Market Equilibrium

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En provenance du cours de University of Colorado System

Fundamentals of Global Energy Business

310 notes

University of Colorado System

Fundamentals of Global Energy Business

310 notes

Learn about diverse and integrated markets for primary energy, and the essential considerations driving business leaders and policy makers in development of global energy resources.

À partir de la leçon

Energy Supplies and Market Allocations

A broad range of primary resources are used to satisfy our need for energy. Accessing these resources depends on many factors, including available technologies and skills, and a number of political factors. We will address these factors as well as issues and trends in energy supply.

Market Equilibrium6:33

Market Equilibrium Examples13:24

Energy Markets Summary4:48

Political Factors in Energy Markets12:23

Rencontrer les enseignants

Michael J. Orlando
Lecturer
Global Energy Management, Business School

[BLANK_AUDIO]

Our videos to this point, provided an introduction or summary of the

economics of energy markets and what I'd like to do in this video.

Is to close our examination of real

market considerations by bringing together supply and demand.

And discussing how prices are determined, at least

in the somewhat ideal abstract world we've been discussing.

Think of this as a minimum essential set

of tools for thinking about how global markets function.

Now surely most of you know where we're headed here, that the price and quantity

of a good traded in the market places

determined by our supply and demand curves, okay.

But when we talk about the market for good, it's important to also

recall that we're referring to a good of a particular quality, at a particular.

Place, and at a particular time.

So, think of you know, that degree

of specificity, basically, is, is how we're thinking.

So, let's take the example of the market for natural gas.

When we talk about natural gas we

might think we're talking relatively generically, but

we tend when we're, when we're quoting

particular prices, we're actually quoting something very specific.

So, what is natural gas for instance?

Well, natural gas actually is

often what we're talking about is gas traded at the Henry Hub.

Okay.

At the Henry Hub we, we.

In all gas markets, we quote gas in dollars per million BTU.

Nymex contracts are for 10,000 million BTU increments.

But the gas we're talking about when we're talking about

gas traded at the Henry Hub is a specific quality.

It's the BTU content is determined by in-line gas chromatographs.

So at the transaction point is actually measured when custody goes from one,

one one organization or one business to another.

There's also going to be inline measures, when

we're talking about this kind of basic.

Plain vanilla, high quality gas.

There's going to be in, in line measures to verify that there's no hydrogen sulfide

which is a corrosive and costly to

remove, that they'll be relatively little moisture.

So, it's actually a lot of technical controls on the specific quality

of what we're dealing with, so we know exactly what we're buying.

If we buy an IMAX contract.

The gas at the Henry Hub also implies it's being sold at a particular place.

So, specifically, it is the Sabine Pass Pipe Line corporation

it's a, it's a location near Erath, Louisiana, where they price the

exchange of custody from one organization or one business to another.

But it's a specific point in the United States,

in Louisiana, when we talk about" Henry Hub" gas.

And lastly a contract for trading this gas refers to a particular point in time.

So, if it's a spot market exchange, then it's talking about

gas that's available right now and is going to be exchanged for.

but.

The New York Mercantile Exchange also,

constructs futures to trade this gas out up to ten years.

So, you can buy gas for March delivery, or April

delivery, or May delivery and you can sell those contracts.

So, when, when we're talking about, through these examples, I

want you to be thinking about where a very specific product.

At a particular point in space and a particular point in time.

And so, price and quantity are going to be

determined by the position of our demand and supply curves.

So, the, as I mentioned, the.

The price that will be determined in the market place

is that which equates the quantity demanded to the quantity supplied.

So, when we're talking about factors driving energy markets, we don't

want to be thinking about, you know, what happened to price.

Price is the thing that pops out of the model, and

the quantity is the thing that pops out of the model.

It's these external or exogenous factors that we're more

interested in that are not determined within the model.

What is happening in, with productivity or population growth in a

particular country in which the, the commodity is, is being traded?

Those things determine income.

And we recall.

That income is one of the determinants of demand.

What is happening possibly with technology or, or just with

other factors in goods markets that might be

changing the relative valuation of compliment and substitute to

good in question, in this case we're talking of gas.

I'm not going to talk about preferences really because for the most part.

These things are relatively hard to account for.

And because they're hard to account for, and there aren't very many great theories

of what changes preferences, in my humble judgement I think explaining away

things by changes and preferences is often just admitting that you can't really

explain them, because it's almost unprovable if

someone says it's a change in preference.

But in principle, of course, preferences are a determinant of demand.

Then on the supply side, the main, recall the principal determinants were

changes in technological capabilities, technological advance, things like that.

And then, other non-technological

changes that affect costs of production.

So, those are kind of the two drivers for the most part of supply.

[BLANK_AUDIO]

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