Oil supply and economic development strategy: A dynamic planning approach |
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| Affiliation: | 1. National Engineering Laboratory for Pipeline Safety/MOE Key Laboratory of Petroleum Engineering/Beijing Key Laboratory of Urban Oil and Gas Distribution Technology, China University of Petroleum-Beijing, 102249 Beijing, China;2. Dipartimento di Energia, Politecnico di Milano, Via La Masa 34, 20156 Milano, Italy;3. Chair System Science and the Energy Challenge, Fondation Electricité de France (EDF), CentraleSupélec, Université Paris Saclay, Grande Voie des Vignes, 92290 Chatenay-Malabry, France;4. Petrochina West East Gas Pipeline, Dongfushan Road 458, Pudong District 200122, Shanghai, China;1. Environmental Studies Program, Dartmouth College, 6182 Steele Hall, Hanover, NH 03755, USA;2. Division of Resource Economics, Dept. of Agricultural Economics, Humboldt University, Unter den Linden 6, 10099 Berlin, Germany;3. Environmental Change and Governance Group, School of Environment, Resources, and Sustainability, University of Waterloo, 200 University Ave W, Waterloo, ON, N2L 3G1, Canada;4. Geography, College of Life and Environmental Sciences, University of Exeter, Exeter EX4 4RJ, United Kingdom;5. School of Environmental Studies, University of Victoria, PO Box 1700 STN CSC, Victoria BC V8W 2Y2, Canada;6. Department of Ecosystem Science & Management & Texas Agrilife Research, Texas A&M University, 2138 TAMU, College Station, TX 77843, USA;7. Duke University Marine Laboratory, Nicholas School of the Environment, Duke University, 135 Duke Marine Lab Road, Beaufort, NC 28516, USA;8. Graduate School of Planning, University of Puerto Rico, Rio Piedras, PO Box 23354, San Juan, PR, 00931-3354, USA;1. SHERPPA, Ghent University, Belgium;2. IRES, Université Catholique de Louvain, Belgium;3. UNU-CRIS, Potterierei 72, B-8000 Bruges, Belgium;1. Virginia Tech, USA;2. ERF, Cairo, Egypt;3. Bloomsburg University, USA;1. School of Public Service and Governance, Ghana Institute of Management and Public Administration, P. O. Box AH 50, Green Hill-Achimota, Accra, Ghana;2. Department of Political Science, Concordia University, 1455 de Maisonneuve Blvd. West, Montreal, Quebec, H3G 1M8, Canada;5. School of management, Hebei GEO University, China |
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| Abstract: | Most oligopolistic models of the oil market begin with the assumption of rising supply curves for oil. Lack of convincing evidence that high oil prices are being maintained by oligopolistic action has raised the possibility of competitive behavior in the oil market and therefore of a backward bending supply curve. This paper presents numerical solutions of a linear dynamic planning model of an oil exporting country with a development strategy which consists of utilizing oil revenues for building an export sector to replace oil. To make a stronger case a high absorber, Algeria, is used as an example. The numerical results are consistent with the hypothesis that there may well be good economic reasons to restrict supply of oil in response to increased prices. Three important characteristics of the model which produce this result are (a) diminishing marginal utility of consumption, (b) absorptive capacity, and (c) imperfect capital markets. A ‘perverse’ supply behavior is found consistent with optimal allocation of oil resources when a price increase is expected to last for a long time. The effects of temporary price changes which can, for example, result from temporary supply shocks or demand changes during the business cycle are also studied. It is shown that in response to such short term price changes competitive behavior is ‘normal’, i.e., supply varies in the same direction as the price. This implies that reductions in OPEC production which have taken place during the recent market downturns cannot be taken as evidence of cartel coordination, as they usually are, since they are also consistent with price-taking behavior. |
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