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Dynamics of the UK Natural Gas Industry: System Dynamics Modelling and Long-Term Energy Policy Analysis

Author

Listed:
  • Chi, K.C.
  • Reiner, D.M.
  • Nuttall, W.J.

Abstract

We present a dynamic model of the indigenous natural gas industry in the UK. The model has been built using a system dynamics approach. Using the model several scenarios have been analysed. We found that management of the supply-side policy alone cannot substantially postpone the discovery, production and consumption peak. We also found that the dynamics of the main variables, namely, exploration, production and consumption, are sensitive to initial demand conditions. Postponing the onset of gas price increases can therefore be achieved more effectively through efforts to reduce demand growth. One might expect that a low taxation policy would encourage more exploration and production of gas and thereby stimulate higher consumption rates. Instead, there was no overall net effect on production and consumption in the long term. The depletion effect on cost of exploration acts as counterbalance to low taxation policy. Depletion effect causes cost and thus price to rise further which depress consumption rate. The advances in exploration and production technology can delay the peak of exploration, production and consumption. Technological improvements mean lower cost of exploration and production which pressure down long-term pattern of price dynamics.

Suggested Citation

  • Chi, K.C. & Reiner, D.M. & Nuttall, W.J., 2009. "Dynamics of the UK Natural Gas Industry: System Dynamics Modelling and Long-Term Energy Policy Analysis," Cambridge Working Papers in Economics 0922, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0922
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    Keywords

    System Dynamics; Simulation Modelling; natural gas; energy policy; long-term policy analysis;

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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