The impact of technical progress on the oil and gas industry

Jean-Luc Karnik and Jean Masseron
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Jean-Luc Karnik: IFPEN - IFP Energies nouvelles
Jean Masseron: IFPEN - IFP Energies nouvelles

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Abstract: Technical progress is a subject of interest primarily to engineers, and the study of such a subject or that of its impact on energy economics has rarely been of major concern to economists. Nevertheless, in the oil and gas industry, most developments concerning supply and demand, and therefore prices, are in one way or another determined by technology. We could even go so far as to say that the lack of consideration given to technical progress in oil price thinking has been the cause of past mistakes. Generations of economists have believed, on the basis of Hotelling's rule, that the rent generated by the exploitation of a resource automatically increased year by year at a rate equivalent to the discount rate, so that the price of this resource ultimately equalled the cost of the substihtte resource. This belief has been applied rather hastily by energy economists and they collectively assumed that crude oil prices, over the medium or long term, would inevitably rise. But what is surprising, in retrospect, is to note that, whatever price has been taken as a starting point, virtually all past and current forecasts follow this rule.

Date: 1995-01
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