Introduction. Energy: Colorado. Energy. Changes in Global Energy Markets and their Effects on Colorado s Economy. Colorado:

Size: px

Start display at page:

Download "Introduction. Energy: Colorado. Energy. Changes in Global Energy Markets and their Effects on Colorado s Economy. Colorado:"

Benjamin Fowler
5 years ago
Views:

1 Changes in Global Energy Markets and their Effects on Colorado s Economy Presented at: Annual Demography Meeting November 18, 2005 State Demography Office Colorado Department of Local Affairs Dr. Robert Sonora Assistant Professor of Economics Office of Economic Analysis and Business Research School of Business Administration Fort Lewis College Durango, CO Introduction 1. Colorado, US, and World 2. Relationship between Natural Gas and Petroleum Prices 3. Sources of price changes: supply and demand 4. Forecasts of Energy Prices 5. Natural Gas and Oil Extraction Labor Markets Energy: Colorado Energy is an essential part of the Colorado economy tug-of-war Demand side: high energy prices may slow economic activity Supply side: high energy prices pump in more revenues which assists economic growth and local coffers Colorado: Energy Natural Gas (): Reserves: 4 th largest (NM, TX, WY) Production: 6 th largest (NM, OK, TX, WY, LA) Petroleum (): Reserves: 14/56 (includes offshore) Production: 18/45

2 Energy Energy Gas and Oil Prices: % Colorado Share of US Production and Reserves 70 8% 60 7% 6% Gas share Reserves Oil Reserve Share Gas Production Oil Production 50 Oil Spot ($s/barrell) Oil Futures ($s/barrell) Gas ($s/mcf) Percent 5% 4% 3% 2% 1% Dollars Year 0 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Year Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Energy: World Market/Prices Prices Natural Gas and Petroleum Prices are very highly correlated: Substitution effects Contemporaneous Price effects Spot Oil Prices Future Oil Prices Natural Gas Prices Price responses to sector specific shocks: Response of PG AS to Cholesky O ne S.D. Innovations Spot Oil Prices Future Oil Prices PGAS SOIL Response of SO IL to Cholesky One S.D. Innovations Natural Gas Prices PGAS SOIL

3 Energy Price pressures after January, 35% 3 Petroleum supply and demand: Petroleum Supply Demand 25% Demand 2 China, Japan, US, Eastern & Western Europe, Russia Supply Uncertainty, 9/11, Terrorism, Afghanistan, Iraq, Iran, Venezuela, Natural Disasters, Russia 15% 1 5% North America Central & South America Western Europe Eastern Europe & Former U.S.S.R. Middle East Africa Asia & Oceania Natural gas supply and demand: Global Excess Consumption of Petroleum Natural Gas 4, ,500 25% Supply 3, % 1 5% North America Latin America Western Europe Demand Eastern Europe Middle East Africa Asia & Oceania 000's barrels/day 2,500 2,000 1,500 1,

4 World, US, China, and Russia Petroleum Consumption 15. World, US, China, and Russia Petroleum Production Change in World Consumption Change in US Consumption Change in China Consumption Change in Russia Consumption 1 Change in World Production Change in US Production Change in China Production Change in Russian Production Energy Forecasts Incomes rising, particularly in developing countries, oil and gas prices will rise 4.5% 4. GDP Growth Projection But depends on projection 3.5% US Real GDP Growth (Demand) In the reference case: investment growth = 5.1% In the high growth case: investment growth = 5.8 % In the low growth case: investment growth = 4.0 % % 2. Reference High Low 1.5%

5 Petroleum Projections Energy Forecasts: Oil Price Projections $80 Oil Prices Depends on assumptions Reference case, with both OPEC and non-opec producers scheduled to add new production capacity over the next 5 years $s per barrel $70 $60 $50 $40 $30 Reference High A Low High B Low price case $20 The high A price $10 $0 The high B case Natural Gas Projections Natural gas prices in lower 48 Depends on state of technology $6.00 $5.00 $4.00 Energy Projections: Reference Slow Technology Rapid technology Natural Gas Price Projections Benchmark/Reference $3.00 Rapid Technology: lower prices Slow Technology: higher prices $2.00 $1.00 $

6 Energy Projections: Revenue Growth from Natural Gas Price Projections Extraction and Labor Markets 6 5 Extraction, increasing employment? 4 3 DREV_R DREV_S DREV_R What is the Effects on local economy 2 1 Wages rising in extraction, due to Price changes Global labor competition Source: Author s calculations using DOE data. 3. Labor Markets Oil and Natural Extraction: Income Share Oil and Natural Extraction: Employment Share 1.2% % US CO GARFIELD LA PLATA 2.2% 2.8% % US CO GARFIELD LA PLATA 0.8% 0.9% 1.1% % 1.5% 1.4% 0.6% 0.6% 0.6% % 0.9% 0.4% 0.3% 0.7% 0.4% 0.2% 0.2% 0.2% 0.3% % 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 2004 Source: Author s calculations using BLS data. Source: Author s calculations using BLS data.

7 Labor Market But these numbers only tell part of the picture Industry has down/up- stream links multiplier effects SW Colorado multipliers (BEA), 2004: The Output Multiplier: 1.43 Category Effects on La Plata County Non-Capital Expenditures by Primary Natural Gas Producers in La Plata County (excluding payroll) Natural Gas employee expenditures in La Plata County (assuming 5/10 of disposable payroll was spent in La Plata County) Local royalty expenditures (assuming that 5/10 of the royalty payments made to recipients was spent in La Plata County) Direct and Induced Economic Impact Assuming 5 of Discretionary Income Spent in La Plata County $173 million $8.9 million $33.8 million $215.7 million Assuming 10 of Discretionary Income Spent in La Plata County $173 million $17.8 million $67.6 million $258.4 million The Earnings Multiplier: 1.84 Multiplier The Employment Multiplier: 3.04 Total Estimated Economic Impact Total Existing Natural Gas Jobs in the County $308.4 million 305 $369.5 million 305 Jobs Attributable to the Natural Gas Industry Total Job Opportunities Created by Natural Gas Labor Market Some caveats to consider Multipliers differ across regions: La Plata is close to NM, UT, AZ job exports Shares represent only those jobs identified as Gas and Oil Extraction, but other sectors do work for O & G (multipliers) Effects differ across sizes of economies, larger spillover effects in larger economies Effects on housing? O & G have, generally, higher incomes so could push up housing prices, but small share. Summary Further Questions? Thank You

A HISTORIC SHIFT TO GOOD TIMES?

RICE GLOBAL E&C FORUM A HISTORIC SHIFT TO GOOD TIMES? Oil Pricing Outlook Alessandro Lanza, PhD Chief Economist, Eni 1 Houston, October 11, 2005 Summary Key factors in oil price dynamics Supply Refining