EMC Working Papers

Reports about the US shale oil boom being a game changer have proliferated after the November 2012's prediction by the Paris-based International Energy Agency (IEA) that the United States will overtake Saudi Arabia and Russia to become the world's biggest oil producer by 2020 and energy self-sufficient by 2030. While such rosy predictions play well to the IEA's audience, which is largely American, they don't stand up to scrutiny. Still, it is clear that US shale resources might at some point play some role in non-OPEC supply prospects.

The paper will argue that US shale oil production would hardly make a dent in the global oil supplies as it would largely offset the decline in US conventional oil production. It will also argue that the US would never be able to overtake Saudi Arabia or Russia in oil production and would continue to be dependent on oil imports for the foreseeable future. The paper will conclude that the shale oil boom in the United States would not be easy to replicate in the rest of the world nor would it invalidate the peak oil concept.

This article presents the main conclusions of a survey carried out as part of a research project on "risk management in the energy industry" sponsored by KPMG/ESCP Europe Chair Risk Strategy and Performance.

Abstract

The success of shale gas in the US has prompted companies to examine the possibilities of replicating the shale gas production and market in Europe. But in doing so they face various difficulties including issues such as the different geology, the density of European population, the legal, fiscal and land-use particularities and the service industry for onshore. To add to the difficulties, there is considerable environmental skepticism and opposition from lobby groups and media regarding shale gas drilling in Europe. Hence, a comprehensive assessment of risks of shale gas development in Europe is helpful to prevent harms as well as to take into consideration investment and growth opportunities. In this paper we outline six major clusters of risks associated with developing the shale gas industry in Europe: social, environmental, economic, regulatory, geopolitical, and technological. The outcome of this paper is extremely useful to companies' leaders willing to invest in shale gas in some European countries. This dimension of contemplating the risks associated with shale gas development, from the companies' point of view, has received less attention so far and provides opportunities for further research, particularly from management scholars.

Index Terms-- Shale gas, energy security, energy policy, energy market.

This paper proposes a set of VaR models appropriate to capture the dynamics of energy prices and subsequently quantify energy price risk by calculating VaR and ES measures. Amongst the competing VaR methodologies evaluated in this paper, besides the commonly used benchmark models, a MC simulation approach and a Hybrid MC with Historical Simulation approach, both assuming various processes for the underlying spot prices, are also being employed. All VaR models are empirically tested on eight spot energy commodities that trade futures contracts on NYMEX and the Spot Energy Index. A two-stage evaluation and selection process is applied, combining statistical and economicmeasures, to choose amongst the competing VaR models. Finally, both long and short trading positions are considered as it is extremely important for energy traders and risk managers to be able to capture efficiently the characteristics of both tails of the distributions.