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Impacts of Gas Price Declines on Energy Policies and Mineral Extraction Strategies

This article discusses the significant drop in gas prices, the lowest in over a decade, and its implications on U.S. transportation routes and energy policies. It explores the reconfiguration of gas corridors such as TransCanada, GTN, and LNG projects, as well as the substitution of gas for coal generation. The piece also examines government policies on mineral extraction, comparing bidding versus royalty systems and how these affect long-term extraction strategies and risk-sharing between governments and mining companies.

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Impacts of Gas Price Declines on Energy Policies and Mineral Extraction Strategies

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  1. Upcoming in Class Homework 7 due Wed. Exam #3 Wed.

  2. Lowest gas prices in over 10 years

  3. Pressures on transportation routes Reconfiguration of gas corridors TransCanada GTN Bison LNG Northern Border Ruby LNG REX Kern River Expansion Midcon Fayetteville Express Transco Gulf Coast Gulf Crossing Midcon Express LNG FGT Expansion Flow increase Flow decrease

  4. Substitution of gas for coal generation U.S. Coal Generation Supply Curve 2011 Source: Derived from SNL data

  5. Government Effects • When the government allows private firms to extract minerals offshore or on public lands, two common means of sharing in profits • Bonus bidding – awards the highest bidder the right to extract and paid up-front • Production royalties – charges a per-ton royalty on each ton extracted and paid as long as the mineral is extracted

  6. Bidding vs. Royalty How will this affect extraction over time? Would either be consistent with the efficient allocation? Suppose the price path and size of deposits are unknown. How would the risk be shared between the government and mining company, for the two different policies?

  7. Bidding vs. Royalties MC $/Q AC MR Q

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