IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v63y2017icp13-21.html

The economic viability of gas-to-liquids technology and the crude oil–natural gas price relationship

Author

Listed:
  • Ramberg, David J.
  • Henry Chen, Y.H.
  • Paltsev, Sergey
  • Parsons, John E.

Abstract

This paper explores the viability of a gas-to-liquids (GTL) technology and examines how GTL penetration could shape the evolution of the crude oil–natural gas price ratio. Much research has established the cointegrated relationship between crude oil and natural gas prices in the U.S. The persistently low U.S. natural gas prices in recent years seem to mark a shift in this relationship, and have led some in industry to begin considering investments in GTL capacity in the US. In order to look forward over decades when the underlying economic drivers may be outside of historical experience, we use a computable general equilibrium model of the global economy to evaluate the economic viability of GTL and its impact on the evolution of the crude oil–natural gas price ratio. Our results are negative for the potential role of GTL. In order to produce any meaningful penetration of GTL, we find it necessary to evaluate scenarios that seem extreme. With any carbon cap GTL is not viable. Moreover, even without a carbon cap of any kind, extremely optimistic assumptions about (i) the cost and efficiency of GTL technology and about (ii) the available resource base of natural gas and the cost of extraction, before the technology penetrates and it impacts the evolution of the crude oil–natural gas price ratio.

Suggested Citation

  • Ramberg, David J. & Henry Chen, Y.H. & Paltsev, Sergey & Parsons, John E., 2017. "The economic viability of gas-to-liquids technology and the crude oil–natural gas price relationship," Energy Economics, Elsevier, vol. 63(C), pages 13-21.
    • Handle: RePEc:eee:eneeco:v:63:y:2017:i:c:p:13-21
    DOI: 10.1016/j.eneco.2017.01.017
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988317300270
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2017.01.017?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. repec:aen:journl:2006v27-02-a04 is not listed on IDEAS
    2. Apostolos Serletis & Ricardo Rangel-Ruiz, 2007. "Testing for Common Features in North American Energy Markets," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 14, pages 172-187, World Scientific Publishing Co. Pte. Ltd..
    3. repec:aen:journl:2008v29-03-a03 is not listed on IDEAS
    4. repec:unu:wpaper:wp2012-65 is not listed on IDEAS
    5. repec:clg:wpaper:1999-04 is not listed on IDEAS
    6. repec:aen:journl:2008v29-02-a03 is not listed on IDEAS
    7. repec:aen:journl:33-2-02 is not listed on IDEAS
    8. Apostolos Serletis & John Herbert, 2007. "The Message in North American Energy Prices," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 13, pages 156-171, World Scientific Publishing Co. Pte. Ltd..
    9. Brigida, Matthew, 2014. "The switching relationship between natural gas and crude oil prices," Energy Economics, Elsevier, vol. 43(C), pages 48-55.
    10. repec:aen:journl:2006v27-02-a02 is not listed on IDEAS
    11. Sergey Paltsev, 2012. "Implications of Alternative Mitigation Policies on World Prices for Fossil Fuels and Agricultural Products," WIDER Working Paper Series wp-2012-065, World Institute for Development Economic Research (UNU-WIDER).
    12. Paltsev, Sergey, 2012. "Implications of Alternative Mitigation Policies on World Prices for Fossil Fuels and Agricultural Products," WIDER Working Paper Series 065, World Institute for Development Economic Research (UNU-WIDER).
    13. Chan, Gabriel & Reilly, John M. & Paltsev, Sergey & Chen, Y.-H. Henry, 2012. "The Canadian oil sands industry under carbon constraints," Energy Policy, Elsevier, vol. 50(C), pages 540-550.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rodrigues, A.C.C., 2022. "Decreasing natural gas flaring in Brazilian oil and gas industry," Resources Policy, Elsevier, vol. 77(C).
    2. Pauletto, Gianluca & Galli, Federico & Gaillardet, Alice & Mocellin, Paolo & Patience, Gregory S., 2021. "Techno economic analysis of a micro Gas-to-Liquid unit for associated natural gas conversion," Renewable and Sustainable Energy Reviews, Elsevier, vol. 150(C).
    3. Zhang, Dayong & Wang, Tiantian & Shi, Xunpeng & Liu, Jia, 2018. "Is hub-based pricing a better choice than oil indexation for natural gas? Evidence from a multiple bubble test," Energy Economics, Elsevier, vol. 76(C), pages 495-503.
    4. Saad A. Al-Sobhi & Ali Elkamel & Fatih S. Erenay & Munawar A. Shaik, 2018. "Simulation-Optimization Framework for Synthesis and Design of Natural Gas Downstream Utilization Networks," Energies, MDPI, vol. 11(2), pages 1-19, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taran Faehn & Gabriel Bachner & Robert Beach & Jean Chateau & Shinichiro Fujimori & Madanmohan Ghosh & Meriem Hamdi-Cherif & Elisa Lanzi & Sergey Paltsev & Toon Vandyck & Bruno Cunha & Rafael Garaffa , 2020. "Capturing Key Energy and Emission Trends in CGE models: Assessment of Status and Remaining Challenges," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 5(1), pages 196-272, June.
    2. Scarcioffolo, Alexandre R. & Etienne, Xiaoli, 2021. "Testing directional predictability between energy prices: A quantile-based analysis," Resources Policy, Elsevier, vol. 74(C).
    3. Kaufmann, Robert K. & Hines, Edward, 2018. "The effects of combined-cycle generation and hydraulic fracturing on the price for coal, oil, and natural gas: Implications for carbon taxes," Energy Policy, Elsevier, vol. 118(C), pages 603-611.
    4. Ibrahim A. Onour, 2012. "Crude oil price and stock markets in major oil-exporting countries: evidence of decoupling feature," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(1), pages 1-10.
    5. repec:aen:journl:ej39-1-hartley is not listed on IDEAS
    6. Frank Asche & Atle Oglend & Petter Osmundsen, 2017. "Modeling UK Natural Gas Prices when Gas Prices Periodically Decouple from the Oil Price," The Energy Journal, , vol. 38(2), pages 131-148, March.
    7. Hasanli, Mübariz, 2024. "Re-examining crude oil and natural gas price relationship: Evidence from time-varying regime-switching models," Energy Economics, Elsevier, vol. 133(C).
    8. Makarov, Igor & Chen, Y.-H. Henry & Paltsev, Sergey, 2018. "Finding itself in the post-Paris world: Russia in the new global energy landscape," Conference papers 332984, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Stavros Stavroyiannis, 2022. "Cointegration and ARDL specification between the Dubai crude oil and the US natural gas market," Papers 2206.03278, arXiv.org.
    10. Zied Ftiti & Kais Tissaoui & Sahbi Boubaker, 2022. "On the relationship between oil and gas markets: a new forecasting framework based on a machine learning approach," Annals of Operations Research, Springer, vol. 313(2), pages 915-943, June.
    11. Kao, Chung-Wei & Wan, Jer-Yuh, 2009. "Information transmission and market interactions across the Atlantic -- an empirical study on the natural gas market," Energy Economics, Elsevier, vol. 31(1), pages 152-161, January.
    12. Karali, Berna & Ramirez, Octavio A., 2014. "Macro determinants of volatility and volatility spillover in energy markets," Energy Economics, Elsevier, vol. 46(C), pages 413-421.
    13. Mohamad, Azhar & Fromentin, Vincent, 2023. "Herd and causality dynamics between energy commodities and ethical investment: Evidence from the different phases of the COVID-19 pandemic," Energy Economics, Elsevier, vol. 126(C).
    14. Channing Arndt & Paul Chinowsky & Charles Fant & Sergey Paltsev & C. Adam Schlosser & Kenneth Strzepek & Finn Tarp & James Thurlow, 2019. "Climate change and developing country growth: the cases of Malawi, Mozambique, and Zambia," Climatic Change, Springer, vol. 154(3), pages 335-349, June.
    15. Amina Baba & Anna Creti & Olivier Massol, 2020. "What can we Learn from the Free Destination Option in the LNG Imbroglio ?," Working Papers hal-03181028, HAL.
    16. Thomas W. Hertel & Jevgenijs Steinbuks & Wallace E. Tyner, 2016. "What Is the Social Value of Second Generation Biofuels?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(4), pages 599-617.
    17. repec:dau:papers:123456789/11692 is not listed on IDEAS
    18. Ohana, Steve, 2010. "Modeling global and local dependence in a pair of commodity forward curves with an application to the US natural gas and heating oil markets," Energy Economics, Elsevier, vol. 32(2), pages 373-388, March.
    19. Baba, Amina & Creti, Anna & Massol, Olivier, 2020. "What can be learned from the free destination option in the LNG imbroglio?," Energy Economics, Elsevier, vol. 89(C).
    20. Sensoy, Ahmet & Hacihasanoglu, Erk & Nguyen, Duc Khuong, 2015. "Dynamic convergence of commodity futures: Not all types of commodities are alike," Resources Policy, Elsevier, vol. 44(C), pages 150-160.
    21. Ibrahim Onour, "undated". "Is the high crude oil prices cause the soaring global food prices?," API-Working Paper Series 1001, Arab Planning Institute - Kuwait, Information Center.
    22. Sergey Paltsev, 2016. "Energy Scenarios: The Value and Limits of Scenario Analysis," EcoMod2016 9371, EcoMod.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:63:y:2017:i:c:p:13-21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.