Expert: Soheil Moayedi - 7/17/2006

Question
Hi Soheil!

  In about two months, I'll be enrolled in the International Bacclaurtte (sp?) programme, where I'll write an Extendd Essay. I'm seriously considering writing the EE under Economics, specifically on the effect an increase in the price of LPG would have. In research for this I've come across references to Petroleum Economics. I assume it to be the economics of petrol and petroleum products, of course, but is there something more? In the same way that you'ld refer to such words as "Scarcity", "Opportunity Cost" and "Marginal Costs" when explaining basic econs, are there any special words to look out for in Petroleum economics? How does it differ from "traditional" Economics? What are the assumptions? Looking forward to a reply within your earliest convenience!

- Emmanuel Q.

Answer


Dear Emmanuel,

Your question is somehow complicated. As you know, econimics, crude oil and natural gas prices are intensively tied up with politics. Prices are not mainly depended on the shortage, but political concerns. Shortage of crude oil, natural gas and the ever increasing demand is, of course, a reality. However, the scare behind it, worring about the future of the World energy supply has masked the effect of shortening of supplies. In other word, it's true that supplies are running out and hence the prices are increasing, but the SCARE of running out of oil has increased the prices more.

There are countries, which their economics relies mostly on petroleum (crude oil and natural gas). These countries will benefit the most from high-prices, however, being depeleted, their economics will cracked down.

I believe that "traditional economics" relies mostly on supply and demand. Economics connected with petroleum not only relies on supply and demand, but on politics too. As petroleum is the most important source of energy and the economic growth depends on its supply, availability of petroleum and being able to provide it cheaply is one the concerns which may in some ways lead to struggles and wars. You have to consider that the whole World needs energy of crude oil and natural gas to develop. Hence coming into a conclusion, economics of petroleum is not traditional; it's not only economics; it's not only a simple sell and buy. It's politics; it's power; it's the key of development and economic growth.

To be honest, I know no special keyword on the subject to seek, but I have once worked on something the same. It was about the future of oil, the World's energy supply, the peak oil and oil prices. Hubbert and Simmons are two well-known experties who have worked on the subject. You may look for their papers. Furthermore, the association for the study of peak oil and gas (ASPO - http://www.peakoil.net) and Life After the Oil Crash (http://www.lifeaftertheoilcrash.net) may give you an overview.

If you would like to know more about the references I used, please send me a private email to (soheil.moayedi@gmail.com), so that I can provide you with more references.

Kind Regards,
Soheil Moayedi