AbstractThis study estimates the gasoline demand function for the Islamic Republic of Iran, using the structural time series model over the period 1968‐2002, and uses it to estimate the change in social welfare for 2003 and 2004, of a higher gasoline price policy. It is found that short‐ and long‐run demand price elasticities are inelastic, although the response is greater in the long run. Hence, social welfare is estimated to fall because of the higher gasoline price (ceteris paribus). However, allowing all variables in the model to change, social welfare is estimated to increase since the changes in the other variables more than compensate for the negative effects of the policy.
AbstractThanks to the continuous implementation of liberalisation and reforms, the Indian economy has become a significant energy consumer. Further, the fast growing economy is expected to result in massive and unprecedented growth in energy consumption in India. This is sure to have important ramifications for the domestic energy sector, as well as global energy market. At the domestic level, this resulted in new discoveries of hydrocarbon resources. However, the growth in energy consumption is so high that the old, as well as newly discovered hydrocarbon resources would not be able to fulfil the growing demand for energy in the Indian economy. Hence, Indian economy would remain dependent on the global market for the supply of hydrocarbon resources. India has been adopting various strategies to manage her energy requirement and Natural gas is slated to play an important role in India's energy management. This paper therefore, attempts to study the importance of natural gas in this context.
AbstractIn this paper, investigation of theoretical limits of OPEC Members’ crude oil production is carried out. The analysis is performed at three different scenarios: 1. at OPEC's average annual production growth rate of 2.7 per cent; 2. at a growth rate of five per cent; 3. at an average annual growth rate of each OPEC Member based on its oil production in the past 25 years. The results suggest that the organization would fail to fulfil its percentage share in the global oil market by the year 2048, 2037 and 2024 in the first, second and third scenarios, respectively. Moreover, Kuwait showed to be extremely inconsistent and unstable in the three different scenarios, while the United Arab Emirates demonstrated great consistency among other OPEC Members as a result of the country's energy policy adopted many years ago.
This paper investigates the short and long-term determinants of Gulf Cooperation Council (GCC) stock markets' volatility. Since GCC countries are major suppliers of oil in world energy markets, their stock markets are likely to be susceptible to change in oil prices. Given that change in oil prices influence observable factors in GCC economies, we show in this paper that unobservable speculative factors drive short term stock market returns. The influence of oil price change on GCC stock markets returns is evidenced in the long-term. -super-1 Long term is defined here as the period of time required for the effect of oil price changes to work out its way to influence major macroeconomic indicators that influence profitability of firms traded in GCC stock markets. Copyright 2007 Organization of the Petroleum Exporting Countries.
AbstractThe transportation sector in Iran consumed about 52 per cent of oil demand in 2005. This high consumption rate of oil in the sector is fuelled by many factors including fiscal policies structural, as well as infrastructural factors. The vehicle ownership (intensity), efficiency of vehicles, public transportation, transport infrastructure, per capita income, cost of vehicle use, and fuel prices are among the factors which are shaping the trend of oil demand in this very important sector. Energy in Iran is heavily subsidized and in the transportation sector, the subsidy amounted to $3.59 billion in 1996, rising to $12.43 billion in 2005.Logistic model of vehicle ownership is estimated as a function of real per capita income, length of roads and other explanatory variables. Per capita income is a cumulative non‐declining variable incorporating the idea of income asymmetric. Oil demand is estimated as a function of fuel efficiency, age of car fleet, per capita income and vehicle ownership per 1,000 inhabitants. Oil demand elasticities of vehicle ownership and fuel efficiency are 1.29 and 1.11, respectively, confirming that these variables have major impacts on oil demand in the transportation sector. It is concluded that rationing of fuel or upward price adjustment merely cannot curb the fast growth of oil demand in the sector. A policy package including mandatory fuel efficiency standards, scraping of old vehicles, upward fuel price, and development of public transportation could lead to better management of fuel consumption in this sector.
The demand for oil in China has dramatically increased in the last years. Today, China is the second largest consumer of oil in the world behind the United States. This growing demand in oil comes in a context of steep international price hikes for oil. With its increasing oil consumption, China today plays a major role on the international oil markets, and a change in its consumption could seriously destabilise these markets. Moreover, today China occupies a preponderant place on the international scene, and a large drop in its economic activity could significantly affect world growth. It, therefore, is important for us to ask what the impact of the current increase in oil prices on the Chinese economy might be. The aim of this article is to conduct a quantitative analysis on the potential impact of the rise in oil prices on the Chinese economy. The macroeconomic and sectoral effects are evaluated with the help of a computable general equilibrium (CGE) model. Two scenarios were formulated: the first assuming a US $10 increase in international oil prices; the second, a $25 increase.
AbstractThe purpose of this paper is to examine the causality issue between energy consumption and economic growth for three typical oil‐exporting countries: Iran, Kuwait and Saudi Arabia. We use two different test methods to test for causality, namely, the error correction model and Toda‐Yamamoto (1995) procedure. The results based on both approaches consistently show a unidirectional long‐run causality from economic growth to energy consumption for Iran and Kuwait and unidirectional strong causality from energy consumption to economic growth for Saudi Arabia. So, the results support the neutrality hypothesis of energy consumption with respect to economic growth for Iran and Kuwait andvice versafor Saudi Arabia. The findings have practical policy implications for decision makers in the area of macroeconomic planning, as energy conservation is a feasible policy with no damaging repercussions on economic growth for Iran and Kuwait. However, increased GDP requires enormous energy consumption in Saudi Arabia. So, it seems misleading to recommend the same policy for different oil‐exporting countries.
AbstractCrude oil prices were found to have a significant impact on retail petroleum product prices and were shown to affect inflation and other key economic indicators. This article analyses the former's link in the European Union (EU) within a multi‐national and multi‐product framework. The results indicate that the old EU countries from North‐West Europe are well integrated in the global petroleum markets, while the Mediterranean and Eastern European countries depend on the low‐quality Russian oils. Furthermore, while product prices in the North West Europe are driven by the world benchmark crudes, countries with easy access to Russian oil are in the bidirectional relationship with its prices.
This paper models and estimates the energy demand by the commercial sector, using an error correction model. It also simulates the estimated model under three pricing scenarios and presents an analysis of the results. Copyright 2007 Organization of the Petroleum Exporting Countries.
Using panel unit root and panel cointegration tests, we investigate the purchasing power parity (PPP) for oil-exporting countries. In addition, we also employ a seemingly unrelated regression estimator to account for possible cross-sectional effect. The test results overwhelmingly reject the weak and strong versions of PPP hypothesis. It seems that the Dutch disease and repeated episodes of booms and busts in oil prices transmitted to the real exchange rate have made oil-dependent countries so apt to non-stationary real exchange rate.
On 1 January 2007, the Republic of Angola officially joined the Organization of the Petroleum Exporting Countries (OPEC). Luanda's accession is the first change in the organization's membership in more than three decades. This significant development demonstrates Africa's growing contribution to the overall global energy security. This study examines the oil outlook of the major producers in the continent: Nigeria, Angola and Sudan. It also analyses the growing interdependence between major oil consuming nations (the United States, China and the European Union) and African producers. The contention is that increasing production from Africa and consolidating partnership with OPEC Members will contribute to global energy security and further enhance cooperation between producers and consumers.
AbstractAs the global energy market undergoes profound changes with price of oil reaching record highs and China emerging as a major force in world energy and global energy geo‐politics, a debate on what has been described as ‘China energy threat’ seems to be gaining ground in western strategic circles. However, this is an illusion that is now somewhat exaggerated and overrated. As a matter of fact, the effect of the United States on global energy security affairs is far greater than that of China, and Washington is also not always the defender of the energy security as it claims to be.
Pakistan's recent economic acceleration together with rapid rates of population growth is having a significant impact on the country's energy supply/demand balances. Energy supplies in turn affect the pace and pattern of the country's economic expansion. Drawing on the empirically-based complex links between energy and the economy, several alternative scenarios of growth and energy needs are developed in an attempt to answer several key questions. In particular, what are some of the key interrelationships between sources of energy demand and supply? What are the economic growth consequences of alternative energy availabilities and, in turn, how do these growth patterns affect the subsequent energy supply and demand patterns? What energy strategies are suggested by the interconnection between the country growth requirements and energy needs? Are these significantly modified under rising or falling energy prices? Based on this analysis, several guidelines are drawn for the country's future energy policy.
The purpose of building the industrial energy demand model was to assess the impact of possible policy options and forecast future energy demand under various assumptions including the impact of the possible removal of energy subsidies in accordance with the WTO agreement. The forecasting results of the three scenarios raise several important issues. With nominal energy prices staying the same (the status quo) and inflation and economic growth continuing to expand (i.e., baseline scenario), all industries are expected to have growing demand for energy. The consumption of energy in the industrial sector is projected to grow at an annual growth rate of about 3.5% throughout the forecast period. In the case of the moderate scenario, the consumption of energy in the industrial sector is projected to grow by only 1.9% annually throughout the forecast period. If all the energy subsidies are removed, as in the extreme scenario, the consumption of energy in the industrial sector is projected to grow by only 1.5% annually throughout the forecast period. Moreover, as for inter-fuel substitution, the model forecast indicates that the consumption of electricity and natural gas will decline while the consumption of oil products will increase in all scenarios. The results indicate that changing the price structure of energy resources should be done in a comprehensive manner. In other words, electricity prices should be adjusted upwards instantly with the adjustment of oil products and natural gas prices, otherwise, a massive inter-fuel substitution will occur within the various industries.
Motorisation in Asia is soaring with rapid growth in incomes non‐lin‐early. Even though car ownership per 1,000 population is still low in countries like China, India or Indonesia, escalating number of cars is affected by GDP growth among other infrastructural factors in a non‐linear manner. This quick growth in car ownership may represent a significant implication on road transport fuel demand. This paper forecasts the demand for road transport fuel in India. For this purpose, econometric models, based on time series data, are constructed as for a major factor affecting fuel demand in road transportation i.e. car ownership. Firstly the econometric car ownership model was attempted in this study, for projecting future car stock in India based on cross section time series technique. The car stock is modelled by using three functional forms, which are the logistic, quasi‐logistic and Gompertz curves. However, to take into consideration countries with different income levels in that part of the world, these models were estimated by using pooled data of seven Asian countries (Japan, China, South Korea, Thailand, Indonesia, Malaysia and India). Then, a set of fuel consumption scenarios were developed in order to make forecast until 2030. These scenarios were generated by taking into consideration car stock, fuel efficiency and the average distance travelled in India.
The crude oil price exhibits a high degree of volatility which varies significantly over time. Such characteristics imply that the oil market is a promising area for testing volatility models. Testing and predicting volatility using ARCH and GARCH models have grown in the literature. A useful application of the volatility models is in the formulation of hedging strategies. In this paper we compare the optimal hedge ratio for the crude oil using the classical minimum risk approach and use ARCH to incorporate the effect of heteroskedasticity in the residuals on the hedge ratio. In addition, we test for the existence of a variable risk premium in the crude oil market. We find that, assuming rational expectations, there is a non-zero risk premium. We test for the variability of the risk premia and find evidence in its support when we employed a multivariate GARCH model.
To redress the problem of poor electricity access in rural India, even after 50 years of sustained electrification effort has proved to be a challenging task. And in order to address this problem, India launched a massive rural electrification programme in April 2005 with an objective of achieving universal household electrification by 2012. This short paper discusses the issues facing this programme and suggests that unless the risks are carefully mitigated, the programme may not succeed in achieving its principal objectives.
This paper tests the theory of storage in North American natural gas markets, using the Fama and French (1988) indirect test. In particular, we test the theory's prediction that when inventory is high, large inventory responses to shocks imply roughly equal changes in spot and futures prices, whereas when inventory is low, smaller inventory responses to shocks imply larger changes in spot prices than in futures prices. Our tests on spot and futures North American natural gas prices confirm these predictions of the theory of storage.
