ENCYCLOPAEDIA - ENCYCLOPAEDIA OF HYDROCARBONS PROJECT DIRECTORS Mario Beccari, Ugo Romano SCIENTIFIC

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  • ENCYCLOPAEDIAOF

    HYDROCARBONS

    ISTITUTO DELLA

    ENCICLOPEDIA ITALIANAFONDATA DA GIOVANNI TRECCANI

  • ALL RIGHTS RESERVED

    Copyright byISTITUTO DELLA ENCICLOPEDIA ITALIANA

    FONDATA DA GIOVANNI TRECCANI S.p.A.

    2007

    Printed in Italy

    Photolith and printing byMARCHESI GRAFICHE EDITORIALI S.p.A.

    Via Flaminia, 995/997 - 00189 Roma

  • CHAIRMANRoberto Poli

    CHIEF EXECUTIVE OFFICERPaolo Scaroni

    DIRECTORSAlberto Cl, Renzo Costi, Dario Fruscio, Marco Pinto, Marco Reboa,

    Mario Resca, Pierluigi Scibetta

  • ISTITUTO DELLA ENCICLOPEDIA ITALIANA

    PRESIDENTFrancesco Paolo Casavola

    BOARD OF DIRECTORS

    VICE PRESIDENTCesare Geronzi

    Gian Mario Anselmi, Roberto Artoni, Carlo Orazio Buora, Pierluigi Ciocca,Marcello De Cecco, Giuseppe de Vergottini, Giovanni Fiori, Ademaro Lanzara,

    Federico Pepe, Giovanni Puglisi, Giuseppe Vacca

    MANAGING DIRECTORFrancesco Tat

    SCIENTIFIC COUNCILCarlo Azeglio Ciampi, Francesco Cossiga, Oscar Luigi Scalfaro, Giovanni Conso,Rita Levi-Montalcini; Mario Agrimi, Adriano Alippi, Girolamo Arnaldi, BaccioBaccetti, Giuseppe Franco Bassani, Mario Beccari, Giuseppe Bedeschi, GiampioBracchi, Pietro Calissano, Luciano Canfora, Mario Caravale, Sergio Carr, EnricoCastelnuovo, Francesco Clementi, Piero Coda, Benedetta Craveri, FrancescoDAgostino, Giuseppe Dalla Torre, Nino Dazzi, Antonio Fazio, Domenico Fisichella,Giuseppe Galasso, Paolo Galluzzi, Emma Giammattei, Antonio Giuliano, GherardoGnoli, Augusto Graziani, Tullio Gregory, Maurizio Iaccarino, Carlo Jean,Fiorella Kostoris Padoa Schioppa, Luigi Labruna, Lucio Lanfranchi, Carlo MariaOssola, Giorgio Parisi, Giovanni Pugliese Carratelli, Gian Tommaso ScarasciaMugnozza, Pietro Scoppola, Salvatore Settis, Francesco Sicilia, Fulvio Tessitore,

    Edoardo Vesentini, Vera Zamagni, Ortensio Zecchino

    BOARD OF AUDITORSGianfranco Graziadei, Chairman; Mario Perrone, Saverio Signori

    Luciano Pagliaro, Delegate of the State Auditors Department

  • ENCYCLOPAEDIA OF HYDROCARBONS

    PROJECT DIRECTORSMario Beccari, Ugo Romano

    SCIENTIFIC CO-ORDINATING COMMITTEEPier Federico Barnaba, Piero Bernardini, Giovanni Brighenti, Sergio Carr, Alberto Cl,

    Carlo Giavarini, Renzo Mazzei, Ferruccio Trifir

    EDITORIAL DEPARTMENT

    Chief Editor: Carlo Amadei

    Technical-Scientific Area. Supervisors: Fabio Sebastiani; Maria Teresa Amoroso. Chemistry: AndreaCiccioli, Alessandro Di Menno Di Bucchianico, Antonio Di Meo - Physics: Maria GraziaIanniello - Engineering: Lucilla Monteleone, Roberto Steindler - Biological, Geological andNatural Sciences: Francesca Beolchini, Simona Martullo, Francesca Ricci, Paola Vinesi

    Legal, Economics and Historical-Geographical Area. Supervisors: Giandomenico Patrizi; Pino Bongiorno,Michela Mastroddi. Law: Fabio Di Fonzo, Fabiana Di Porto, Bianca Maria Raganelli - Economics:Chiara dAuria, Giuseppe Smargiassi - Geography: Arianna Ballabene - History: Silvia Dionisi

    Italian language edition. Supervisor: Enrico Piccioni. Cristiana Baldazzi, Ilenia Romana Cassetta,Fabio Catino, Claudio Censori, Marina Chiarioni, Katia Fura, Patrizia Greganti, TomsKubcek (illustrations), Enza Milanesi, Stefano Petrocchi, Tiziana Provvidera, Laura Volpe

    English language edition. Co-ordination: Cosima Campagnolo. Paul Anthem, Ruth Margaret Baker,Janice Calf, Anne Colbeck, Johanna Erhardt, Mira Green, Denise Ko, Allison Elisabeth Long,Holly Ruggiero, Mary Anne Tafuri. Consultant: Peter Joseph GlendeningTranslators: Carlo Vittorio Bevilacqua Ariosti, Peter Joseph Glendening, Paula Howarth,Erika Louisa Milburn, Lisa Orlandi, Valentina Palombi, Stefano Salpietro, Sandra Sazzini,Margherita Zizi. Consultant: Walter Rodin

    Secretaries: Pasqualina Leone, Tiziana Pieretti

  • ART DEPARTMENT

    Art Director: Gerardo Casale

    Graphics: Giuseppe De GregoriIllustration sourcing: Daniele Piselli; Claudio Cigognetti; Angelo ZanniDrawings: Marina Paradisi; Giuseppina Elia, Marco Evangelista, Massimo Montelli, Anna Olivieri,Paola Salvatori (cartography)Graphics and layout: Giuseppe De Gregori (control)Quality control: Anna Rita De NardisSecretaries: Aurora Corvesi, Carla Proietti Checchi

    LIBRARY

    Gabriella Miggiano; Elsa Adducci, Marina Battaglini, Massimo Menna, Giuliana ScudderSecretary: Gabriella Michetti

    PUBLISHING DEPARTMENT

    Publishing administration: Luisa Fus; Cecilia Rucci, Mirella AielloPlanning: Luisa Cinquina; Alessia Pagnano, Tiziana PicconiQuality control: Rosalba Lanza; Simonetta PaoluzziIndustrial production: Maria DevrushianSecretary: Eliana Naddeo

    PUBLISHING DIRECTORMassimo Bray

  • volume iv

    HYDROCARBONS:ECONOMICS, POLICIES

    AND LEGISLATION

    SCIENTIFIC CO-ORDINATION

    Alberto Cl(Hydrocarbons: economics and policies)

    Piero Bernardini(Hydrocarbons legislation)

    ENCYCLOPAEDIA OF HYDROCARBONS

  • XV

    INDEX OF VOLUME IV

    HYDROCARBONS:ECONOMICS AND POLICIES

    1 MINERAL RESOURCES BETWEEN SCARCITY AND GROWTH

    Alberto Quadrio Curzio, Fausta Pellizzari, Roberto Zoboli

    1.1 THE ECONOMIC THEORY OF EXHAUSTIBLE NATURAL RESOURCES 3

    1.1.1 Introduction 3

    1.1.2 Producibility and scarcity: the classical dynamics 3

    1.1.3 From natural to general scarcities: marginalists and neoclassicals 4

    1.1.4 Dynamics with and without natural scarcities: macroeconomists, structuralists, stylizers 7

    Alberto Quadrio Curzio, Fausta Pellizzari, Roberto Zoboli

    1.2 TECHNOLOGICAL INNOVATION, RELATIVE SCARCITY, INVESTMENTS 11

    1.2.1 Innovation and resource use efficiency: stylized facts 11

    1.2.2 The mechanisms of technological innovation for energy and the environment 15

    Peter R. Odell

    1.3 RESERVES AND RESOURCES 23

    1.3.1 Oil 23

    1.3.2 Natural gas 32

    Donald W. Jones

    1.4 THE MACROECONOMIC IMPACTS OF OIL PRICE SHOCKS 43

    1.4.1 A short history of a controversial topic 43

  • 1.4.2 Microeconomic mechanisms that transmit oil price shocks to the macroeconomy 44

    1.4.3 Monetary policy in response to oil price shocks 45

    1.4.4 What constitutes an oil price shock? 45

    1.4.5 The econometrics of oil price shocks 46

    1.4.6 Non-US evidence 46

    1.4.7 The impact of oil prices on the macroeconomy 47

    2 BASIC ECONOMICS OF THE HYDROCARBONS INDUSTRY

    Carol Dahl

    2.1 OUTLINE. OIL AND OIL PRODUCT DEMAND 49

    2.1.1 Overview of global oil use 49

    2.1.2 Theoretical issues in modelling energy demand 54

    2.1.3 The effect of demand and supply on market price 57

    2.1.4 Demand elasticities and their uses 61

    2.1.5 Econometric estimates of energy demand models 63

    2.1.6 International data sources 67

    2.1.7 Survey of demand elasticities by product, region and sector 69

    Morris A. Adelman

    2.2 BASIC CONDITIONS FOR CRUDE OIL PRODUCTION AND COST FUNCTIONS

    IN THE SHORT AND LONG RUN 75

    2.2.1 Introduction 75

    2.2.2 Oil and gas supply: an industry of rising costs 77

    2.2.3 Exploration as permanent source of company/government discord 79

    2.2.4 Conclusions 82

    Olivier Appert, Jean-Pierre Favennec

    2.3 ANALYSIS OF COST STRUCTURE AND FUNCTIONS IN OIL TRANSPORT AND REFINING 85

    2.3.1 Oil transport 85

    2.3.2 Oil refining 96

    Oliviero Bernardini

    2.4 THE ECONOMICS OF NATURAL GAS 107

    2.4.1 Introduction 107

    2.4.2 The demand for natural gas 108

    2.4.3 Natural gas supply 123

    2.4.4 The production function and the costs 145

    2.4.5 From regional to global markets 149

    James T. Jensen

    2.5 INTERNATIONAL TRADE AND THE LNG INDUSTRY 155

    2.5.1 Gas trade 155

    2.5.2 Economies of scale and transport costs 161

    2.5.3 International contracts 167

    2.5.4 The LNG industry 171

    XVI

  • 3 PUBLIC POLICIES AND THE OIL INDUSTRY

    Alberto Cl3.1 STATE AND MARKET REQUIREMENTS DETERMINING OIL POLICIES 187

    3.1.1 Oil and the economy: an inextricable link 1873.1.2 Oil and politics: the lessons of history 1903.1.3 The philosophy of public intervention 1923.1.4 Oil policy in the United States 1983.1.5 European public policies 2013.1.6 Peak and decline of public policy 2053.1.7 Oil, social conflict, policy crises 2123.1.8 Policies and the market: striking a balance 213

    Donald W. Jones3.2 URBANIZATION AND ENERGY USE 219

    3.2.1 Urbanization and agricultural change 2193.2.2 From agriculture to industry 2203.2.3 Building cities 2203.2.4 Concentrating populations 2203.2.5 Increasing incomes 2213.2.6 Substituting modern energy for traditional energy 2213.2.7 The bottom line: aggregate energy implications of urbanization 222

    Enzo Di Giulio3.3 ENVIRONMENTAL EXTERNALITIES 225

    3.3.1 The concept of externality 2253.3.2 Regulation or the market? 2273.3.3 Oil and gas externalities 2283.3.4 Assessment of externalities 2323.3.5 Climate change 236

    4 MARKET STRUCTURES AND PRICE POLICIES IN THE OIL AND GAS INDUSTRY

    Philip K. Verleger Jr.4.1 MARKET STRUCTURES AND PRICE POLICIES IN THE OIL AND GAS INDUSTRY:

    THE CASE OF OIL 2394.1.1 Introduction 2394.1.2 Economic theories of price setting in the oil industry 2394.1.3 The oil industry transformation: from coordination to commodity markets 2454.1.4 Oil as an economic commodity: OPEC policies and price dynamics 2484.1.5 Conclusion 251

    Massimiliano Marzo4.2 UNCERTAINTY AND RISK MANAGEMENT 255

    4.2.1 Introduction 2554.2.2 Forward and futures contracts 2564.2.3 Options 261

    XVII

  • 4.2.4 OTC instruments 266

    4.2.5 Exchanges for physicals 271

    4.2.6 Conclusions 272

    5 KEY ACTORS IN THE HYDROCARBONS INDUSTRYAND COMPANY STRATEGIES

    Alberto Cl

    5.1 TH