Course:ECON372/OK2019WT2/Topic6
Markets and Efficiency
Group #1
Summary
The article talks about how the decrease in cost of setting up renewable sources of energy has allowed several states in the US to switch to renewable sources of energy. Levelized Cost of Energy (LCOE) analysis depicts a constant decline in the U.S unsubsidized renewable energy prices in 2019, being lower than most fossil fuel energy production and less than half of nuclear energy production. Thereby proving to be the most cost efficient and economical source of energy and has motivated several states to expand solar and wind energy fields. While some utilities have shifted to cleaner sources of energy, others still depend on coal plants producing natural gas. According to energy economics this won’t be an economical source in the long term. Hence, to facilitate the transition to cleaner sources of energy, the article persuades regulators to focus on complementary policies that place cheap and clean sources on the same level as the traditional fossil fuel sources.
Analysis
The main reason for a substantial decline in the prices and increase in efficiency of renewable sources of energy is the advancement of technology and price to cost ratios. Putting subsidies in place has motivated several utilities to switch to these green sources. Setting up of a solar or wind energy plant proves to be an economical long term investment which is substantially cheaper than closing operational costs of coal and oil plants. The one time cost of setting up this new green infrastructure is negated by its ability to provide energy without harming the environment and low maintenance costs. California has forecasted to become 100% renewable energy source dependent by 2050 which has motivated other states to switch to sustainable sources of energy.
Though the price of renewable has gone down enormously over the past 10 years the article is overly simplistic in it’s claims of an energy transition. As there are many complications that would follow major changes in the energy infrastructure. For example, one major issue with renewable's such as solar or wind is the inability to be supplied on the markets at the right time. As it is unpredictable to determine when energy will be produced it must be stored in order for people to use later. This would mean more infrastructure devoted to battery storage as well as investment in lithium ion technology.
Additionally in order to have a functioning renewable energy production must be diversified in each region in order for it to be reliable for mass consumption.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 15 | |
| Course Related Analysis (30-50) | 40 | |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 85 |
Group #2
Summary
The article addresses the current threats facing Iraq and other major oil producers within OPEC (Organisation of the Petroleum Exporting Countries) and how these threats impact the current state of the oil market. Ersen discusses how despite the political unrest within Iraq which has caused oil production to plummet, the market appears to remain stable with prices showing no major fluctuations as a consequence of this fall in production. Not only can this be seen in Iraq, but other significant oil producers have also seen series of events that has caused oil production to significantly decrease. For example, Venezuela seen oil production drop to almost zero due to political turmoil and in turn impacted Iran’s oil exports, yet prices did not seem to shoot up as would be expected. According to the executive director of IEA (International Energy Agency) Fatih Birol, he states that the reason is the sheer abundance of oil throughout the rest of the world and how the oil market can allow for these events to be tolerated. He goes on to discuss how because of this abundance, major producers no longer have the same bargaining power as they did and the power lies more with the buyers. This allows countries like Turkey and other European countries to benefit from the current position of the market. Not only are prices staying low due to how much oil there is but other factors such as mild temperatures and the relatively stagnant development of renewable technology means the major producers like Iraq can be optimistic about the future state of their oil market in spite of recent turmoil.
Analysis
The article demonstrates the basic concepts of market equilibrium, showing that when supply decreases, prices are expected to rise. For example, after an event which hindered oil production by almost 50%, prices rose to over $70 per barrel from an average price of $66. Yet shortly after, the market stabilised and prices fell back down. According to the graph in the article there is clear significant decline in overall production within Iran, Libya, Venezuela and Iraq, yet if prices are only temporary rising then returning to its lower price, is the market really functioning efficiently? The statistics in the article show that when production falls as a consequence of political unrest, it falls considerably low. For example it is stated that Libya’s oil production has decreased by 76.3% and in Iraq production fell from 5.8million bpd in 2019 to 4.7million bpd as of January, yet prices have overall remained steady. According to basic supply and demand theory, you would expect to see some sort of increase in prices to reflect this significant drop in production. As stated before, Birol explains the markets reaction is a result of how much oil supply there already is. Therefore, as discussed in Chapter 6, prices will not rise significantly high despite these huge losses in production as overall there is no sign of oil shortages and this is what the price is reflecting.The copious amounts of oil supply has meant the dynamic setting of the market has changed. It is now in the buyers hands that the bargaining power lies in and producers will be unable to increase their prices too high. As well as this, with demand depreciating due to milder temperatures, individuals willingness to pay will decrease and prices cannot soar too high as individuals may then resort to other forms of energy sources. A different perspective on the market price for oil is that prices may reflect peoples expectations of the oil industry. If people are aware of this huge abundance of oil, then there will be no drastic changes in consumer behaviour and prices will remain steady. On the other hand, if prices are remaining at the same level then people may be led to believe that these falls in production in certain countries does not mean that there is any risk of shortages and again no change in consumer behaviour and therefore price. However, this may impact them in the long run if production continues to significantly plummet and prices end up not being a true reflection of this. Overall, periods of political turmoil within leading oil producing countries may cause a big drop in production yet it is clear how other factors affecting the market for oil can counteract this and balance out the market overall.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 50 | |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 100 |
Group #3
https://globalnews.ca/news/6253147/canadian-natural-resources-2020-budget/
Summary
Canadian Natural Resources Ltd. states that $250 million more will be allocated to its 2020 capital budget than the previous year. In addition, this increase in the capital budget will add 60 more drilling sites and 3 additional oil rigs in Alberta. According to the news report, Canadian Natural Resources Ltd, (CNRL), claimes that the increase in drilling equates to 1,000 new jobs. The goal of increasing the capital budget in Alberta is to incentivize investors to invest, creating an attractive oil market to potential international investors. No doubt have Canadian oil markets suffered in terms of reaching international markets. Supply of oil in Canada has always been stable but attaining global markets has been an issue as of lately. With greater investment in oil will not only be beneficial to Alberta markets but also Canadian markets as without investment long-term financial security is compromised. Leading to the insecurity of funds amongst Canadians. With greater investment in oil, Canadians can achieve substantial financial security as well as abling oil to reach global markets as previously obtained.
Analysis
The article states that the increase in drilling activity is aimed to draw investment back to the province. Investment is crucial for healthy markets, it creates financial security not only for producers but also for investors. By allocating $250 million to oil drilling and rigs, jobs are created which only strengthens the market which in the end incentivizes domestic and international investment in Canada’s oil market. Without a doubt, Alberta has enough oil supplied in order to reach and satisfy the demand of domestic markets, now with further drilling and investment into oil Canada will get the chance once again to expand its oil market into the international market which will drive the price up, alleviating the surplus in oil as introduced in chapter 6. By doing so, Canada will be able to achieve greater profit margins that will only make our oil market even more attractive for investment. In terms of what this will do to oil prices in Canada, that solely depends on demand and international market access. For example, if the Canadian Crude Index wants to operate at a competitive price such as the WTI (West Texas Intermediate) Crude oil Canada must reach global markets and influence the market in such a way that it can impact the price of oil in other countries. Thankfully, an increase in the production and extraction of oil as previously stated will only act as a catalyst for Canada to reach international markets and influence price. In terms of efficiency, the way Canada’s oil market can operate efficiently would be when perfect information is available to buyers. Leaving very little asymmetric information between producers and consumers.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 5 | This is a repeat of an article reviewed a couple of classes back by another group. |
| Summary (20) | 10 | Summary wanders to things not in the article, such as market access. |
| Course Related Analysis (30-50) | 20 | Substantial departure from article and class concepts. Issues in article pertain to policy - curtailment. The reason for the policy was to match production to pipeline capacity. Relaxing curtailment in this way will lead to more drilling. Not clear what it will do to prices. May lead to a fall, if additional production is competing for pipeline capacity. As to whether it is overall good, that depends on whether market demand matches the marginal benefit and the market supply matches the marginal social cost. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 55 |
Group #4
Summary:
In the article “Egyptian Trucking Marketplace Brings Efficiency Gains in Chaotic Market” by Vishnu Rajamanickam illustrates the issues that trucking markets face in Africa and Asia. Vishnu first off by introducing the issues which both economies in Africa and Asia are facing are lack of proper infrastructure and steeped in red tape. These factors make the trucking markets significantly challenging to operate efficiently. According to Hagrass, CEO of Trella, an Eygptian digital freight marketplace, “the cost of moving goods in the Middle East and Africa is three to five times more expensive than the cost of moving goods in the West,” and this is due to poor infrastructure and the fraud and theft. That is why it is harder to conquer than their Western counterparts. Now that the issues are informed, Hagrass is trying to improve the problems by inducing transparency into the logistics sector via digitalization. Hagrass has experience in growing Uber in Africa and the Middle East, and the experience can incorporate and help improve the trucking markets. Moreover, Trella is also building warehousing solutions and financial technology solutions in order to facilitate payments and receivables. In terms of efficiency, companies that used Trella would get approximately 6% savings by reduction on labour because of their automated logistics processes. Ultimately, Hagrass mentioned that it is essential to educate carriers and shippers about the benefits of adopting new technology to bring efficiency in the market.
Analysis:
The main issue that the article illustrates is that the trucking market in Africa and Asia is inefficient due to the lack of proper infrastructure and steeped in red tape. As the textbook explains, in order to have a socially efficient market: “The market demand curve and the MSB curve have to be the same, and the market supply curve and the MSC curve have to be the same.” In our case, both conditions are not met in Asian and Africa; therefore, market inefficiency occurs. Despite the inefficient market, Trella, a B2B (business to business) company offering to solve the problems by inducing transparency into logistics sector via digitalization, building warehousing solution, and financial technology solution to facilitate payments and receivables. The platform that Trella is offering will meet the difference between the market demand and the MSB, as well as market supply and MSC.
Moreover, Hagrass, the CEO of Tralle, mentions that the companies that used Trella service have become 6% more efficient (in terms of reduction on labor) than without Trella. Also, Trella’s technology is said to be an open-access resource. This is because the service is open to any company that wishes to utilize the service; thus, it is significant to educate more companies about Trella’s technology and how a market can be more efficient with the service.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 2 | Not really a resource article, except in so far as trucks use fuel. |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 30 | Good recognition of efficiency issue. Need to explain where externality is - why is MSC not equal to supply and/or MSB not equal to demand. The technology is not an open access resource, as we have defined it. Open access is rival but not excludable, and therefore overused. The roads may be open access. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 72 |
Group #5
https://www.theguardian.pe.ca/business/local-business/could-atlantic-canada-lead-the-tech-revolution-for-natural-resources-395727/?fbclid=IwAR3Wy7izwfrn-Br_EZ0mMdTkZjMjnyNAWt6vc7dK237wOESDaXnaq4hbL5k
Summary:
Critics state that tech innovation in Canada should be the focus of development for large cities like Toronto, Waterloo and within Silicon Valley and that Atlantic Canada (Newfoundland and Labrador, New Brunswick, Nova Scotia, PEI) should devote their time to the tourism, agriculture and fishing industries. Although, the presence and success of ecosystem technology firms in Atlantic Canada, such as BioVectra, Radian6, and Golnstant, demonstrate differently as there is approximately 463 digital firms that operate within the eastern region. “Could Atlantic Canada lead the tech revolution for natural resources?” by Brett Bundale explains that Atlantic Canada companies are focusing on their natural resources and implementing technology to modernize the farming, fishing, mining and forestry industries and to decrease amounts of energy consumed to improve efficiency, sustainability and profitability.
For example, a fish manufacturing plant on the Avalon Peninsula in Newfoundland, Icewater Seafoods, spent $10 million to utilize robots and technological automation which also increased the number of employees from 175 to 215. In addition, Canada’s Ocean Supercluster is planning to double the amount of ocean start-ups within five years resulting in 3,000 new jobs and $14 billion added to the Canadian economy within the decade. This illustrates that the computerization of natural resources can advance resource production, sustainability, and spur economic improvements. A large portion of the population believe that technological advancements decrease job availability but when you improve operations and begin to compete with others worldwide, more employees are required to sustain new procedures. Organizations should apply innovation to solve business problems within their industry by implementing technology. For Atlantic Canada, people are starting to see the potential of being successful in a smaller area, other than just major cities, as the technology sector in the east is growing.
Analysis:
The article that we have chosen is a good starting point when discussing chapter 6, as one can talk about the idea of market creation. Atlantic Canada has many industries that they have already created sustainable income in, these being open-access natural resource industries such as agriculture and fisheries. While they have these established sectors, they are looking to create a brand-new market in the form of modern technology. Within the article the statement “old industries, modern solutions”, really stuck out to us. As Atlantic Canada is more known for providing jobs within industries that people would consider to be older or traditional. The use of this modern technology within these industries could mean large increases in efficiency, as well as a more positive environmental impact.
Efficiency in this sense meaning that they could produce more units at a faster rate within these natural resource industries. Another key factor is that with the modernization of technology a company or industry could reduce the waste that they produce. Whether that waste be from something such as exhaust or pollution from machines that were used previously, or less wasted units of the natural resource they are producing. By attempting to make it in the technology industry companies are creating many jobs for Canadians, which in turn, will create new jobs within the already established industries.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 5 | Something of a sales pitch for Atlantic Canada |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 45 | Within the concepts used so far, pretty good. A question is if firms are able to process more natural resources at lower cost, what does this likely imply about the amount of resources used? |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 90 |
Group #6
https://www.cbc.ca/news/business/cannabis-price-gap-illegal-legal-1.5438899
Summary:
After the cannabis became legal in Canada, some dispensaries were busier than before, but there was a widening price gap between legal and illicit cannabis in the market. From October to December in 2019, the price of legal cannabis was $9.69/g and increased to $10.30/g, however the change for average price of illegal cannabis decreased from $6.44/g to $5.73/g. Under this situation, some of consumer would like to accept those illegal cannabis because of lower price. Therefore, these industries are working on how to minimize the underground cannabis market, then control market more suitable for government and citizens. In Quebec, some producer rolled out cheaper cannabis around $4.49/g to undercut the illicit market, which is the outcome from cannabis price war. Different regions with different price, the highest price is $11.36/g in New Brunswick, but it has the lowest price illegal cannabis is $4.90/g. The main reason caused that is the illicit market does not have any costs related to regulatory. For regular drug store, the efficiency wasn't a problem, but how to control price is a big issue in the future.
Analysis:
The price of legal cannabis is higher than the price of illegal cannabis. In the first year, the supply of cannabis in legal market is low since greenhouses growing cannabis are labour intensive, and they often require plants to be moved, trimmed and harvested. Efficiency wasn't high and there was a shortage of product. Also, government keeps the price of legal cannabis high to ensure its revenue and reduce new cannabis users. Lack of retail stores is also another reason that legal cannabis cannot satisfy people's demand. On the other hand, the illicit market faces no costs related to regulatory oversight. This means that their efficiency is comparatively high comparing to the legal market, and they can keep the price of cannabis comparatively low. To satisfy the market's demand on cannabis and compete with the illegal market to achieve the goal of controlling the cannabis market, government needs to lower the cost of producing cannabis by increasing its supply.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 4 | Not really related to resource issues. |
| Summary (20) | 14 | |
| Course Related Analysis (30-50) | 20 | Use of efficiency not correct. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 58 |
Group #7
Summary:
In a January 22nd (2020) article, titled "World's consumption of materials hits record 100bn tonnes a year", the Guardian's Environment editor, Damian Carrington, reports that humans are consuming more than ever before, while efforts to recycle are dwindling. This was first reported by the Circle Economy think-tank at the World Economic Forum in Davos and it found that every person on earth uses an average of "13 tonnes of materials per year." Overall only 8.6% of materials are recycled and reused, while 15% is emitted into the atmosphere, nearly 25% is discarded into the environment, and about 33% is treated as waste. This inefficient excess in consumption is driven by unsustainable fossil fuel, lumber, and mineral extraction. To address this issue, the authors of the report suggest that governments adopt circular economy solutions. According to the report, "increasing recycling can make economies more competitive, improve living conditions and help to meet emissions targets and avoid deforestation."
Analysis:
This article by the Guardian illustrates the inefficient use of the worlds materials and the negative externalities that result from that inefficient use (emissions, pollution, and waste). Therefore, the article is relevant to Natural Resource Economics and the topics of Markets and Efficiency. Increasing the share of materials that we recycle can make our economies not only more efficient, but also more competitive - by reducing the need for fossil fuel extraction, slowing the use of renewable resources, and reduce emissions, as well as waste. There are some countries that have taken steps to incentivize recycling by fostering a circular economy through policy. However, to really increase recycling and reduce the use of materials and resources, we need to realize collectively that our current lifestyle is unsustainable and then we need to change.
Extended Analysis:
The article points out that China's ban on waste imports encourages domestic recycling in countries that would otherwise ship their waste to China. Such a policy is an example of legislation that encourages circular economies (CEs), which aim to increase efficiency. The European Commission has pushed for countries to adopt policies that foster CEs for years. According to a paper in the academic Journal of Cleaner Production that analyzed CEs in selected European Union countries between 2010 and 2016, the best performing counties were Germany, Netherlands, Denmark, France and Italy.[1] The paper linked GDP per capita to CE performance, as a high GDP is generally linked to better "infrastructure, education, and the development of R&D."[2] However, POLITICO's 2018 European Union CE index produced different results. The magazine's index "[ranks Poland and the Czech Republic near the top of the list] of the EU's most circular economies, while ostensibly green Nordic countries lag behind."[3]
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 40 | In a little while we will talk about recycling and its relationship to virgin material extraction. |
| Extended Analysis (0-20) | 10 | |
| Presentation (10) | 10 | |
| Total | 100 |
Group #8
https://www.jwnenergy.com/article/2020/1/western-canada-holds-potential-growing-global-helium-market/?fbclid=IwAR2D6DSMrvfpbVhPBENZQY9ItXr9D5IdxD4BRw4sweVMskeSkXRmq3oK51I
Summary:
This article states that how an oil and gas veteran opted to change careers to a ‘new resource industry’ due to the multiple hurdles faced with the previous industry. Marlon McDougall President and CEO of North American Helium Inc is heading the company to become a market leader in this industry. The supply of helium is relatively low on Earth and there has been a constant rise in demand for this element ‘used mainly for military’ purposes. This has created a shortage and has caused prices to increase in recent years. Since it can stay as a liquid at such a low temperature it is used for research and in medicine. However, there is a chance of resurgence for Saskatchewan to produce helium again, which it did half a decade ago. Weil Group Resources has been working on helium wells since 2016 but production was suspended in 2019. Western Canada has the advantage that since the reservoirs are made up of 95% nitrogen, it is easy and safe to release in the atmosphere after the one and two percent helium extraction. North American Helium is the most active in the region and has already ‘drilled 13 new helium wells’. There is a huge potential in the region, especially with the US backing off its production of the element.
Analysis:
This article by JWN titled “Western Canada holds potential for growing global helium market” discusses how there is hope for helium that will be drawn from the ‘Prairie field and provide a natural resource boom for Western Canada’. Marlon McDougall sees the excitement of a new resource industry and therefore is heading their operations, so that they can become market leaders in future and are able to control the price of the element. Since supply has always been fairly less for helium and demand has been rising for many years, there has been an upward trend on prices causing shortages in the market. Its high demand for research and in medicine, uses in military and also for rocketry and plasma welding makes it a sought after element, however the potential hasn’t been realised in the US who have decided to sell their reserves. Saskatchewan holds a great opportunity for a resurgence of this industry as it produced helium from wells about a decade 50 years ago but then stopped due to slumping prices. The amount of helium in the province is still unknown, however two companies have drilled wells in that region. One had its production cut off in 2019 and one is leading the way with already 13 wells drilled. The advantage the region has is that the best reserves are founds in pools made up mostly of nitrogen, which is not hard to vent in the atmosphere safely after helium extraction. This can help them in gaining advantage over other firms that are deciding to enter this industry. Elsewhere in world there are shallower pools, however western Canada has reservoirs deeper than 2 kilometres, which means there will be enough supply for production for years before finishing. North American Helium has ambitious plans and has great opportunity as it plans to supply ‘substantial chunk of global demand currently pegged at about seven billion cubic feet per year’. Also since there is a decline in the American fields, the company feels they can provide the global supply with the land they have in an efficient manner.
- ↑ Tihana, Škrinjarić (25 January 2020). "Empirical assessment of the circular economy of selected European countries". Journal of Cleaner Production – via Elsevier Science Direct.
- ↑ Tihana, Škrinjarić (25 January 2020). "Empirical assessment of the circular economy of selected European countries". Journal of Cleaner Production – via Elsevier Science Direct.
- ↑ Jacob, Vriens (17 May 2018). "Ranking how EU countries do with the circular economy". POLITICO. Retrieved 28 January 2020.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 16 | Summary gets a few points wrong. |
| Course Related Analysis (30-50) | 30 | Limited connection to class concepts. Key thing here is that the price of helium is increasing as demand is growing faster than the supply. This creates an incentive for investment in developing the resource. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 76 |