WORLD ENERGY MARKET Optional Discipline Valentin K Pospelov

WORLD ENERGY MARKET Optional Discipline Valentin K. Pospelov Financial University under the Russian Government Moscow 2014

Subject 3. Price Formation in International Trade Main Points 1. Peculiarities of price formation in world energy markets 2. Price formation in world oil and gas markets 3. Price formation in the world coal market 4. Problems of setting “clean” energy prices

Subject 3. Price Formation in International Trade Main Points 1. Peculiarities of price formation in world energy markets.

For a long time, the power sector has not been subject to competition This affected the price formation in world energy markets In the past few years, market principles have established a strong presence, with privatisation, demonopolisation, and promotion of competition generally accepted However, in Asian and African developing countries the rate of privatisation and introduction of markets principles has been a slow process

There are differing views on price formation in world energy markets The supply and demand theory holds that world prices are set as a result of interaction between Supply and Demand The labour theory of value explains the formation of world prices by the amount of socially necessary labour needed to produce a commodity International price of production plus average profit

The world energy market has plurality of prices

Plurality of Prices in the World Oil Market (US$/barrel) $/bbl Brent WTI Urals Mars 2002 25, 02 26, 16 23, 8 23, 68 2003 28, 83 31, 07 27, 47 2004 38, 27 41, 49 34, 13 35, 31 2005 54, 52 58, 59 50, 32 50, 13 2006 65, 14 66, 02 61, 22 58, 90 2007 72, 39 72, 20 69, 18 66, 58 2008 97, 26 100, 06 94, 83 93, 95 2009 61, 67 61, 92 61, 15 60, 50 2010 79, 45 78, 26 120 78, 08 79, 5 100 80 60 40 20 0 2, 002 Source BP 2, 003 2, 004 2, 005 2, 006 2, 007 2, 008 2, 009 2, 010

Brent and Urals Prices (US$ /barrel) 1 st Week Brent Urals Jan. 09 34. 33 34. 20 Feb. 09 43. 63 42. 80 60 Mar. 09 44. 16 43. 18 50 Apr. 09 48. 58 46. 56 40 May. 09 49. 78 48. 57 80 70 30 Jun. 09 66. 55 66. 30 20 Jul. 09 67. 96 67. 83 Aug. 09 72. 89 72. 20 10 0

Light-Heavy Spreads Brent-Urals, $/bbl 1 Q 09 0. 81 2 Q 09 0. 67 3 Q 09 0. 32 4 Q 09 0. 32 1 Q 10 1. 05 2 Q 10 1. 32 3 Q 10 1. 27 4 Q 10 1. 30 Source: BP

As one type of energy resources may, to a certain extent, be substituted with another one, this affects price formation Prices of energy resources are affected by a number of foreign policy factors

Main Crude Oil Benchmarks Before 1947 West Texas Periods 19471971 1986 After 1986 West Texas, West Texas Light Arabian, Brent, Light Arabian West Texas Dubai

Subject 3. Price Formation in International Trade Main Points 2. Price formation in world oil and gas markets

Changes in Price Formation Mechanism in World Oil Market Periods Before 1947 - 1971 - After 1947 1971 1986 Principle Based on Cartel Competition Who sets Multinational OPEC Petroleum the price Cartel Exchanges Number of Participants 7 13 Many

Changes in Price Formation Mechanism in World Oil Market Calculating the CIF prices in the point of delivery Before 1947 - 1971 - After 1947 1971 1986 Transfer reference, market Market, reference transfer FOB Mexican Gulf + ++ Cost of Double freight cost of freight FOB Persian Gulf + cost of freight Market, transfer Exchange Quotes

World Natural Gas Prices (US$/000 cu m)

World Oil and Natural Gas Price Movements

Brent and Urals Prices

Subject 3. Price Formation in International Trade Main Points 3. Price formation in the world coal market

World Coal Price (US$/MT) Australia South Africa

Тема 3. Ценообразование в между народной торговле энергоресурсами. Основные вопросы лекции: 4. Проблема установления цен на экологически чистые виды энергии.

Factors Preventing a Wider Use of Renewable Energy Resources Product Life Cycle (a longer-term perspective is required) Implicit Subsidies are given to producers and consumers of fossil fuels

Home Assignment 1. Study the material of Lecture 3. 2. Why is there a spread in the prices of Brent and Urals in the world oil market? 3. Find the necessary data and make a chart of the world coal price movements in 2000 -2010. 4. Find the necessary data and make a comparison of electricity prices on a country-by-country basis. Surf the Internet to find the required information and do not fail to mention the sources of the borrowed data.

Thank you for attention!