill: The Case for Modernizing America’s Crude Oil and Natural Gas Export Licensing Systems," Cato Institute Free Trade Bulletin No. 50, February 21, 2013. (PDF version)

Clayton, "The Case for Allowing U.S. Crude Oil Exports," Council on Foreign Relations Policy Innovation Memorandum No. 34, July 2013.

Feb 26

Feb 28

   
Risk and uncertainty

 

 

a. Decision trees, Optionality, Value of information

Smith, "Petroleum project evaluation," MIT working paper 03-011, 2003, pp. 9-13 only.

ASSIGNMENT #5: Options and DCF (Due March 7).

Midterm Review

Mar 3

b. Monte Carlo analysis

Brief introduction to Monte Carlo simulation

OPTIONAL: For example of use of Monte Carlo methods in oil and gas evaluation, see the article "A Probablistic Approach to Shale Gas Economics."

ASSIGNMENT #5 DUE in class.

Mar 5

c. Applying the tools

In class activity

Midterm Review

Mar 7

 

Midterm

Mar 10

   
Downstream markets

 

 

a. Retail gasoline

Reddall and Seba, "As California gas prices soar, political heat rises," Reuters, October 7, 2012.

Useful links: Californiagasprices.com price chart; ExxonMobil, "U.S. Gasoline Requirements," May 2011 (map); Rapier, "Understanding California's Gasoline Prices," Consumer Energy Report, Oct. 7, 2012.

ASSIGNMENT #6-Retail gasoline prices (Due Mar 14 in class).

Mar 12

 

More - retail gasoline consumers

ASSIGNMENT #6 Due in class

Mar 14

b. Retail natural gas

TDB - Reading on natural gas consumers

Mar 24

 

TDB - Reading on natural gas consumers

Mar 26

d. Auctions

In class activity (auctions)

Background reading (optional): Thaler, "Anomalies: Winner's Curse," Journal of Economic Perspectives, Winter 1988.

Mar 28

natural Resource economics

 

 

a. Common pool resources

In class activity

Mar 31

b. Tragedy of the commons

Hardin, "The Tragedy of the Commons," Science, 1968. (Focus on the sections "Tragedy of Freedom in a Commons" and "Pollution.")

Apr 2

 

Ostrom, Sustainable development and the tragedy of commons,” 2009. [Video, 8:26]

DeYoung, Tragedy of the Commons,” from the Encyclopedia of Environmental Science, 1999.

Apr 4

c. Unitization

Libecap, "Unitization," in The New Palgrave Dictionary of Economics and the Law.

Apr 7

d. Resource limits; Hotelling and Hubbert

Smil, "Perils of Long-Range Energy Forecasting:
Reflections on Looking Far Ahead
," Technological Forecasting and Social Change (2000).

Smil, "Memories of Peak Oil," The American, February 2013.

Apr 9

e. Oil resources

CERA, "The Future of Global Oil Supply," (November 2009)

Apr 11

 

Assignment #8 sent by email. Due April 16, 5 PM.

RELATED LINKS:

1976 video of M. King Hubbert explaining his forecasted world oil production peak.

OPTIONAL: Check out these two articles to see how many economists view Hubbert's Peak and peak oil more generally.

Apr 14

 

Hubbert's original 1956 Hubbert's Peak presentation: "Nuclear energy and the fossil fuels." See class discussion for guidance before reading.

(Don't miss "Figure 21-Ultimate United States crude-oil production," the projection that made Hubbert's public reputation. Question: Was he lucky or smart?)

Apr 16

 

Mann, "What if we never run out of oil?" Atlantic Monthly, May 2013.

Assignment #8 Due by email, "Hubbert's Prediction"

Apr 18

f. Gas resources; shale gas estimates and skeptics

MIT Energy Initiative, The Future of Natural Gas, Chapter 2: "Supply," pp. 1-34, June 2011.

OPTIONAL: For additional background, the full MIT report is here: The Future of Natural Gas."

Apr 23

 

Berman and Pittinger, "U.S. Shale Gas: Less Abundance, More Cost," The Oil Drum, August 5, 2011.

OPTIONAL: Nikiforuk, "The Shale Gas is a Retirement Party," The Tyee (Vancouver, BC), March 27, 2013.

Apr 25

g. Renewable energy resources

TBD - reading on renewable energy economics

Apr 28

 

TBD - reading on renewable energy economics

Apr 30

h. Simon-Ehrlich bet; Malthusians and Cornucopians

McClintick and Emmett, "Betting on the Wealth of Nature: The Simon-Ehrlich Wager," PERC Report, Fall 2005. (More on Simon and Ehrlich below.)

Kestenbaum, "A bet, five metals and the future of the planet," Planet Money/NPR, January 2, 2014.

Final exam review guide (LINK TO COME)

May 2

 

Tierney, "Economic Optimism? Yes, I'll Take That Bet," New York Times, December 27, 2010.

OPTIONAL: Tierney, "Betting on the Planet," New York Times Magazine, December 2, 1990.

Last day of class

May 5

Final Exam @ 7:30 AM on Tuesday

May 13

 

Syllabus

ENCO 4312: Energy Economics

2014 Spring

Course description

Focus on oil and gas project economics, with emphasis on project cost and revenue forecasting, and economics of natural resources. We will also look at the interaction of wholesale and retail energy markets, and the interaction between energy markets and the economy.

Course materials

The course will rely heavily on readings available online. Links will be provided via this class website. No textbook will be used.

Expected learning outcomes

After completing this course, students will be able to:

·         Describe current energy market trends and relate current conditions to historical market performance;

·         Explain basic oil market and gas market dynamics, focusing on consumer and producer responses to prices;

·         Evaluate project economics for an oil or gas resource;

·         Identify uncertain factors in long-term forecasts (especially as relate to project evaluation) and employ analytical tools to guide decision making under uncertainty;

·         Explain concepts fundamental to the economics of natural resources; and,

·         Indentify economic concepts relevant to understanding peak oil, resource growth and exhaustion.

Methods of assessing outcomes

Student performance will be assessed by review of homework assignments, class participation, and the mid-term and final exams.

Homework: There will be several homework assignments over the course of the semester.

Class participation: Students are expected to read the assigned material, contribute to class discussions and participate in other in-class activities. See additional details of the "Present and Prepared" policy below.

Mid-term exam: Test scheduled for March 6 March 8.

Final exam: Test scheduled for Tuesday, May 13 at 7:30 AM – 10:00 AM.

Grading
Homework 25%
Class participation 15%
Midterm 30%
Final 30%
Additional class policies

In general, the class will follow standard university policies as described in the Texas Tech University Operating Policies (http://www.depts.ttu.edu/opmanual/).  In addition, please note:

Academic honesty: It is the aim of Texas Tech University to foster a spirit of complete honesty and high standard of integrity. Academic dishonesty will not be tolerated and will be treated according to the rules outlined in the Student Handbook.

Absences: A student who will miss class due to a university-approved trip or to observe a religious holy day should make that intention known to the instructor prior to the absence so that accommodations can be made in accordance with university policies. In general, I expect that you will be in class and assume that if you choose not to be in class it is for good reason.  When you miss class, it is your responsibility to catch up or cover missing materials or assignments.  The class website and your fellow students should be your first recourse in such cases.

Disabilities: Any student who, because of a disability, may require some special arrangements in order to meet course requirements should contact the instructor to request necessary accommodations.

Present and Prepared: Students will gain the most from class periods - and their classmates, too - if they come to class prepared to contribute. At the beginning of most classes this semester, Dr. Giberson will provide a class roll for students to sign in if they are "present and prepared." If you sign in as "present and prepared" at least 85 percent of the time, you will earn all 15 class participation points. If counted present and prepared fewer than 85 percent of the time, you'll earn fewer class participation points. (From 80-85 percent, then 13 points; if 75-80 percent, then 11; if 70-75 percent, then 9. If counted "present and prepared" fewer than 70 percent of the time, you will obtain 8 or fewer points.)

Syllabus and course outline changes: The instructor may adjust the syllabus or course outline during the course of the semester. Updated versions of the syllabus and course outline will be maintained on this class website.