energy markets midterm 1 study guide

What are two major opposing forces affecting the future path of energy consumption?

) Higher income/population and technological change

What some significant flaws in the peak oil hypothesis?

all of the above a.) oil reserves are fixed b.) technological innovation has run it's course c.) higher prices often induce more drilling and discovery

When is marginal cost equal to average cost?

at the minimum point of average cost curve

If the price elasticity of oil demand is -0.1 and there is a 10% reduction in world supply, the percentage change in the short-run price is

b.) 100%

The average and marginal cost curves for gas pipelines and the electricity distribution industries

b.) Decline as output increases

The higher heat rate for coal in electric power generation contributes to a competitive disadvantage for coal relative to natural gas.

ct! True

What type of coal has the highest price per ton?

d.) Metallurgical coal

What factors contribute to the competitive advantage of natural gas over coal in electric power generation?

d.) None of the above

What are some key differences between large and small oil and gas companies?

d.) all of the above

What factors have reduced the demand for Wyoming coal over the past decade?

d.) all of the above

If an oil owner has a choice between producing today versus delaying production tomorrow, he will do so when

d.) expected price gains exceed current interest rates

What was one the key developments that expanded the shipment of LPGs from the Gulf Coast to Asia?

d.) none of the above

A key consideration in transportation fuels is

energy content per unit of volume

A carbon tax would uniformly raise delivered prices for coal and natural gas to eletric power producers.

false

China is now the world's larger consumer of oil.

false

Contracts are fixed and immutable, never subject to re-negotiation.

false

Corn-based ethanol has been an exemplary example of clean, cheap, and secure energy policy

false

Day-to-day electric power production decisions are guided by choosing the power plant with the lowest levelized cost.

false

Oil price shocks are a sign of peak oil.

false

Unlike tight oil plays, the Marcellus did not witness increases in initial year production.

false

A perfectly elastic demand curve looks like

horizontal line

Energy prices are volatile because

short-run supply is very price inelastic

Fuel economy standards or a shift to alternative fuels, such as electricity, can have gradual but significant cumulative effects on refined petroleum product consumption.

true

Higher ethane prices relative to natural gas prices was one of the key drivers behind the shale gas boom from 2008 through 2012.

true

Natural gas is consumed in large quantities in geographic regions with abundant reserves.

true

One of the central challenges in developing the Marcellus was expanding take-away pipeline capacity.

true

Reductions in light, sweet crude supplies can have a disproportionate impact on all oil prices, especially under low-sulfur fuel standards.

true

Regional energy price differentials provide important signals for re-allocating capital within the industry.

true

Reservation fees for pipelines do not explain locational basis because they are sunk costs.

true

Spikes in oil prices often precede downturns in the general economy.

true

The demand for Saudi crude oil is price elastic even though market demand is price inelastic.

true

The electric power sector has seen the most fuel switching of any many sector in the economy.

true

The prediction of a peak in US oil production by Hubbert back in the 1960s was amazingly accurate.

true

The share of light petroleum products in total refined petroleum production has been increasing.

true

There has been a general trend for a long time toward lighter more hydrogen intensive fuels.

true

Varying vapor pressure for different liquid hydrocarbons in part dictates capital requirements for handing and storage.

true

To replace oil, natural gas, and coal, renewable energy would have to expand:

16-fold

Coal-fired electric power generation remains the single largest source of eletric power.

False

Hydroelectric power is widely dispersed within the United States.

False

Hydroelectric power now provides more than half of electricity generated from renewable energy sources.

False

Oil independence immunizes a country from the economic impacts from an oil supply shock.

False

Regional price differentials for drill bit hydrocarbons are an interesting artifact with no real economic consequences for investment and production.

False

Residual fuel oil has less heat content than gasoline

False

If natural gas and coal are substitutes

Few gas producers increase coal prices

Embargoes and wars disrupted approximately 6 percent of world oil supplies.

True

Hydroelectric power plants have very low marginal costs of production

True

People is small companies are rewarded for taking risk because they are often partial owners of the company.

True

The Sankey diagram provides an energy balance between primary energy sources and end uses.

True

The shale revolution began with the production of unconventional natural gas.

True

Ultimately the demand for energy is derived from the demand for basic human needs, such as transportation, heat, and light.

True

Some possible explanations for stagnant industrial electricity consumption in the USA include

a.) Changing composition of manufacturing

Recently oil prices have plunged. Why?

a.) Demand has fallen due to travel restrcitions

The market power of Saudi Arabia or it's ability to cut production and raise prices increases

a.) If the elasticity of supply from the USA declines

What's the dirty little secret of locational price differentials?

a.) They do not reflect sunk costs

What are some relevant factors determining the demand for gasoline?

all of the above a.) Gasoline prices b.) Real personal disposable income c.) Fuel economy standards

The Interstate Oil Compact of 1935, which served as a model for OPEC, was forged under what assumptions?

all of the above a.) Demand for oil is not responsive to price You Answered b.) Each producer has a natural market share c.) If market shares change, the cartel would be under threat

In the dominant firm pricing paradigm for world oil markets, what factors constrained Saudi Arabia's market power?

all of the above a.) competition from the competive fringe b.) substitution from alternatives to oil c.) other oil producers within OPEC

When gas prices were regulated at low levels during the 1970s

all of the above a.) Gas producers lost producer surplus from lost potential customers b.) consumers lost surplus because some were shut out of the market c.) producers transfer surplus to consumers

Natural gas has been gaining market share on coal in the electric power generation market because

all of the above a.) natural gas capacity is lower cost b.) natural gas is cheap c.) natural gas involves less pollution d.) gas capacity increments can be smaller

What are some limitations of heat content as an aggregate measure of energy consumption

all of the above a.) there are fuels used to make chemicals b.) fuels are used as raw materials for plastics manufacturing c.) there are many other non-heat features of fuels

Special marketing programs allowed

all of the above producers to directly negotiate with consumers b.) rendered pipelines common carriers c.) encourage competition in gas markets

Different grades of crude oil have been selling at a discount relative to North Sea Brent crude because

all the above a.) these crudes are lower quality b.) there is excess supply of these crudes c.) there is limited take-away capacity

Prices for natural gas at the Leidy Hub in Pennsylvania were far below Henry Hub prices two years ago. What could explain this price differential?

b.) Inadequate pipeline capacity

The central problem for industries with increasing returns to scale is

b.) Revenues are less than average costs

What is the most important element of cost for coal delivered to most electric power producers?

b.) Transportation

The gas pipeline market gravitates to either a monopoly or regulated franchise monopoly due to

b.) economies of scale

The one product to watch for determining the balance and direction of drill bit hydrocarbon markets is:

b.) naphtha

Hydroelectric power production in California causes

b.) natural gas fired generation to fall during the sspring

The Natural Gas Policy Act of 1978 authorized different prices for natural gas depending upon the source and when the wells were drilled. This policy enabled

b.) pipelines to bid up prices for deregulated categories of gas

Why does gasoline demand only partially adjust to its determinants, such as price and income?

c.) Automobile stocks slowly adjust over time

What is the most significant obstacle to exporting Wyoming coal to East Asian markets?

c.) Environmental opposition to the construction of coal export terminals

What coal region supplied 43% of US coal production in 2018?

c.) Powder River Basin

What is one of the unique features of the American oil and gas industry?

c.) Private mineral rights

Sunk costs for pipelines are

c.) irrelevant to operating decisions

In the long-run adjustment of gasoline consumption, the

c.) the composition of the fleet changes

What was the critical flaw in the proposed severance tax by Pennsylvania Governor Wolf?

c.) the minimum price provision

Why is Power River Basin coal so much less expensive than eastern coal?

d.) All of the aobve (a.) Thicker seams b.) Massive economies of scale c.) Greater labor productivity)

During the early years of the shale revolution, ethane had well developed infrastructure to transport and ship overseas.

false

Energy consumption in the USA is up roughly 40 percent since 1970 and so are criteria air emissions.

false

Energy taxes are an example of command and control regulation.

false

If renewable energy grew at 10% per year from now until 2040, the renewable share would exceed 30 percent of total energy use.

false

Locational price differentials are a frequent but random occurrence in markets for drill bit hydrocarbons and do not provide any real lasting economic function.

false

Log-linear or double log demand models have variable elasticities of demand.

false

Most gas production in the USA still comes from conventional sources

false

Natural gas pipelines can be more problematic to build than oil pipelines because the FERC does not grant eminent domain.

false

Petroleum pipelines deliver products in batch mode and are, therefore, contract carries.

false

Propane is the single largest compment of natural gas liquids.

false

The Marcellus shale does not extend into New York State.

false

The crack spread is equal to the weighted average price of products plus the cost of crude oil.

false

The price differential that justifies construction of a pipeline will stay wide enough over time to cover capital costs.

false

The value of energy is intrinsic and does not vary with location or timing of delivery.

false

What is used to determine production levels?

marginal cost

Cancellation of the Keystone pipeline

none of the above

If ethane prices fall sharply relative to natural gas prices

none of the above

Denison viewed energy as

not really a factor input

As residual fuel production has declined, petroleum coke production has increased, providing process feeds to produce light petroleum products.

true

Ethane prices affect drilling activity in the Marcellus.

true

Fuel economy standards or a shift to alternative fuels, such as electricity, can have a gradual but significant cumulative effects on refined petroleum product consumption.

true

As an enabling force, energy spurs economic growth by

All of the above

Energy markets in recent years have been in upheaval due to

All of the above (a.) the shale revolution b.) advances in solar energy technology c.) advances in batteries and electric cars)