All the latest research from OxCarre and beyond
Despite pressure to develop renewables, many energy majors see more money in traditional markets
Oil and gas producers face three threats: prolonged low oil and gas prices, tightening of climate policy and a tough budget on cumulative carbon emissions, and technological innovation producing cheap substitutes for oil and gas. These threats pose real risks of putting oil and gas producers out of business. They lead to the problem of stranded assets and a significant downward valuation of oil and gas producers. This calls for divesting from and shorting coal, oil, and gas. The economies of oil- and gas-rich countries are typically in a deplorable state, since they did not use their past windfalls to build up buffers and invest in a diversified economy. More rapacious depletion of their oil and gas reserves will not help. After the crash in oil and gas prices these countries are facing serious problems and it is difficult to see how they will cope with the outlined threats.Published in Oxford Review of Economic Policy, available here [oxrep.oxfordjournals.org].
There was also a tantalising hint in the 2014 data of a de-coupling in the relationship between CO2 emissions and economic activity, until now a very predictable link.
By 2040, Asia is projected to account for four out of every five tonnes of coal consumed globally, (...). However, its continued use around the world is compatible with stringent environmental policies only if it is used in the most efficient way, with advanced control technologies to reduce air pollution, and if progress is made in demonstrating that CO2 can be safely and cost-effectively captured and stored.
Despite the shift in policy intentions catalysed by COP21, more is needed to avoid the
worst effects of climate change. There are unmistakeable signs that the much-needed
global energy transition is underway, but not yet at a pace that leads to a lasting reversal 10 of the trend of rising CO2 emissions.
The idea of a resource curse has influenced policy makers and led to calls for good governance to avoid the pitfalls of oil sector development. Through discussion of Ghana’s recent insertion into the global political economy of oil, this paper describes the limits of the resource curse framing and associated liberal institutional management approaches to the inherently political nature of oil exploration and production. The paper describes ways in which sovereignty has been exercised both in opposition to and in support of foreign capital, and the role of discourses of ‘good governance’ in structuring the material politics of resource access.Published in Review of African Political Economy, available here [tandfonline.com].
This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961รณ 2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.Available as working paper here [pdf, cam.ac.uk]
American officials, for their part, are diligently tightening the screws. When a large delegation of French businessmen returned from Tehran last year, many were warned by the American embassy in Paris that they should tread carefully and not sign preliminary contracts in Iran if they wanted to retain access to American financial markets. A group of Germans received a similar warning a few months later. The thought of having their dollars frozen under American banking sanctions, or of being locked out of America’s capital markets altogether, has cooled enthusiasm for doing business in Iran.
Yet some foreign businessmen moan that American companies are not playing by the same rules. Rather than operate openly in Iran, many American firms are busily using local front men. One such middleman in the oil and banking business, who is a frequent visitor to Iran’s oil ministry, says prime contracts have already been snapped up. “If there is a nuclear deal, you will find overnight that the Americans have signed one-year options on the best projects,” he says. “The Europeans will be queuing up, but they will end up negotiating with Exxon Mobil and Chevron, just as happened in Libya.”
Such talk is particularly galling to companies from Western countries that were reluctantly pulled into applying sanctions. “We can’t help but think we have been played by the Americans,” says one European business leader.
For the likes of Royal Dutch Shell, Eni of Italy and France’s Total, among those whose officials have met Iranian counterparts in Tehran, that day may be months away. Negotiations with US energy groups — absent since the nationalisations that followed the 1979 Islamic revolution — could be even further off. A complex range of restrictions will need to be rolled back in the US.and further
Legislation and executive orders impose such wide-ranging restrictions on US business dealings with the country that American companies take them to mean that even hypothetical discussions about post-sanctions contracts are illegal. Not one US oil company says it has held talks about possible deals with Iran. Exxon’s understanding of the law is that its executives are barred from talking about business with any Iranian officials. Chevron says that it “acts in full compliance with US law and does not engage in business discussions with Iran.” Conoco, similarly, says it is not engaged in any such talks.I find the FT report more convincing. The one "middleman" the Economist puts forward doesn't sound very credible when saying that contracts have already been "snapped up". The rest sounds very speculative (I'm not familiar with the case of Libya or which time period this person was referring to, but probably the time that Ghadaffi signed the nuclear non-proliferation treaty, and became a 'respectable' leader again).
Six of Europe’s largest oil and gas companies have banded together for the first time to ask the UN to let them help devise a plan to stop global warming.These are Royal Dutch Shell (Dutch-UK), BP (UK), Total (France), Statoil (Norway), Eni (Italy) and BG Group (UK).
The chief executives of ExxonMobil and Chevron, the two largest US oil producers, said last week they would not be joining any European company initiative to forge a common position on global warming.Further analysis about the issue, and how these companies try to address the potential risk that their assets under ground become worthless, is given here [FT.com].
We explore economic incentives for third parties to intervene in ongoing internal wars. We develop a three-party model of the decision to intervene in conflict that highlights the role of the economic benefits accruing from the intervention and the potential costs. We present novel empirical results on the role of oil in motivating third-party military intervention. We find that the likelihood of a third-party intervention increases when (a) the country at war has large reserves of oil, (b) the relative competition in the sector is limited, and (c) the potential intervener has a higher demand for oil.
This paper explores the effect of news shocks on the current account and other macro variables using plausibly exogenous variation in the timing of worldwide giant oil discoveries as a directly observable measure of news shocks about future output ̶ the delay between a discovery and production is on average 4-6 years. We first present a model predicting differential effects for news and materialized shocks on the current account and other macroeconomic variables. Our empirical estimates are qualitatively in line with the predictions of the model. After an oil discovery, the current account and saving rate become negative for about 5 years and then turn positive. Investment rises robustly in the short-run, while GDP does not rise until after 5 years. In contrast to some findings from the news literature, we find that employment falls in response to news.
