Energy markets
This session deals with the international energy trade, distinguishing between oil, natural gas and coal, which are governed by different logics.
Course reference:
- Chapter 3
To follow the presentation, go to the next step
(Session realized on 05/18/13 by May and Renaud Gicquel)International trade
- predominant share of oil. In 1973:
- 44% of the global consumption of primary energy
- 10% of the total world trade in goods
- essential component of the global energy system
International trade
- predominant share of oil
- 70% for crude oil, 20.3% for refined products, 6.2% for coal and 3.4% for natural gas
- highly variable shares of productions
- 54.7% for crude oil
- 8.8% for coal
- 7% for natural gas
International trade in electricity in France
Oil market
- standardized raw material
- could be exchanged at a single world price (commodity)
- separation of various crudes from refined products
- flexible link between producer and consumer
- competitive market
- in 1973/74, 5% of crude oil traded through spot market
- since 1982, spot markets and formula pricing contracts have replaced long-term contracts
- risk of speculative attacks
Price changes
Formula pricing contracts
- idea: combine the technical cost structure and trading on the free market
- price of exported oil fixed relatively to the import spot price, taking into account the costs of refining and freight
- for the buyer, this guarantees that the ex-refinery price will be comparable even for different crude qualities
- for the seller, this guarantees that oil revenues will return to him
Internationalizing oil markets
- distance is no longer a barrier to trade
- more differentiated global crude market, reflecting the variations in refined products markets
- shift of the demand towards light cuts in industrialized countries
- correlation between price variations of crude oil and refined products
Natural gas market
- commodity, but not as versatile as oil
- very volatile product which must be confined
- transport, storage and distribution infrastructure
- long-term contracts linking producers and consumers
- amortization of immovable infrastructure
- buyer committed to acquire given volumes of gas (take or pay)
International natural gas trade
Coal market
- various mineral properties
- LHV from 27 MJ/kg (lignites) to 37 MJ/kg (coal)
- impurities (sulfur, nitrogen compounds) depending on the mine
- not interchangeable, no universal price
- relatively high transport cost
- heavy infrastructure (delivery and storage)
- contracts specifying not only the unit costs and quantities, but also the qualities of coals
Very different energy markets
- long-term contracts
- coal and natural gas
- free and competitive market
- oil
- price of oil: energy reference price
- price of natural gas indexed to oil price
- indexation increasingly challenged
- natural gas market has started to liberalize
Energy markets
This session showed that, given its relative share in the international energy trade, the price of oil is still the reference price for energy, although some decoupling from other energy sources (coal and gas) is starting to occur.