The Efficient Use Of Multiple Sources Of A Nonrenewable Resource Under Supply Cost Uncertainty

Uncertainties as to future supply costs of nonrenewable natural resources, such as oil and gas, raise the issue of the choice of supply sources. In a perfectly deterministic world, an efficient use of multiple sources of supply requires that any given market exhausts the supply it can draw from a low cost source before moving on to a higher cost one; supply sources should be exploited in strict sequence of increasing marginal cost, with a high cost source being left untouched as long as a less costly source is available. We find that this may not be the efficient thing to do in a stochastic world. We show that there exist conditions under which it can be efficient to use a risky supply source in order to conserve a cheaper non risky source. The benefit of doing this comes from the fact that it leaves open the possibility of using it instead of the risky source in the event the latter's future cost conditions suddenly deteriorate. There are also conditions under which it will be efficient to use a more costly non risky source while a less costly risky source is still available. The reason is that this conserves the less costly risky source in order to use it in the event of a possible future drop in its cost. L'incertitude sur le coût futur d'une ressource non renouvelable telle le pétrole ou le gaz pose la question du choix des sources d'approvisionnement. Dans un monde déterministe, l'utilisation efficace de sources multiples exige que tout marché épuise une source de coût relativement faible avant de passer à une source de coût plus élevé; l'utilisation des sources d'approvisionnement doit se faire strictement par ordre de coût marginal croissant; on ne touchera à aucune source de coût élevé tant qu'existe une source moins coûteuse. Nous montrons que cette règle n'est pas forcément efficace en univers stochastique. Il existe des conditions sous lesquelles il peut être efficace de recourir à une source risquée pour conserver une ressource moins coûteuse non risquée(This abstract was borrowed from another version of this item.)