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OPEC's Incentives for Faster Output Growth

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  • Dermot Gately
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    Abstract

    This paper addresses the question of whether OPEC producers are likely to expand their oil output substantially over the next two decades more than doubling in the Gulf countries by 2020. Such projections, made by the International Energy Agency (IEA) and the U.S. Department of Energy (DOE), are not based on behavioral analysis of Gulf countries decisions, but are merely the residual demand for OPEC oil the difference between projected world oil demand and Non-OPEC supply, given some assumed price-path. I employ a simulation model to compare OPEC s payoffs from faster or slower output growth, under various parametric assumptions about the responsiveness of world oil demand and Non-OPEC supply to income and price changes. The payoffs to OPEC are relatively insensitive to faster output growth; aggressive output expansion yields slightly lower payoffs than just maintaining current market share. Analysis of intra-OPEC decisions between the Core countries and the others suggests a similar conclusion: these two groups are engaged in a constant-sum game. Thus, the significant increases in OPEC output projected by IEA and DOE are implausible.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 25 (2004)
    Issue (Month): Number 2 ()
    Pages: 75-96

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    Handle: RePEc:aen:journl:2004v25-02-a04

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    Cited by:
    1. Leach, Andrew & Mason, Charles F. & Veld, Klaas van ‘t, 2011. "Co-optimization of enhanced oil recovery and carbon sequestration," Resource and Energy Economics, Elsevier, vol. 33(4), pages 893-912.
    2. Hahn, Robert & Passell, Peter, 2010. "The economics of allowing more U.S. oil drilling," Energy Economics, Elsevier, vol. 32(3), pages 638-650, May.
    3. Radoslaw Stefanski, 2010. "Structural Transformation and the Oil Price," OxCarre Working Papers 048, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    4. Bassi, Andrea M. & Powers, Robert & Schoenberg, William, 2010. "An integrated approach to energy prospects for North America and the rest of the world," Energy Economics, Elsevier, vol. 32(1), pages 30-42, January.
    5. Jochen Güntner, 2013. "How do oil producers respond to oil demand shocks?," Economics working papers 2013-11, Department of Economics, Johannes Kepler University Linz, Austria.
    6. Lyudmyla Hvozdyk & Valerie Mercer-Blackman, 2010. "What Determines Investment in the Oil Sector?: A New Era for National and International Oil Companies," IDB Publications 9393, Inter-American Development Bank.
    7. Radoslaw Stefanski, 2013. "Online Appendix to "Structural Transformation and the Oil Price"," Technical Appendices 12-45, Review of Economic Dynamics.
    8. Sorrell, Steve & Miller, Richard & Bentley, Roger & Speirs, Jamie, 2010. "Oil futures: A comparison of global supply forecasts," Energy Policy, Elsevier, vol. 38(9), pages 4990-5003, September.
    9. Wirl, Franz, 2008. "Why do oil prices jump (or fall)?," Energy Policy, Elsevier, vol. 36(3), pages 1029-1043, March.
    10. Correlje, Aad & van der Linde, Coby, 2006. "Energy supply security and geopolitics: A European perspective," Energy Policy, Elsevier, vol. 34(5), pages 532-543, March.
    11. Wirl, Franz, 2008. "Energy conservation, expectations and uncertainty," Energy Economics, Elsevier, vol. 30(4), pages 1957-1972, July.
    12. Greene, David L., 2010. "Measuring energy security: Can the United States achieve oil independence?," Energy Policy, Elsevier, vol. 38(4), pages 1614-1621, April.
    13. Chen, Xiaoguang & Huang, Haixiao & Khanna, Madhu & Önal, Hayri, 2014. "Alternative transportation fuel standards: Welfare effects and climate benefits," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 241-257.

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