S1621 Introduction to World Oil and Gas Markets (Sustainable Development Sp. Track)

Mironova Irina, Sharples Jack

Course description

Energy is something that makes all human activities possible. Without our current energy system, a student could not charge the phone or take a plane to travel to the semester-abroad destination. The electricity in the first case could be generated by burning natural gas, and the plane is fuelled by processed oil. HOW does natural gas and oil / oil products reach their destination – a power station or a gas fuelling station? This is essentially what we will be looking at within this course.
The way the trade in energy resources is organised is referred to as the energy market. There are a number of reasons (political, economic, societal, technical, financial), which constantly affect the organisation of energy markets, causing them to change. Within the course, the lecturers will explain the main forces driving energy markets – both from a historical and a contemporary perspective. Together with the students, we will seek an answer to the question whether energy markets are moving towards more open, competitive and globalized structures.
We will mainly be discussing oil and natural gas within this course, and refer to markets for other primary energy sources when necessary.
During the course, students will learn about the several stages of energy market development, illustrated by the development of sales contracts and pricing principles. How did the current system of oil trading come about? What role does the financialisation of the oil market play in oil price volatility? Is it possible to forecast the price of oil? Will the gas markets follow the same track as oil markets did in the second half of the XX century, with a decreasing proportion of long-term contracts and increasing role of financial instruments such as futures and options? Another very important issue in understanding the market is financial and capital investment related to energy markets.
By the end of this course, students will have developed an understanding of how international oil and gas markets function, and their current trajectories of development.

The course aims:
1.   To familiarise the students with the evolution of oil and gas markets in terms of space, market structure, pricing mechanism.
2.   To familiarise the students with the relevant forms of financial market instruments for energy markets..
3.   To enable the students to analyse current trends in oil and gas markets and forecast on this basis the likely future developments in both markets.
4.   To familiarise the students with the main forms of investment protection in energy markets.

Teaching Format
Lectures
Seminars will aim at strengthening the theoretical knowledge that students have acquired during the lectures. Each seminar will be organized in the following manner:
1.   Presentation based on their reading. Students will be assigned their readings in advance and will have time before the seminar to prepare their presentations (the use of PowerPoint is encouraged).
2.   Peer-review of the presentation – any student from the class may be asked to review the presentation based on the following criteria:
a.   Has the presenter succeeded in communicating the main message of his/her paper?
b.   Has the presenter succeeded in situating the paper in the wider scientific discourse?
3.   Free discussion on the topic

Student Requirements & Assessment of the Course
After completion of the course, the students will be expected to:
1.   have learnt and understood the development logic of the major trends in oil and gas markets;
2.   have learnt and understood the major financial tools used on the energy markets, their relevance for investment decisions and market development;
3.   have learnt and understood the problems related to investments in energy markets, and the mechanisms of investment protection.

Seminar instructors: contact details and office hours
Week 1-7: Irina Mironova (imironova@eu.spb.ru)
Meetings and consultations by prior appointment

Week 8-14: Jack Sharples (jsharples@eu.spb.ru)
Meetings and consultations by prior appointment

Syllabus and Readings

Week 1: Lectures. Evolution of oil market: history.
1.   Dickel R. et al. (2007) Putting A Price on Energy: International Pricing Mechanisms for Oil and Gas. Brussels, Energy Charter Secretariat.
a.   Chapter 2 (2.2, 2.3)
b.   Chapter 3 (3.1, 3.2, 3.3)
1.   Fattouh B. (2011). An anatomy of the crude oil pricing system. Oxford: Oxford Institute for Energy Studies.
a.   Section 2. Historical Background to the International Oil Pricing System. Pp. 14-19.
Further reading:
1.   Dahl C. (2004) International Energy Markets: Understanding Pricing, Policies and Profits - Tulsa, OK USA: PennWell Corporation.
a.   Chapters 1, 2, 6.
2.   Fouquet R. (2011) A Brief History of Energy (Chapter 1). In: Evans J., Hunt L.C. (eds). International Handbook on the Economics of Energy. Cheltenham, UK; Northampton, MA, US : Edward Elgar. Pp. 1-19.
3.   Fattouh B. (2011). An anatomy of the crude oil pricing system. Oxford: Oxford Institute for Energy Studies.

Week 2: Lectures. Evolution of oil market: organization of the market, contract structures, pricing mechanisms.
1.   Dickel R. et al. (2007) Putting A Price on Energy: International Pricing Mechanisms for Oil and Gas.
a.   Chapter 3 (3.4, 3.5).
2.   Fattouh B. (2011). An anatomy of the crude oil pricing system. Oxford: Oxford Institute for Energy Studies.
a.   Section 3. The Market-Related Oil Pricing System and Formulae Pricing. Pp. 20-29.
b.   Section 4. Oil Price Reporting Agencies and the Price Discovery Process. Pp. 30-35.
Further reading:
1.   Garis D. (2011). The behaviour of petroleum markets: fundamentals and psychologicals in price discovery and formation (Chapter 18). In: Evans J., Hunt L.C. (eds). International Handbook on the Economics of Energy. Cheltenham, UK; Northampton, MA, US : Edward Elgar. Pp. 420-440.
2.   James T. Energy Markets: Price Risk Management and Trading - Singapore : John Wiley & Sons (Asia) Pte Ltd, 2008. Chapters 3, 6, 13
3.   Errera S., Brown S. L. Fundamentals of Trading Energy Futures and Options - 2nd ed. - Tulsa, OK USA: PennWell Corporation, 2002

Week 3: Seminars.
1) Principles of oil pricing
2) The basics of derivatives in the oil markets
1.   Fattouh B. (2011). An anatomy of the crude oil pricing system. Oxford: Oxford Institute for Energy Studies.
a.   Section 8. Assessment and Evaluation. Pp. 70-77.
2.   Banks F. (2000). Energy Economics: A Modern Introduction. Boston / Dordrecht / London: Kluwer Academic Publishers.
a.   Chapter 6. Energy Derivatives: Futures, Options, Swaps. Read all parts skipping algebra:
    i.   Pp. 137-139 (intro + futures)
    ii.   Pp. 142-145 (futures + further mechanics of hedging and speculation)
    iii.   Pp. 148-153 (options)
    iv.   Pp. 161-170 (swaps + conclusions)
Further reading:
1.   Banks F. (2000). Energy Economics: A Modern Introduction. Boston / Dordrecht / London: Kluwer Academic Publishers. Chapter 6. Energy Derivatives: Futures, Options, Swaps. (full chapter).
2.   Fattouh B., Mahadeva L. (2012). Financialization in Oil Markets: lessons for policy. Oxford Institute for Energy Studies.
3.   Ripple R.D. International Energy Derivatives Markets (Chapter 30). In: Evans J., Hunt L.C. (eds). International Handbook on the Economics of Energy. Cheltenham, UK; Northampton, MA, US : Edward Elgar. Pp. 705-740.
4.   Adelman M.A. World oil production and prices 1947-2000. (2002).The Quarterly Review of Economics and Finance. No. 42. Pp. 169 –191.
5.   Hamilton J.D. Understanding crude oil prices. WP 14492. NBER, 2008.

Week 4: Lecture and seminar. Oil price shocks, their causes and impact (I)
1) Lecture. Oil price shocks, their causes and impact
1.   Yergin D. (1991) The Prize: The Epic Quest for Oil, Money and Power. New York: Simon & Schuster.
a.   Chapter 29. The Oil Weapon. Pp. 588-612.
2.   Fattouh B., Kilian L., Mahadeva L. (2012) The role of speculation in the oil markets: what have we learned so far? Oxford Institute for Energy Studies, Working paper WPM45.
2) Seminar. Oil supply shock of 1973: History, causes, implications
1.   Yergin D. (1991) The Prize: The Epic Quest for Oil, Money and Power. New York: Simon & Schuster.
a.   Chapter 30. "Bidding for Our Life". Pp. 613-632.
Further reading:
1.   Medlock K.B. III, Jaffe A.M. (2009). Who is in the oil futures market and how has it changed? James A. Baker III Institute for public policy Rice University. Working paper, August.

Week 5: Lecture and Seminar. Russia in the international oil and gas markets
1) Lecture. Russia’s energy sector.
1.   ERIRAS and ACRF. (2014) Global and Russian Energy Outlook to 2040. Eds. Makarov A.A., Grigoriev L.M. Moscow: ERIRAS.
a.   External conditions in the development of Russian energy. Pp. 111-120.
b.   Production of energy resources. Pp. 128-146.
2) Seminar. The impact of 2014 sanctions on Russia’s oil and gas exports.
1.   ERIRAS and ACRF. (2014) Global and Russian Energy Outlook to 2040. Eds. Makarov A.A., Grigoriev L.M. Moscow: ERIRAS.
a.   Box: The effect of possible sanctions on Russian exports of oil, gas, and oil products: ‘The damage will be mutual’. Pp. 114-115.
2.   Mironova I. (2014) Russia: Still-Life Under Sanctions. European Energy Review. November 20, 2014.
Further reading:
1.   ERIRAS and ACRF. (2014) Global and Russian Energy Outlook to 2040. Eds. Makarov A.A., Grigoriev L.M. Moscow: ERIRAS. (full report)
2.   Stern J., Pirani S. (eds.) (2014). The Russian Gas Matrix: How Markets are Driving Change. Oxford: Oxford Institute for Energy Studies.
3.   International Energy Agency (2014). Energy Policies beyond IEA Countries: Russia 2014. Paris: OECD / IEA.

Week 6: Lecture and Seminar. The role of OPEC in contemporary oil market
1.   Fattouh B., Mahadeva L. (2013). OPEC: what difference has it made? Oxford Institute for Energy Studies.
Further reading:
1.   Dahl C. (2004) International Energy Markets: Understanding Pricing, Policies and Profits - Tulsa, OK USA: PennWell Corporation.
a.   Chapter 6: Monopoly, Dominant Firm, and OPEC.

Week 7: Lecture and Seminar. Oil price shocks, their causes and impact (II)
1.   Konoplyanik A. (2010). Who Sets International Oil Price? A View From Russia - Analysis of 2003-2008 Oil Price Increase and Its Collapse Examined Within Historical Evolution of International Oil Market Contractual Structures and Oil Pricing Mechanisms, Oil, Gas & Energy Law Intelligence.
1.   Arezki, R., Loungani P. , van der Ploeg, R. and Venables T. (2014). Understanding International Commodity Price Fluctuations, Journal of International Money and Finance, Vol 42, April, pp. 1-8.
2.   Arezki R., Blanchard O. (2014). Seven Questions about the Recent Oil Price Slump. iMF Direct. December 22. http://blog-imfdirect.imf.org/2014/12/22/seven-questions-about-the-recent-oil-price-slump/.
Further reading:
1.   Smith J.L. World oil: market or mayhem? (2009). The Journal of Economic Perspectives. Vol. 23, No. 3. Pp. 145-164.
2.   Fattouh B., Kilian L., Mahadeva L. (2012) The role of speculation in the oil markets: what have we learned so far? Oxford Institute for Energy Studies, Working paper WPM45.

Week 8: North America and natural gas
Lecture. The evolution of gas markets: North America
1.   Dickel R. et al. (2007) Putting A Price on Energy: International Pricing Mechanisms for Oil and Gas. Brussels, Energy Charter Secretariat.
a.   Section 4.1.
b.   Sections 4.2.1-4.2.3
Seminar: The Shale Revolution and Implications for the International Energy Markets
1.   International Energy Agency (2015). World Energy Outlook. Paris: OECD/IEA. – Chapter 6. Outlook for Unconventional Gas. Global revolution or North American phenomenon?
a.   Highlights – p. 229.
b.   A multi-speed revolution? Pp. 229-231.
c.   Defining unconventional gas – p. 230.
d.   Inside the US shale storm. Pp. 237-245.
2.   Levi M. (2012). Think Again: The American Energy Boom. Foreign Policy. No. 194 (July / August 2012), pp. 55-59.
Further reading:
1.   Dahl C. (2004) International Energy Markets: Understanding Pricing, Policies and Profits - Tulsa, OK USA: PennWell Corporation.
a.   Chapter 7.

Week 9. Lecture and Seminar. The evolution of gas markets: European market
Lecture: European suppliers and what they brought to the regional market
1.   Correljé A., Van der Linde C., Westerwoudt T. (2003) Natural Gas in the Netherlands: From Cooperation to Competition? Amsterdam: Oranje-Nassau Groep.
a.   Chapter 3. The market for gas (pp. 52-71).
2.   Heather P. (2010). The Evolution and Functioning of the Traded Gas Market in Britain. Oxford Institute for Energy Studies, NG 44.
a.   Sections 1-4 (pp. 1-12).
Seminar: From long-term contracts toward hub-based trade
1.   Konoplyanik A. (2010) Evolution of Gas Pricing in Continental Europe: A View from Russia – Modernization of indexation formulas versus gas-to-gas competition, Oil, Gas & Energy Law Intelligence.
a.   Abstract. Pp. 1-3.
b.   Resource rent and gas pricing in Europe: Groningen model of LTGEC & its particularities. Pp. 6-15.
2.   Konoplyanik A. (2011) Third EU Energy Package: Regulatory Changes for Internal EU Energy Markets in Gas and Possible Consequences for Suppliers (Incl. Non-EU Suppliers) and Consumers, Oil, Gas & Energy Law Intelligence.
a.   Gas pricing: which way to go in Continental Europe? Pp. 28-37.
3.   Heather P. (2015) The Evolution of European Traded Gas Hubs. Oxford Institute for Energy Studies NG 104.
a.   Section 5: The development and functioning of the European gas hubs (5.1-5.4), pp. 15-34.
Further reading:
1.   Konoplyanik A. (2010) Evolution of Gas Pricing in Continental Europe: A View from Russia – Modernization of indexation formulas versus gas-to-gas competition, Oil, Gas & Energy Law Intelligence. (full paper)
2.   Heather P. (2015) The Evolution of European Traded Gas Hubs. Oxford Institute for Energy Studies NG 104. (full paper)

Week 10. Gas market in Europe: European regulation
1) Lecture. The Third Energy Package
1.   Yafimava K. (2013) The EU Third Package for Gas and the Gas Target Model: major contentious issues inside and outside the EU. Oxford: OIES NG 75.
a.   Section 1. The Third Package and the Gas Target Model: constructing a new architecture for the EU Gas Market. Pp. 2-8.
2) Seminar. Changes in European regulation of the gas markets and implications for suppliers from outside the EU
1.   Stern J. (2014) The Impact of European Regulation and Policy on Russian Gas Exports and Pipelines. In: Stern J. (ed.) The Russian Gas Matrix: How Markets are Driving Change. Oxford: Oxford University Press, 2014. Pp. 82-107.
Further readings:
1.   Yafimava K. (2013) The EU Third Package for Gas and the Gas Target Model: major contentious issues inside and outside the EU. Oxford: OIES NG 75. (full study)
2.   Franza L. (2014). Long-term Gas Contracts in Europe. The Evolution in Pricing Mechanisms. CIEP Paper 2014/08.
3.   Stern J., Rogers H. (2013). The Transition to Hub-Based Gas Pricing in Continental Europe: a response to Sergei Komlev of Gazprom Export, the Oxford Institute for Energy Studies, Oxford energy comment.
4.   Petrovich B. (2013). European gas hubs: how strong is price correlation? the Oxford Institute for Energy Studies, Working paper NG79.

Week 11. Lecture and Seminar. Investment and the Energy Charter Treaty; The issues of energy transit (example of gas markets)
1) Lecture. Investment and the Energy Charter Treaty
1.   Konoplyanik A. (2008) Regulating energy relations: Acquis or Energy Charter? In: Pipelines, Politics and Power. Center for European reform. Pp. 107-115.
2.   Konoplyanik A. (2010) Why Is Russia Opting Out of the Energy Charter? – International Affairs, 2010, vol. 56, №2, pp. 84-96
2) Seminar. Energy transit
1.   Pirani S. and Yafimava K. (2014). CIS Gas Markets and Transit. In: Stern J. (ed.) The Russian Gas Matrix: How Markets are Driving Change. Oxford: Oxford University Press, 2014. Pp. 181-197 (section ‘Ukraine’).
Further reading:
3.   Pirani S. et al. (2014). What the Ukraine crisis means for the gas markets. Oxford Energy Comment March 2014.
4.   Konoplyanik A. (2014) The Role of 'European formulas' in the Russia-Ukraine Gas Debate. European Energy Review.
a.   Parts 1. June 19, 2014.
b.   Part 2. August 4, 2014.
c.   Part 3. September 25, 2014.
5.   Konoplyanik A. (2003) A struggle for mineral rent. - "Petroleum Economist", August 2003, p. 23 - 24
6.   Maniruzzaman A.F.M. (2008) The pursuit of stability in international energy investment contracts: A critical appraisal of the emerging trends. - Journal of World Energy Law & Business, 2008, Vol. 1, No. 2, pp. 121-157
7.   Energy Security: Managing Risk in a Dynamic Legal and Regulatory Environment / ed.: B. Barton, C. Redgwell, A. Ronne, D.N. Zillman – Oxford University Press – 2004
8.   Global Energy Governance: the New Rules of the Game / ed.: A. Goldthau, J. M. Witte; foreword author W. Reinicke. - Berlin: Global Public Policy Institute; Washington, D.C.: Brookings Institution Press, 2010

Week 12: Lecture and seminar. The evolution of gas market in the Asia Pacific region
1) Lecture. Development of pricing mechanisms in the gas markets, perspectives of derivatives use in the gas markets
1.   Ten Kate W., Varró L., Corbeau A.-S. (2013) Developing a Natural Gas Trading Hub in Asia: Obstacles and Opportunities. Paris, OECD / IEA.
a.   Section 2. The Asian-Pacific Natural Gas Market. Pp. 20-31.
2.   Mironova I. (2015) Natural Gas Pricing in the Asia Pacific Regional Market: Problems and Prospects. Vestnik of Saint Petersburg State University. Series 5: Economics. 2015, No. 4. Pp. 66-85.
a.   Section 2. Review of the regional market. Pp. 70-72.
3.   Dickel R. et al. (2007) Putting A Price on Energy: International Pricing Mechanisms for Oil and Gas. Brussels, Energy Charter Secretariat.
a.   Section 4.5. LNG (4.5.1-4.5.3). Pp. 175-191.
2) Seminar. Perspectives of natural gas trading hub in Asia.
1.   Ten Kate W., Varró L., Corbeau A.-S. (2013) Developing a Natural Gas Trading Hub in Asia: Obstacles and Opportunities. Paris, OECD / IEA.
a.   Section 3. Creating a liquid natural gas trading hub. Pp. 32-50.
2.   Mironova I. (2015) Natural Gas Pricing in the Asia Pacific Regional Market: Problems and Prospects. Vestnik of Saint Petersburg State University. Series 5: Economics. 2015, No. 4. Pp. 66-85.
a.   Sections 5 and 6. Pp. 78-83.
Further reading:
1.   Zhuravleva P. (2009) The Nature of LNG Arbitrage: an Analysis of the Main Barriers to the Growth of the Global LNG Arbitrage Market, the Oxford Institute for Energy Studies, NG 31
2.   Hartley P. (2013) The future of long-term LNG contracts, James A. Baker III Institute for public policy Rice University, Working paper, October 2013.
3.   Henderson J., Stern J. (2014). The potential impact on Asia gas markets of the Russia’s East gas strategy. Oxford Energy Comment February 2014.

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S1621 Introduction to World Oil and Gas Markets (Sustainable Development Sp. Track)

Mironova Irina, Sharples Jack

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