Default | NEWS

7/10/2008

Rice economists weigh effect of CO₂ restrictions on world energy market

BY FRANZ BROTZEN
Rice News staff

Moves to limit carbon-dioxide emissions will result in a shift toward natural gas, accompanied by increased reliance on Russian and the Middle Eastern sources, according to Rice economists Peter Hartley and Ken Medlock.
 
Hartley, who is also the George and Cynthia Mitchell Chair and academic director of the Shell Center for Sustainability, delivered their paper on this topic at the 31st international conference of the International Association for Energy Economics in Istanbul, Turkey, last month. Ken Medlock is a fellow in energy policy at the James A. Baker III Institute for Public Policy and a lecturer in the Economics Department.
 

KEN MEDLOCK	PETER HARTLEY

Their analysis relied on the Rice World Gas Trade Model (RWGTM) that they have been developing for a number of years. The model is designed to predict developments in natural gas supply, demand and prices over the next few decades, taking into account the possible effects of political disturbances as well as technological change.
 
They found that if concerns about global warming lead politicians to impose restrictions on greenhouse gas-producing emissions, natural gas demand will rise substantially because it is the fossil fuel with the lowest ratio of CO₂ emissions to energy output. They also found that some of the consequences for natural gas prices and dependence on Russia and the Middle East could be lessened if the United States also opened domestic areas that are currently off-limits to exploration and production.
 
In his presentation, "Effects of CO₂ Constraints and U.S. Access Restrictions in a Global Gas Market," Hartley argued, "An increase in domestic gas production will change the elasticity of response of the market to disruptions and shocks." But the effects are unlikely to be large enough to completely offset the effects of tightened emission controls, Hartley concluded.
 
Medlock also attended the Istanbul conference, where he delivered another joint paper that held special significance for the host country. Titled "Turkey’s Future as an International Natural Gas Hub," the paper noted, "Geography makes Turkey a likely candidate to emerge as a natural gas market hub at some point in time in the future."
 
Pointing to Europe as a "major consuming market that seeks to import natural gas from a variety of sources," Medlock listed a variety of potential sources that could fill Europe's needs. In addition to Europe’s traditional gas supplier, Russia, Turkey's neighbors offer multiple options for natural gas, including Iran, Azerbaijan and Turkmenistan to the east and Syria, Egypt and Iraq to the south.
 
Medlock's presentation showed that the RWGTM predicts that gas from the Middle East will dominate imports into Turkey after 2020, displacing supplies from Russia and the Caspian States. While Turkish domestic demand is expected to grow, Turkey is likely to become a major transit point for natural gas headed to Greece, Bulgaria and the rest of Europe.
 
The paper concluded with a note of caution. "Developments (or lack thereof) in Russia as well as hindrances in the Middle East can alter the most efficient outcome," it said.
 
A working paper version of the Rice World Trade Gas Model is available online at http://www.rice.edu/energy/publications/docs/GAS_BIWGTM_March2005.pdf.