Abstracts: 2001
Moving to the Front of the Lines: The Economic Impact of Independent Power Plant Development in Louisiana
The economic impacts associated with upgrading Louisiana's electric generation infrastructure are considerable. This investment represents close to $7.8 billion over the next few years. These projects create high paying jobs in both their construction and operation phases. Typical power plant employees have an average salary level of between $50,000-60,000 per year.
Independent power generation can create an opportunity for Louisiana. However, power projects on paper do not generate electricity. Serious consideration, and understanding, of the importance these facilities have on our power markets and economy are necessary if Louisiana is going to realize these power generation infrastructure investments. The limited generation capacity in California, and their ongoing energy crises, is a direct result of failing to recognize the importance of continued investment in power generation.
This report examines Louisiana's power markets and the contributions that independent power generation can have on its economy. In addition to providing background information on the state of independent power both nationally and regionally, this report quantifies the economic benefits associated with new independent power generation facilities in Louisiana.
Modeling Regional Electric Power Markets and Market Power
This paper develops a nonlinear, mathematical programming model for estimating production decisions in an open access, regional power market. Our approach allows one to estimate competitive power market equilibrium prices, which in turn offers empirical conclusions about marginal generation facilities, transmission interconnection congestion, and most importantly, load pockets and market power. Sensitivity analyses are conducted by subjecting the model to changes in production costs, peak hour demand, power imports, and transmission interconnection price assumptions. We then consider the issue of a firm's ability to exercise market power and the implications it may have on regional equilibrium power prices. The Louisiana power market is used as a case study for our work.
Quick Look Hand Book: Onshore Louisiana Petroleum Producing Formations
The purpose of this handbook is to provide rapid, reliable access to the names of the onshore petroleum producing formations, their location in North and South Louisiana, generalized characteristics of the reservoirs within the producing units, and a list of pertinent publications that can be referenced for more detailed information. Examples of selected e-logs are presented for all the producing intervals. The objective was to provide logs that contained producing intervals. The reader will observe that the producing areas of the State have been divided into a northern and a southern region. The reason for doing this is that both regions possess three fundamental differences that influence the exploration/exploitation methodologies that must be applied and thus their economics. These differences are: 1) the age and lithologies of the producing formations, 2) the hydrocarbon fluids that are produced, and 3) the depth of the reservoirs.
Oil in Louisiana's Estuarine Environments: A Development Model
Coastal erosion, accelerated by sea level rise and subsidence are major Louisiana issues. With current sea-level-rise projections, coupled with the state's eroding barrier islands and coastal wetlands, the region's estuarine environments are in jeopardy of being lost, redefined, or permanently altered. As the coast erodes, Louisiana is in danger of losing valuable wetlands habitat. In addition, if the barrier islands disappear, the region's wetland-oriented oil and gas wells and associated infrastructure will be at risk to open Gulf conditions. If this should occur, each well pipeline, and storage battery represents a potential environmental catastrophe.
From an oil-spill-response perspective, it is much easier to clean a barrier beach than a saltwater or freshwater marsh. The barrier islands represent not only the first line of defense against the combined wind and water forces of a hurricane, but they also serve as pipeline anchor points. More importantly, the islands protect the marshes from an offshore-derived oil spill. Tidal mud flats, shallow grass beds, marshes and swamps are especially difficult to clean. The key, therefore, to an effective oil-spill-response plan is related directly to the viability of these islands, along with detailed pre-existing environmental, ecological, and habitat information. To be useful, this knowledge must be extensive, current, and easily extracted from a comprehensive data base. These data are being developed in Louisiana in the form of an all-inclusive geographic information system (GIS). Data in this system are helping Louisiana manage a vast array of resources. From a historical perspective, analysis of these data can serve as a model on how a deltaic environment can change from hydrocarbon exploration and development. Entering into the 21st century, Louisiana's comprehensive database can help balance oil and gas activity, while maintaining the viability of the state's estuarine environments.
A North Louisiana Gas-Prone Hosston Slope-Basin Sand Trend
Regional palinspastic reconstructions of north Louisiana's down-dip Hosston strata offer a basis for predicting the most likely area that might have contained deep-water sand deposition at the beginning of early Cretaceous time. Since the area's deep well control to the base of the Hosston is very limited, future regional 3-D seismic surveys will remain the preferred way of predicting individual sand trends. However, an in-depth integrated modeling and simulation analysis of the regional stratigraphic, structural, and thermal history provides one method of defining the main potential prospective trend. Furthermore, this type of analysis, in conjunction with conventional petrophysical log analysis, provides a method for (1) determining the location of specific trend segments that appear more sand-prone, and (2) defining the confining window of thermal maturation where hydrocarbon potential still may remain.
A predicted trend area for deep-water sand development, compatible with the present hydrocarbon maturation window, covers a gross area with dimensions of 20-40 miles (32-64 km) in width and 110-140 miles (177-225 km) in length. The area extends eastward across the State from the south flank of the Sabine uplift. Up-dip, the area is situated mainly within the southern confines of the North Louisiana Salt Dome Basin and extends down-dip to the northern edge of the South Louisiana Salt Dome Basin. On the north, its limit may be governed by individual sand bodies encased and terminated in fore-shelf claystones. The trend's southern limit can be defined by its containment within thermally over-matured strata, which create an economic drilling barrier.
Economic and Environmental Impact of a Public Benefits Fund in Louisiana
The potential economic and environmental impact of a Public Benefits Fund (PBF) in the State of Louisiana for the year 2001-2002 is evaluated. The statewide impact of the PBF to energy savings and environmental benefits is assessed through a simulation model and input-output analysis. The methodological difficulties in assessing the economic impact and social efficiency of energy conservation projects are outlined through careful enunciation of the parameter estimates and model assumptions.
The Determinants of Petroleum Reserves Additions: Empirical Evidence from the Gulf of Mexico Outer Continental Shelf
This paper presents a model of new petroleum reserves in the Gulf of Mexico OCS region from 1977 to 1998. The model has three distinct components: the effectiveness of drilling at finding reserves (drilling success rate), the effectiveness of successful drilling at adding new petroleum reserves (petroleum productivity rate), and the number of wells drilled to find new reserves (drilling rate). Each component is specified as a function of several competing factors to determine the extent to which each determinant affects reserve additions on the OCS. The model equations are estimated using OCS data on reserves and oil and gas wells drilled from 1977-1998. The empirical results indicate a statistically significant evidence of diminishing returns as drilling increases on the OCS. The estimated elasticities of oil and gas reserves additions with respect to resource depletion are both very elastic. However, the responsiveness of new oil and gas reserves to economic incentives is significantly inelastic for oil and gas reserves. The results show that the average impact of technical change, economic, resource depletion, and prospect highgrading on oil reserve additions is a net gain of about 9.2% per year between 1977 and 1998. However, the net annual average impact of these competing factors on new non-associated gas reserves is a decrease of 3.3 percent per year.
The Responsiveness of the Global E&P Activity to Changes in Petroleum Prices: Evidence from 1960-1999
Perhaps no industry has witnessed a more cyclical activity than the petroleum industry! Oil and natural gas account for a substantial part, over 70 percent, of world energy demand and utilization beside the worldwide application of its by-products, and it is the main source of foreign exchange earnings for many developing economies.
Crude oil price volatility, especially in the recent past, has made decision making and strategy planning extremely difficult for oil companies. Oil companies have responded to the low oil prices by reducing research and development budget, capital spending, and employment pattern. The operators are even more cautious than ever before in capital spending and expansion despite the current rising trend in crude oil prices.
This paper uses the basic laws of demand and supply and elasticity as well as user cost relations to evaluate the responsiveness of oil industry activity to oil and natural gas price variation from 1960 to date. It relies on some E&P industry performance measures to evaluate the state of the oil and gas industry in response to crude oil price variability and instability. The results show that the profit margin of the major operators has been steadily on the decline since the advent of OPEC and so is the demand for labor in the industry. The consequences of price instability has led to mergers and acquisitions in the last few years and internal re-organization in order to attempt to maximize profit. Finally, the paper attempts to forecast future oil and gas prices and evaluate their effects on oil industry activity over the next decade using economic impact analysis and the economic concept of price elasticity.
Crude Oil Production Trends in the U.S. Gulf of Mexico OCS: How Important are Economic and Policy Incentives?
This paper describes and characterizes crude oil production pattern in the U.S. Gulf of Mexico OCS, 1970-1999. An integrated model of the oil depletion process in the OCS region which recognizes the importance of competing factors affecting crude oil production is formulated and estimated. The estimated model results are applied to answer the following questions: Is the empirical evidence persuasive to support pessimistic prediction of OCS oil production unless there are strong economic and policy incentives in place? How effective has been the 1995 Deepwater Royalty Relief Act at shifting the declining trend upward? To what extent has technological change and economic incentives act to offset some of the negative effects of resource depletion on production trend in the U.S. OCS?
Forecasting the Ultimate Oil Recovery and Its Rate of Depletion in Nigeria's Niger Delta Basin
Econometric analysis of oil extraction associated with Nigeria's remaining recoverable reserves, OPEC policy and conduct, and oil markets and economic conditions provides no strong statistical evidence to reject the hypothesis that Nigeria significantly coordinates its oil output with the rest of the OPEC members. However, its output coordination with other OPEC members is inelastic. The rate of oil extraction in Nigeria tends to rise with lower crude oil prices, ceteris paribus, thereby suggesting that a backward bending supply curve phenomenon underlies the historical oil depletion process in the nation. The estimated remaining recoverable reserves (yet-to-be-produced reserves) are in the range of 18.465 to 28.619 billion barrels as of January 1, 1999, according to model results using calculated and published estimates of ultimate oil recovery in the range of 38.6 to 48.8 billion barrels. The sustainable extraction rate in Nigeria under current operating and economic conditions is estimated as 2.20 million barrels per day. This rate, however, is currently sustainable for only the next 8 years, assuming a minimum tolerable reserve life index of 20 years.
Modeling Wildcat Petroleum Productivity in the U.S. Gulf of Mexico Outer Continental Shelf
Productivity generally refers to the amount of output that can be produced with a given input. However, because measures of inputs and outputs can vary considerably, several indicators of productivity in petroleum resource development are possible. The more meaningful indicators of productivity that relate directly to upstream activities include drilling success rates, average discovery size, finding rates, and yield per effort. In this paper, we examine the performance of the oil and gas upstream industry in the Gulf of Mexico OCS region using these indicators. Further, using econometric modeling techniques, we determine empirically the effects of depletion, technical progress, economic and policy incentives, structural changes and market conditions on the returns to exploration activities in the U.S. Gulf of Mexico OCS. The model results confirm expectations of diminishing returns to wildcat drilling on the OCS due to resource depletion, while the combined effects of economic incentives, institutional restructuring, and technical progress have mitigated significantly the declining trend in wildcat drilling productivity in the region.
Too Many Merchant Power Plants for Louisiana?
Merchant power plants generate electricity to sell on the open market to any buyer willing to pay their price. "Merchant" differentiates them from power plants operated by traditional, regulated, electric utilities. Regulated plants operate under a different set of rules. They are obligated to sell to all buyers, usually at a price approved by a regulatory body. In return for assuming this obligation they receive a sort of guarantee that the approved price can provide their stockholders with a rate of return commensurate with the risk/return of comparable investments. This difference in rules means that although the technology employed by merchant power plants and power plants operated by regulated utilities and the products they sell may be similar or even identical, they are quite different entities not only legally but economically.
The Louisiana Public Service Commission has not decided if, at this time, retail competition in electricity markets is in "the public interest," but the Commission has endorsed the merchant power plant concept. Merchant plants may sell power to electric utilities, consumer cooperatives, or large industrial users of electricity under current regulations.
Onshore-Only Platform Disposition Needs Exceptions
If onshore-only disposition were to become an international standard, some offshore producing areas would incur significantly higher disposition costs and lose opportunities to better utilize and protect their marine resources. Although international oil companies oppose an onshore-only requirement in principle, in practice its rejection is no longer a high priority. The oil company turning point was Greenpeace's rout of Shell UK Ltd., in their fight over the disposition of the Brent Spar, which, apparently, persuaded the industry that conceding the fight before it begins is not nearly as bad as the fight itself.
Forecasting the Number of Offshore Platforms on the Gulf of Mexico OCS to the Year 2023
The most likely, or reference, forecast of the number of operating offshore structures on the Gulf of Mexico shows a decline of about 29 percent over the period 1999 to 2023. The decline will occur because the number of platforms being removed is predicted to increase significantly above current levels, while the number of platforms being installed is predicted to increase only slightly above current levels. As a consequence of this pattern, and the larger size of the platforms being installed, overall activity in removing and installing platforms increases significantly, despite the decline in the number of operating platforms during the forecast period.
The model results on which this forecast was based explain nearly 80 percent of the variation in the historical values of the principal dependent variable new offshore structures and track very closely thehistorical trend of platform installations. The forecasts were made by using econometric modeling techniques on historical data from 1947 through 1996.
Alternative forecasts made by changing the values of the forecasting variables did not result in major differences from the reference forecast. Even spreading the range of the values used in the forecasting equations by adding two standard errors to forecasting variables did not reverse the trends in the reference forecast. Adding or subtracting two standard errors to the cumulative size of new oil and gas field developed in the Gulf and to the Energy Information Agency s forecast of oil prices resulted in forecasts in which the decline in operating platforms in high forecast was still more than 20 percent, as compared to 29 percent in the reference forecast. The decline in the corresponding low forecast was about 35 percent.
A cooperative project with MMS to extend the analysis to water depth and location has been approved and is underway under the LSU-MMS Coastal Marine Institute program.
