ENERGY ECONOMICS REVIEW
Year:2007 | Volume:4 | Issue:14|Papers Count:9

In this paper we are concerned with testing the so called imperfect reversibility of demand for oil response to changes in oil prices and the GDP in China and OECD countries. We examine three important issues: demand asymmetric effect on oil price developments; the asymmetric effects of demand on the developments of GDP; and the different speed of demand adjustment to changes in oil prices and income. Our main conclusion are as follows: (1) China and OECD countries respond much more to increase in oil prices than to the decrease of it; ignoring this asymmetric price response will bias downward the estimated response to income changes; (2) demand's responses to GDP per-capita changes in China and OECD countries are not necessarily asymmetric; ignoring this imperfect reversibility of demand response to income changes will bias the estimated response to income changes; (3) the speed of demand adjustment to income changes is faster than the adjustment to oil price developments; ignoring this difference will bias upward the estimated response to income changes. Using proper specified equations for oil demand, the short and long-run response of demand for oil to income growth are figured out 0.67 and 0.72 in China and 0.49 and 0.49 in OECD countries respectively. The short to long-run price elasticity of Demand for oil are -0.085 and -0.55 for China and -0.075 and -0.2 for OECD countries respectively. Therefore, income and price elasticity of demand for oil are higher in China compared to OECD countries. Speed of demand adjustment to income and (oil) price changes; on the other hand, are higher in OECD countries than China. We find almost no lag for a response of oil demand to income change in OECD countries while for China the demand adjustment to income changes is estimated 93%. Speeds of demand adjustment to price changes are 0.39 and 0.15 for OECD and China respectively.

The present paper attempts to analyze, from statistical point of view, the asymmetric model of oil demand by major consumers of Iranian oil such as Japan, China, India and South Korea through estimating their oil demand function. In this analysis, the decomposition model of price was used and finally a comparison between symmetrical and asymmetrical patterns was drawn. The results obtained from the analysis verify the hypothesis in such countries as Japan, India and china. However, as for South Korea the statistic data could not nullify the theory of equivalence coefficient which verifies the reversible model. The analysis of price elasticity showed the inelasticity of demand in these countries. Therefore, it is expected that increase in demand for oil in these Countries to continue at least for a short period of time since such factors as increasing population, commerce and economic growth is evident in these countries, particularly in India and China.

Ethanol is being produced by using different agricultural crops including com. From the time com is being used to produce energy, the nature of com as a commodity has been changed. The com is considered as an energy product as well as food product. Many factors are affecting ethanol and related industries and activities. Variables like Oil prices, ethanol technology, com prices, financial credits and subsides on ethanol, supportive energy polices, and the international trade of corns and ethanol are among the factors that have impacts on this industry. Oil prices and com price have direct impacts on profitability of ethanol production and play key roles in this industry. The com price itself is affected by the increasing demand for com as feedstock and energy carrier. Due to limitation of future production (land use, the productivity of land, etc.) theoretically it is assumed that the com price will increase due to the expansion of ethanol production capacity in the future. Although there might be a com over-planting in response to higher prices in the short term. The increase in com prices would have impacts on its demand and also ethanol profitability. The same can be said on oil prices. With higher oil prices, the profitability of ethanol production increases and vice versa. The econometric model using the US data has confirmed these findings.

A major challenge for designers of competitive electricity markets is to devise market rules that limit the capability of electricity producers to exercise market power. Market power is the ability of a firm owning generation assets to raise the market price by its bidding behavior and to profit from this price increase. In addition, an important plan of market monitoring units in long term and competition policy framework is to persuade the participants to bid prices near to their marginal costs. Therefore, estimation of marginal cost function is important in way that Regulatory use it to increase competition in electricity markets. Bid price of the power plant to the power market contains some important information that can lead to more exact estimation of their marginal cost. In this paper the marginal cost of a typical power plant is estimated using optimal bidding behavior model in a competitive electricity market and Iran power market data.

One of the methods to contain gasoline and diesel consumption and to reduce air pollution in urban areas is employing natural gas vehicles (NGV) where significant economic savings due to decreased consumption of fossil fuels is foreseeable. Furthermore, NGVs emit less pollutant in comparison with fossil fuel vehicles. In order to materialize the goals pursued by the Article 44 of the Constitution, the Fuel Optimization Company (IFCO) has been entitled to build, operate and commission CNG stations to private sector through allowing specific financial facilities (e.g. supplying free equipment for the stations) in the framework of the provisions of the Sub-Article 13 of the 2007 National Budget Program. To this end, the first phase of the plan, the construction of the CNG stations, is under way in such big cities as Tabriz, Esfehan, Islamshahr, Tehran, Karaj, Mashhad, Ahvaz, Shiraz, Ghom, Kerman, Kermanshah and Yazd and the second phase is planned to commence in other big cities in near future. The present study examines the feasibility of such projects from economic point of view. Studies show that the required investment for building a CNG refueling station is 14,209 million rials of which 3,430,000,000 rials is allotted by the government in the framework of financial aids to procure needed equipment. Monthly revenue of a CNG refueling station with 4 dispensers (8 nozzles) which, on average, can fill a vehicle with the CNG tank capacity of 15 cubic meters within 6 minutes is about 61,320,000 rials. Also, the annual cost of the station is estimated at 1,366,560,000 rials. The economic assessment of this project was calculated using the COMFAR EXPERT III software. The internal rate of return (IRR) was 3/56. Considering the banks' interest rate which is between 16% and 27%, the project proves to be economically unfeasible. Moreover, the net present value of this project was 628,751,624 rials and the payback period was 10/62 years. If annual revenue of a firm increases by 81% from 2,102,400,000 to 3,811,975,444 then the IRR of a private CNG refueling station equals 20%.

The European Commission and Algeria, on 11th July, announced that they had reached an agreement based on the Sonatrach's concession to delete the destination clause from all Algeria's existing LNG contracts with the European buyers so such LNG contracts would not include similar clauses in the future. The destination clause assures sellers that the buyers could not resale the purchased cargo in elsewhere in seller's market territory and provides circumstances that sellers could benefit from market division and price discrimination. Therefore deletion of destination clause from LNG contracts could affect seller's profit function. This study shows that inclusion of destination clause in LNG contracts with Asian countries has considerable impact on the seller's profit function since these countries enjoy a different energy consumption model. But for European countries, because of deregulation and liberalization of markets leading to a more competitive, comparable and homogenous market structure, applying or deletion of the destination clause would not affect seller's profit function. The analysis shows that the producers would profit from price discrimination if transport costs or demand elasticity in the regions are asymmetric.

Natural gas not only has a wide range of applications in industrial, commercial and residential sectors, but also can be considered as an export commodity. Therefore, a question arises that which sector can extract more value added from this energy carrier. The authors of present paper, through examining the profitability of different projects of natural gas exports (via pipeline or in the form of LNG) and exports of methanol, proved that export of petrochemical products results in higher value added. The paper also concludes that export of natural gas via pipeline and in the form of LNG seems to be economical.