Abstracts: 2004

The Impact of Changes in Crude Oil Prices and Offshore Oil Production on the Economic Performance of U.S. Coastal Gulf States.
This paper investigates the effects of changes in crude oil prices and offshore oil and gas production on the economic performance of U.S. Coastal Gulf States-Texas, Louisiana, Alabama, and Mississippi. The empirical results do not provide statistical evidence to reject the hypothesis that positive shocks to oil and gas prices and production variation increase the economic performance of these coastal Gulf States. However, the magnitude of the response to changes in prices varies across the states. In addition, the empirical results show significant differences in the duration of the lingering economic effects of price shocks and changes in production among the states. The duration varies depending upon whether the state is a net petroleum exporter or net importer, and whether the state has a diversified economic base or structure.

Long-Term Oil and Gas Structure Installation and Removal Forecasting in the Gulf of Mexico: A Decision- and Resource-Based Approach.
The platform forecasting procedures employed by the Resource Evaluation Analysis (REA) Unit of the U.S. Minerals Management Service (MMS) is evaluated and quantified in a formal analytic framework. The assumptions employed in the REA/MMS methodology, the uncertainty associated with the modeling procedures, and the primary consequences of the assumption set are examined. Ten recommendations are suggested to clarify and maintain the consistency of the approach, and an alternative model is described which incorporates the suggestions for improvement. The analytic framework of the alternative model is presented and compared to the REA/MMS procedure.
A long-term infrastructure forecast in the Gulf of Mexico is developed in a disaggregated decision- and resource-based environment. Models for the installation and removal rates of structures are performed across five water depth categories for the Western and Central Gulf of Mexico planning areas for structures grouped according to a major and nonmajor classification. Master hydrocarbon production schedules are constructed per water depth and planning area using a two-parameter decision model, where "bundled" resources are recoverable at a given time and at a specific rate. The infrastructure requirements to support the expected production are determined by extrapolating historical data. The analytic forecasting framework allows for subjective judgment, technological change, analogy, and historical trends to be employed in a user-defined manner. Special attention to the aggregation procedures employed and the general methodological framework are highlighted, including a candid discussion of the limitations of analysis and suggestions for further research.

Fiscal System Analysis: Concessionary and Contractual Systems Used in Offshore Petroleum Arrangements.
The manner in which the fiscal terms and parameters of a contract impact system measures are complicated and not well understood, and so the purpose of this report is to quantify the influence of private and market uncertainty on concessionary and contractual fiscal systems. An analytic framework is developed that couples a cash flow simulation model with regression analysis to construct numerical functionals associated with the fiscal regime. A meta-modeling approach is used to derive relationships that specify how the present value, rate of return, and take statistic vary as a function of the system parameters. The critical assumptions involved in estimation, the uncertainty associated with interpretation, and the limitations of the statistics are also examined.
The report is divided into two parts. In Chapter 1, the concessionary system is examined and the deepwater Gulf of Mexico Na Kika field development is considered as a case study. In Chapter 2, the contractual fiscal system is considered with the deepwater Angola Girassol field development as a case study.

Effects of Changes in Oil and Gas Prices and State Offshore Petroleum Production on the Louisiana Economy, 1969-1999.
This study examines the interactions between changes in crude oil and natural gas prices, oil and gas production in the state offshore waters and measures of economic activities in Louisiana. We estimated a Variable Auto-regression (VAR) model to analyze the impact of changes in oil and gas prices and state offshore production in the Louisiana economy. The main hypothesis is that the impact of oil price on state economic aggregates would mostly be through industry activities. The use of the VAR approach allows us not only to examine the relative importance of prices and production in explaining movement in key indicators of economic activities, but also to study the dynamics of adjustments in these variables over time, given unanticipated changes in petroleum prices and production.
In an overall sense, the study finds that, at least in the case of Louisiana, changes in oil prices are more important in forecasting changes in employment and personal income than changes in natural gas prices in the short-run. Both oil and gas price movements are found to be equally important in explaining changes in Louisiana revenue, although the overall impact on revenue is minimal. It is also noted from the results that irrespective of the resource market, oil or gas, the employment effects of a price shock last longer than the effects of such a shock on personal income or revenue.
The analysis further suggests that the fiscal exposure or vulnerability of the Louisiana budget to oil and gas price changes within the context of state offshore petroleum production has declined over time. The responsiveness of the macroeconomic variables to price changes indicate that if conditioned on state offshore production, it will take a considerably high and sustained change in prices to have an appreciable effect on the economic performance of Louisiana.
Finally, the empirical results also show that the indirect effects of oil and gas price changes are more important than the autonomous direct changes that occur in oil and gas production in state waters themselves. In other words, in the absence of price shocks, autonomous changes in oil and gas production (e.g. technology-induced) have ceased to be very important to Louisiana economic activities. Further, the effects of a gas price shock on the economy are more persistent than oil price shocks. That is, price volatility in the gas market has the potential to be more destabilizing to the economy than the equivalent change in the oil market.

The Potential Economic and Environmental Impact of a Public Benefit Fund in Louisiana.
Public Benefit Fund programs are one approach to provide energy assistance to low-income households placed at risk in a competitive electric industry. The purpose of this paper is to assess the potential economic and environmental impact of a proposed Public Benefit Fund for the state of Louisiana. The "best available" model to estimate the relationship between the cost of Public Benefit Fund programs and the benefits delivered by its implementation would be based on an evaluation of existent energy conservation and weatherization programs in the state, but unfortunately, such an evaluation has not been previously performed and so the "next best" analytic model was employed. The impact of a Public Benefit Fund on energy savings and environmental consequences is assessed through a simulation model and input-output analysis. The model developed is based on publicly available data and infer results under a reasonable assumption set. The model structure and system assumptions of the Public Benefit Fund program are described, realistic policy alternatives are examined-including cost-ceiling, variable funding, and target group strategies-and the limitations of the analysis are outlined.

WAP Explained
The Weatherization Assistance Program (WAP) is a federal block grant program administered by all 50 states and the District of Columbia through community action agencies, state energy offices, local government, and other nonprofit organizations to provide weatherization services to eligible households. The WAP was established in 1976 to increase the energy efficiency, reduce the energy expenditures, and improve the health and safety of low-income households, especially those households that are particularly vulnerable such as families with children, persons with disabilities, and the elderly. The manner in which WAP funds have been allocated to states, however, has been a contentious issue since the inception of the program. Southern states have argued that too much of the federal funding goes to cold-climate and rural states. Northern states disagree. In 1990, Congress amended the Energy Conservation and Production Act and required the Department of Energy to develop a new funding formula. The Department of Energy currently uses a three-factor formula developed in 1995 in conjunction with a two-factor formula developed in 1977 and a hold-harmless provision to allocate WAP funding. The purpose of this paper is to explain the WAP allocation mechanism and the assumptions associated with the 1977 and the 1995 funding formula. The factors that compose each funding formula are critically assessed and various implementation issues are reviewed, including the selection of the trigger point and program capacity levels. It is not possible to define the need for weatherization assistance objectively and in a unique manner, and this ambiguity is the main reason why the WAP allocation mechanism is expected to remain a lively topic of debate and contention.

Basin Analysis and Petroleum System Characterization and Modeling, Interior Salt Basins, Central and Eastern Gulf of Mexico.
The principal research effort for Year 1 of the project has been data compilation and the determination of the tectonic and depositional histories of the North Louisiana Salt Basin. In the first three (3) to six (6) months of Year 1, the research focus was on data compilation and during the remainder of the year the emphasis has been on the tectonic and depositional histories of the basin. Existing information on the North Louisiana Salt Basin has been evaluated, an electronic database has been developed, regional cross sections have been prepared, and structure and isopach maps have been constructed. These data, cross sections and subsurface maps have been used in evaluating the tectonic and depositional histories of the basin. Oil and gas reservoirs have been found to be associated with salt-supported anticlinal and domal features (salt pillows, turtle structures and piercement domes); with normal faulting associated with the northern basin margin and listric down-to-the-basin faults (state-line fault complex) and faulted salt features; and with combination structural and stratigraphic features (Sabine and Monroe Uplifts) and monoclinal features with lithologic variations. Petroleum reservoirs are mainly Upper Jurassic and Lower Cretaceous fluvial-deltaic sandstone facies and Lower Cretaceous and Upper Cretaceous shoreline, marine bar and shallow shelf sandstone facies. Cretaceous unconformities significantly contribute to the hydrocarbon trapping mechanism capacity in the North Louisiana Salt Basin.