Econometric Modelling of World Oil Supplies: Terminal Price and the Time to Depletion
AbstractThis paper develops a novel approach by which to identify the price of oil at the time of depletion; the so-called "terminal price" of oil. It is shown that while the terminal price is independent of both GDP growth and the price elasticity of energy demand, it is dependent on the world real interest rate and the total life-time stock of oil resources, as well as on the marginal extraction and scarcity cost parameters. The theoretical predictions of this model are evaluated using data on the cost of extraction, cumulative production, and proven reserves. The predicted terminal prices seem sensible for a range of parameters and variables, as illustrated by the sensitivity analysis. Using the terminal price of oil, we calculate the time to depletion, and determine the extraction and price profiles over the life-time of the resource. The extraction profiles generated seem to be in line with the actual production and the predicted prices are generally in line with those currently observed.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1212.
Date of creation: 02 Mar 2012
Date of revision:
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Web page: http://www.econ.cam.ac.uk/index.htm
Oil prices and extraction; terminal price of oil; time to depletion; nonrenewable resources; oil demand estimations; and oil extraction costs.;
Other versions of this item:
- Kamiar Mohaddes, 2013. "Econometric modelling of world oil supplies: terminal price and the time to depletion," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 37(2), pages 162-193, 06.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-14 (All new papers)
- NEP-ENE-2012-03-14 (Energy Economics)
- NEP-RES-2012-03-14 (Resource Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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