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How do oil producers respond to giant oil field discoveries?

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  • Güntner, Jochen H.F.

Abstract

The classical Hotelling model predicts that the optimal extraction level rises immediately after an unexpected resource discovery, whereas, in reality, there are substantial adjustment costs in petroleum production and an average lag of several years between a discovery and the start of production. Using a large panel of country-level production data and a difference-in-differences identification approach, I show that domestic production levels respond before a newly found oil field comes on line and that this increase is driven by non-OPEC producers, consistent with different responses of OPEC and non-OPEC drilling activity. Offshore fields and exceptionally large “super-” or “mega-giant” fields are also more likely to raise country-level production. Given that domestic petroleum consumption rises by less in response to a discovery, at least part of the increase in production seems to go into (net) oil exports.

Suggested Citation

  • Güntner, Jochen H.F., 2019. "How do oil producers respond to giant oil field discoveries?," Energy Economics, Elsevier, vol. 80(C), pages 59-74.
  • Handle: RePEc:eee:eneeco:v:80:y:2019:i:c:p:59-74
    DOI: 10.1016/j.eneco.2018.12.012
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    More about this item

    Keywords

    Giant oil field discoveries; Lifetime of reserves; Oil production; OPEC; Proved reserves;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • N50 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - General, International, or Comparative
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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