Energy and Economic Theory

Energy and Economic Theory: A textbook on energynomics by Ferdinand E. Banks

During the last few years, energy has become great concern of economists. They work on the topic more seriously. The book entitled Energy and Economic Theory: written by Ferdinand E. Banks provides vivid example about this. It covers the journey and struggles performed by economists; their conflicts with oil producers, also their failure in coping with the volatility of energy price while trying to create harmony between energy prices with global macroeconomic conditions.

This book serves as introduction, too. The first-three chapters give an overview on the world of energy. Then, Ferdinand E. Banks gives introductory coverage upon oil economics and natural gas economics. Readers will find it useful when they want to discover more about some topics, which are not elaborated in further details, because Ferdinand puts and mentions some key concepts relevant to the topic of each chapter.

For example, on Chapter I (The World of Energy), there are key concepts such as: Barseback; base load and peak load; Finland and nuclear energy; natural depletion; and Cantarell and Prudhoe Bay oil fields. While on Chapter IV (An Introduction to Oil Economics), among the key concepts are Carter Doctrine; oil refinery; M. King Hubbert; stock-flow models; critical R/q ratio; and plateau production. On the other hand, Chapter V (An Introduction to Natural Gas Economics) deals with key concepts such as arbitrage; plaring; peak shaving; stranded gas; LNG; wheeling; and working gas. By understanding or learning those key concepts, Ferdinand seems to encourage his readers to have better grasp on his writing.

Energy and Economic Theory provides alarming facts surrounding current energy trends. When talking about coal, for instance, Ferdinand said that EU’s Emission Trading Scheme (EUETS) has failed due to lack of economic benefit or profit. Cap-and-trade and such initiative are considered useless for real-world applications. Ferdinand also explicitly said that replacements for oil are not being made at an optimal rate, and there’s an inclination of using hydrogen as the next fuel regardless of its technological advancement.

The book also covers debates about the future of energy in general, and fossil fuel in particular. Robert Bryce said that 19th century is for coal, 20th century for oil and the 21st century belongs to natural gas. The fact that natural gas has 50% of the CO2 emissions of coal have made it favorable. However, Chevron CEO gives response by saying, “… even if renewables energy doubles or triples in the next few decades, fossil fuels (oil, natural gas, coal) would continue to be the most important energy resources at mid-century…” Which one will you buy then?

Oil price has also been a great concern in this book. Regarding the Chevron CEO remarks, the Energy Information Agency (EIA) and International Energy Agency (IEA) predict that the global oil output in 2030 will be 121 mb/day. The question is: “How much does oil price cost at that time?”

If it is kind of USD 147/b, then it will cause macroeconomics damage worldwide. Indeed, there are some sources on oil and energy prices such as Wall Street Journal, BP ‘Statistical Review’, The Oil and Gas Journal, and Geopolitics & Energy. However, we must admit that energy forecast is much more connected to politics than supply and demand mechanism.

This book doesn’t forget nuclear energy update. For example, in 2015, there are 450 nuclear reactors in operation in 30 countries, and supply about 15% of the world’s generating capacity of 380 GW. Ferdinand puts this matter more detail. For instance, when it comes to the U.S. and nuclear reactor, Ferdinand said that the country has 104 nuclear reactors consuming 51 millions of pounds of uranium per year while its uranium production is only 4 million pounds per annum. India itself is upgrading its nuclear capacity from about 4,000 MW to 30,000 MW by 2020.

There are many things to consider while talking and making decision regarding energy problem. Some theories and initiatives should be tested first in order to acquire its effect towards global economy. Otherwise, there will be instability worldwide, especially when it deals with oil price.


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