Markets For Oil, Gas, Coal,

Electricity And Renewable Energy

Resources And Alternate Fuels

GROUP 6BY : SIDHARTH GAUTAMADM NO : 2014MT0226

INTRODUCTION

WHAT IS MARKET ??

• In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any types of goods , service and information.• Market allow any trade-able item to be evaluated

and priced.• The exchange of goods with or without money is

called Transaction.

ENERGY MARKET

• Energy Markets are commodity markets that deal specifically with the trade and supply of energy.• Typical Energy development is the result of a

government creating an energy policy that encourages the development of an energy industry in a competitive manner

CURRENT ENERGY

SCENARIO

MARKETS OF OIL

CRUDE OIL

• Crude oil has been refined to make fuels, like petrol and diesel, lubricants, and industrial chemicals since the 1850s. Industrialization owes its development to oil, and today, the world's two largest companies - Exxon Mobil, and PetroChina - are oil refiners and distributors.• Oil is an essential scarce resource, and there are still no

cost effective alternatives to oil for producing vehicle fuels like petrol and diesel. World sales of oil in 2008 were $1,600 billion.

(Sources: Oil Daily, 2008, US Congressional Research Service, 2009. FT.Com, 2009.)

THE DEMAND FOR OIL

• The demand for oil has a number of important characteristics.• Demand is increasing in the advanced, OECD economies,

which make up approximately 66% of total world demand. Between 1980 and 2008, world demand increased by 40%, from 60m barrels per day to over 85m barrels.

• The demand for oil is relatively inelastic with respect to price, given that oil has few direct substitutes.

• Similarly, demand for oil is relatively inelastic with respect to income in the advanced, OECD economies. However, income elasticity of demand (YED)in developing economies like China and India is likely to be higher, with estimates suggesting that YED is close to 1 .

WORLD'S MAJOR OIL IMPORTERS

• According to industry experts, the world has approximately 1.2 trillion barrels of proven oil reserves. Experts estimate that, at the current rate of consumption, and with no more discoveries of reserves, these proven reserves will be exhausted in approximately 40 years.

OIL PRODUCERS

Chart of crude oil prices since 1861

SUCCESSIVE PRICE REGIMES

• Before 1880: “Disorder” in the US• 1880-1910: the Standard Oil Trust Regime• 1910-1930: Transition • 1930-1970: the 7 Sisters Pricing Regime:

• Posted prices controlled by the companies• 1970-1985: the OPEC Pricing Regime:

• Posted prices controlled by the producing countries• 1985-87: the Netback Pricing Regime:

• Transition period• 1987 to date: the Reference Pricing Regime

AFTER 1987: THE REFERENCE PRICING

REGIME• “Reference pricing” means that the price of a crude

which is not freely traded is tied by some formula to the price of another crude which is freely traded.

• The two main reference crudes are Brent and WTI (West Texas Intermediate)

OIL CRISIS

• Oil Crisis is a great price rise in the supply of oil resources to an economy.• CAUSES :• Government actions like tax hikes, nationalization of

energy companies and regulation of the energy sector shift supply .• A crisis can develop due to industrial actions like union

organized strikes and government embargoes.• The cause may be over consumption , aging

infrastructure.

HISTORICAL CRISISThe 1970s energy crisis was a period in which the economies of the major industrial countries of the world, particularly the United States, Canada, Western Europe, Japan, Australia, and New Zealand were heavily affected and faced substantial petroleum shortages.

The two worst crises of this period were the 1973 oil crisis and the 1979 energy crisis, caused by interruptions in exports from the Middle East.

• The 1973 oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of the OPEC plus Egypt, Syria and Tunisia) proclaimed an oil embargo. By the end of the embargo in March 1974, the price of oil had risen from $3 per barrel to nearly $12. • The oil crisis, or "shock", had many short-term and

long-term effects on global politics and the global economy. It was later called the "first oil shock", followed by the 1979 oil crisis, termed the "second oil shock."

• The 1979 (or second) oil crisis or oil shock occurred in the United States due to decreased oil output in the wake of the Iranian Revolution.• The global oil supply decreased by ~4 %.• Widespread panic resulted in higher price than

justified supply.• The price of crude rose to $39.50 per barrel.• The 1990 oil price spike occurred in response to

the Iraq invasion of Kuwait on August 2, 1990.• Average monthly prices of oil rose from $17 per

barrel in July to $36 per barrel in October.

MARKETS OF

NATURAL GAS

NATURAL GAS

• Natural gas is one of the most abundant energy resources on the planet, yet more than one-third of global natural gas reserves remain stranded and undeveloped.• 70% of gas traded internationally is exported by

pipeline; 30% by liquefied natural gas (LNG)• Alternative technologies have been refined and

developed in recent years but are yet to make serious inroads into the challenges of developing remote gas fields

NATURAL GAS COST STRUCTURE• For oil the most important cost component is field

development. • For gas it is transportation. • Natural gas is transported:• In gaseous form by gas pipelines• In liquefied form in LNG carriers

• Methane liquefies under atmospheric pressure at -161.5 C°. This is Liquefied Natural Gas or LNG.

TECHNOLOGIES AVAILABLE TO TRANSPORT NATURAL GAS

PIPELINE ADVANTAGE

• The cost of a pipeline is directly proportional to the distance covered• It is also proportional to the diameter, but volume

transported is proportional to the square of diameter: the larger the pipe, the lower the cost per cubic meter• It is also a function of “terrain”: overland or

underwater, difficult terrains etc.

LNG ADVANTAGE

• A significant share of the gas produced is burned to liquefy the rest – independently of distance.• Distance influences the number of required carriers

(ships) – but cost increases less than w. pipeline.• For long sea passages, LNG is the sole alternative.

CONSUMPTION TRENDS

ELECTRICITY FERTILISER OTHER INDUSTRY RESIDENTIAL0

5

10

15

20

25

30

35

Chart Title

2005 2015 2025

IN bm3

INDIA NATURAL GAS SECTOR STRUCTURE

PRODUCTION

ONGC

OIL

BG INDIA

GSPC

RIL

CAIRN INDIA

NIKO RESOURSE

MARKET SHARE

32%

21%

24%

19%

4%

RELIANCEGAILONGCCNGOTHERS

MARKETS OF

COAL

COAL

• Coal is a combustible black or brownish black sedimentary rock .• Coal is primarily composed of carbon along with

variable quantities of hydrogen , sulfur , oxygen and nitrogen.• The energy administration estimates coal reserves

at 948 x tons.• Coal is used mainly for generation of electricity.

TRADED COAL IN GLOABAL HARD COAL PRODUCTION

HARD COAL PRODUCTION INTERNATIONAL TRADE SEABORNE TRADE

1139

1029791

5498

110238

Seabornetrade

Crossborder trade

CokingCoaltrade

SteamCoaltrade

Domestic consumption

Internationaltrade

LOW RANK COAL TRADE

• The growth of low rank steam coal is a new trend in global seaborne trade. • Low rank coal also designed as “off-spec” consists

of sub-bituminous coal with a low calorific value (4,900 kcal/kg in the case of Indonesia, 5,500 kcal for Australia) and a high ash content (up to 24%).• Sold at a discount• An estimated 200 million tons traded in 2011• Australia is now a regular supplier of low rank coal

on the spot market. • The suppliers save money as they don’t have to

wash the coal.

COKING COAL – A GLOBAL MARKET

• Four countries/regions dominate coal imports• China, India, the grouping Japan/South

Korea/Taiwan which constitutes the traditional Asian buyers, and Europe • Together they account for 84% of total coal

imports.• China became the world’s top importer in 2011,

taking over the position that Japan has occupied for three decades.• India became the third largest importer in 2012,

overtaking South Korea

• Concentration of exports in one country, Australia, which accounts for half of global coking coal trade.• Australia is therefore responsible for supplying

customers all around the world with its high-quality coking coals .• The other exporters include the United States,

Canada, Mongolia and Russia • Coking coal exports amounted to 291 million tons

in 2012 (254 million tons were seaborne trade)• Whereas steam coal trade accounts for 15% only of

steam coal production, coking coal trade reaches 29% of coking coal production (2011).

MAJOR COKING COAL EXPORTING COUNTRIES , 2011

AUSTRALIA US CANADA MONGOLIA RUSSIA OTHERS

140

62

24 20 17 16

Mill

ion

tons

FUTURE OF COAL TRADE

• Dominance of steam coal in international coal trade expected to continue• International coal trade expected to grow at an

average annual rate of only 1.2% • from about 20.8quadrillion Btu in 2007 to 27.6 quadrillion Btu in

2030 • Share of coal trade as a percentage of global coal consumption falls

to 14 percent in 2030

• Largest increase in demand from China• Price volatility is likely continue• Increasing “Resource Nationalism” in exporting

countries would deter trade

MARKETS OF

ELECTRICITY

ELECTRICITY MARKET

• In economic terms, electricity (both power and energy) is a commodity capable of being bought, sold and traded.• Electricity is by its nature is difficult to store and has to

be available on demand.• Unlike other products , it is not possible , under normal

operating conditions , to keep it in stock, ration it or have customer queue for it.• Demand and supply vary continuously.• There is therefore a physical requirement for a

controlling agency, the transmission system operator, to coordinate the dispatch of generating units to meet the expected demand of the system across the transmission grid.

THE STRUCTURE OF THE POWER INDUSTRY

• The electric power industry is a network industry consisting of four segments:• Generation (G)• Transmission (T)• Distribution (D)• Retailing (supply) (R)

NATURE OF THE MARKET

• Electricity is by its nature difficult to store and has to be available on demand. Consequently, unlike other products, it is not possible, under normal operating conditions, to keep it in stock, ration it or have customers queue for it. Furthermore, demand and supply vary continuously.• There is therefore a physical requirement for a controlling

agency, the transmission system operator, to coordinate the dispatch of generating units to meet the expected demand of the system across the transmission grid.• The scope of each electricity market consists of the

transmission grid or network that is available to the wholesalers, retailers and the ultimate consumers in any geographic area.

WHOLESALE ELECTRICITY MARKET

• A wholesale electricity market exists when competing generators offer their electricity output to retailers.• The retailers then re-price the electricity and take it

to market.• Buying wholesale electricity is not without its

drawbacks (market uncertainty, membership costs, set up fees, collateral investment, and organization costs, as electricity would need to be bought on a daily basis).

RETAIL ELECTRICITY MARKET

• A retail electricity market exists when end-use customers can choose their supplier from competing electricity retailers.• There may be real time pricing (prices based on the

variable wholesale price) a price that is set in some other way, such as average annual costs.• Demand response may use pricing mechanisms or

technical solutions to reduce peak demand.

RENEWABLE ENERGY MARKET

Renewable energy

• Renewable energy is generally defined as energy that comes from resources which are naturally replenished on a human timescale such as sunlight ,wind, rain, tides, waves and geothermal heat.• Renewable energy replaces conventional fuels in

four distinct areas: • electricity generation• hot water/space heating• motor fuels• rural (off-grid) energy services.

BIOMASS

• Biomass is biological material derived from living, or recently living organisms. It most often refers to plants or plant-derived materials which are specifically called lignocellulose biomass.• As an energy source, biomass can either be used

directly via combustion to produce heat, or indirectly after converting it to various forms of biofuel.• Biomass can be converted to other usable forms of

energy like methane gas or transportation fuels like ethanol and biodiesel.

RENEWABLEENERGY

COMMERCIALIZATION

• Renewable energy commercialization involves the deployment of three generations of renewable energy technologies dating back more than 100 years. • First-generation technologies, which are already mature

and economically competitive, include biomass, hydroelectricity, geothermal power and heat.• Second-generation technologies are market-ready and

are being deployed at the present time; they include solar heating, photovoltaic, wind power, solar thermal power stations, and modern forms of bioenergy. • Third-generation technologies require continued R&D

efforts in order to make large contributions on a global scale and include advanced biomass gasification, hot-dry-rock geothermal power, and ocean energy.

ECONOMIC TRENDS

• Renewable energy technologies are getting cheaper, through technological change and through the benefits of mass production and market competition.• Hydro-electricity and geothermal electricity

produced at favorable sites are now the cheapest way to generate electricity.• Renewable energy costs continue to drop, and the

levelised cost of electricity (LCOE) is declining for wind power, solar photovoltaic (PV), concentrated solar power (CSP) and some biomass technologies.

ALTERNATE

FUEL

ALTERNATE FUEL

• Alternate fuel , known as non- conventional or advance fuels are any material or substance that can be used as fuel , other than conventional fuel ie fossil fuel , coal & natural gas.• Well known alternative fuels include biodiesel , bio-

alcohal , hydrogen , fuel cell , biomass.

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