Economics of Energy: Shale Oil

Economics of Energy: Shale Oil Economics of Energy As every nation endures the global recession, countries invest on various types of energy sources that offer the maximum benefits. There are many variations on energy that can be used such as solar energy, nuclear energy, wind-generated energy and shale oil reserves. Each type of energy has different economic benefits. At present times, shale oil reserves are to watch out for. Shale oil reserves are usually undeveloped given that the process of extracting its oil is a difficult process. However, the latest technology unfolds the overwhelming potential of shale oil exploration. The accessibility of shale oil resources across the globe and the effect of increased shale oil production have influence that extends further than the rest of competitors in energy industry. In contrast, other sources of energy offer economic benefits as well but only differ with costs incurred. Among all energy sources, nuclear energy helps to reduce air pollution, balance the Earths weather, avoid acid rain, and depletion of ozone layer. Nuclear power plants are environment-friendly source of energy. There are many economic benefits of using nuclear power plants. Nuclear power plants are a good source of income while it incurs low costs on operation. In the United States, it is their second largest source of power. Aside from stability in future price, it also avoids the import on fuel. Although the economic benefits of nuclear power are great, the hype on shale oil exploration overshadows the nuclear industry. As many nuclear power plants are offline, most of them would find it easier to build new turbines for gas exploration than repair nuclear reactors. According to the Climate News Network in London, most of the nuclear reactors in the United States and Canada are shutting down since shale gas produces cheaper power (Brown, 2013, para.1). Moreover, the investment costs required for nuclear power plant is higher compared to shale oil exploration. Hence, the economic benefits of shale gas are better than nuclear power. Another source of energy is the solar power. This type of energy captures the photovoltaic cells that transform sunlight into electrical energy. Its edge among other sources of energy is that sunlight is free; hence, its energy is infinitely renewable. In the future, the cost of solar power is expected to decline below market price. To compare solar energy and shale gas, the latter has many variables to consider on its relevant costs such as land costs, drilling costs, corporate overhead and others. Hence, solar energy is more economic than shale gas when it comes to expenditures. Lastly, wind-generated energy is also an alternative source of electricity. Wind turbines convert the wind that passes through the blades into electricity. One of the challenges on wind energy industry is its disadvantage on costs. Its technology needs a hi gher amount of initial outlay than fossil fuels. Hence, shale gas is more cost-competitive compared to wind-generated electricity. Economic Costs and Profits of Shale Oil Exploration Computation for economic costs basically includes explicit costs, real costs and opportunity costs (EconomicConcepts.com, 2012, n.p.). On the other hand, economic profit is the difference between revenue and costs incurred. In this section, the economic costs are cash outlays, opportunity costs, transportation expense to China and Beijing Costs, Insurance and Freight (CFI). Below is a table of the writer’s own model of economic costs and profits of shale exploration (Figure 1). The figures are rounded off to the nearest whole number. Economic Costs and Profit for Shale Oil Exploration Total Revenue $ 12,000,000,000.00 Explicit Costs Pipeline costs Materials $ 8,000,000.00 Miscellaneous Expenses $ 1,000,000.00 $ 9,000,000.00 Land (934400 acres x $ 5000 per acre) $ 4,600,000,000.00 Well Cost (50 wells x $5,000,000 rate per well) $ 250,000,000.00 Drilling Costs $ 14,000,000.00 Transportations Costs (Cost Insurance Freight to Beijing, China) (6000 trucks x $8000 rate per truck) $ 48,000,000.00 $ 4,921,000,000.00 Total Explicit Costs Real Costs Labor $ 11,500,000.00 Total Real Cost $ 11,500,000.00 Opportunity Costs Opportunity Costs $ 50,000,000.00 Total Opportunity Costs $ 50,000,000.00 Total Economic Costs $ 4,982,500,000.00 Total Economic Profit $ 7,017,500,000.00 Figure 1. Sample Model of Total Economic Costs and Profit for Shale Oil Exploration In Figure 1, the figures indicated are merely estimates through extensive research. In the explicit costs, the costs incurred are for pipeline, land, well, drilling and transportations. These are costs that are directly attributed to the shale gas exploration. The estimates used for rate per acre, well, and truck are average computation for each account. Secondly, real cost includes all the labor costs incurred to extract oil from the shale. Lastly, the opportunity cost pertains to the amount which could have been earned using other alternatives such as nuclear power plant and so on. In the illustration, total revenue exceeds the total costs incurred which results to an economic profit of $7 Billion. Hence, the model shows a cash-generating shale oil exploration. The next illustration (Figure 2) shows the extended model of Figure 1. Expanded Computation for Economic Cost and Profit of Shale Oil Exploration Total Revenue $ 12,000,000,000.00 Total Economic Costs $ 4,982,500,000.00 Other Costs Decommission Cost Waste Disposal costs $ 384,500,000.00 Labor $ 568,050,000.00 Used-fuel Storage costs $ 211,230,000.00 $ 1,163,780,000.00 Operation or Fracking Expense $ 1,230,500,000.00 Construction Expense $ 805,080,000.00 Total Economic Cost $ 8,181,860,000.00 Total Economic Profit $ 3,818,140,000.00 Figure 2. Expanded Computation for Economic Cost and Profit of Shale Oil Exploration In Figure 2, the amounts from Figure 1 are retained and only the other costs account is added as well as operation or fracking cost and construction expense. The marginal cost is computed by dividing the change in total cost by change in total quantity of shale oil (AmosWEB, 2014, para.4). Hence, $ 8,181,860,000.00 $ 4,982,500,000.00 is $3199360000. Change in total quantity pertains to the change in output of shale oil extraction. For instance, a company can extract 100,000 tons of shale oil in a year and doubles for the succeeding years. Below is the computation for marginal cost per year. Change in Costs Change in Quantity Marginal Cost 1st year 3199360000 100,000 31993 2nd year 3199360000 200,000 15996 3rd year 3199360000 400,000 7998 4th year 3199360000 800,000 3999 5th year 3199360000 1,600,000 1999 Figure 3. Computation for Marginal Cost Figure 3 is a chart on computing for marginal cost. The numerator is the change in costs divided by the denominator which is the change in tons of shale oil. Energy Forecast Energy Forecast on UAE from 2014 to 2020 Year Dollar Price per Oil Barrel Year Dollar Price per Oil Barrel 2003 26.74 2014 120.76 2004 33.46 2015 128.86 2005 49.49 2016 136.97 2006 61.43 2017 145.07 2007 68.37 2018 153.17 2008 93.78 2019 161.28 2009 61.75 2020 169.38 2010 78.06 2011 106.03 2012 108.9 2013 105.43 Figure 4. Energy Forecast on UAE from 2014 to 2020 In Figure 4, the amounts from the year 2003 up to 2013 are data released by World Bank Commodity Price Data (Knoema, 2013). Following the past trends on Dubai’s oil prices, the next 6 six years are forecasts through the Microsoft Excel’s trend function. The illustration shows a forecast of the increasing oil price in the next 6 years. UAE’s oil price is to increase by $7-$9. Comparative Energy Forecast on UAE, UK and US UAE UK United States Year Dollar Price per Oil Barrel 2003 26.74 28.85 31.11 2004 33.46 38.3 41.44 2005 49.49 54.43 56.44 2006 61.43 65.39 66.04 2007 68.37 72.7 72.28 2008 93.78 97.64 99.56 2009 61.75 61.86 61.65 2010 78.06 79.64 79.43 2011 106.03 110.94 95.05 2012 108.9 111.97 94.16 2013 105.43 108.86 97.94 2014 120.76 123.61 109.21 2015 128.86 131.63 115.36 2016 136.97 139.65 121.52 2017 145.07 147.66 127.67 2018 153.17 155.68 133.83 2019 161.28 163.70 139.98 2020 169.38 171.72 146.14 Figure 5. Comparative Energy Forecast on UAE, UK and US Figure 6.Bar Graph of Energy Forecast on UAE, UK and US Figure 5 illustrates the past and future forecasts on the oil prices of UAE, UK and the United States. Using the past trends on oil prices of these countries, a forecast for the next 6 years is made. The same method of computation has been made similar to Figure 5. Its summary on Figure 6, UK has the highest amount of oil price in the next 6 years while UAE falls second. Although United States has usually the highest price of oil in the last 10 years, UK started to lead starting 2012 until now. Hence, both United States and UAE has to improve more in terms of their energy economics to surpass UK’s performance in energy industry. References Brown, P. (2013, February 13).Shale gas kills nuclear power | Climate News Network. Retrieved from http://www.climatenewsnetwork.net/2013/02/shale-gas-kills-nuclear-power/> EconomicConcepts.com (2012).Concept of Economic Costs Explict Cost Implict Cost- Real Cost Oppotunity Cost Definition and Example Economicsconcepts.com. RetrievedJanuary24, 2014, from http://economicsconcepts.com/concepts_of_economic_costs.htm> Knoema (2013, October).Crude Oil Prices Forecast: Long Term to 2025 | Data and Charts knoema.com. RetrievedJanuary25, 2014, from http://knoema.com/yxptpab/crude-oil-prices-forecast-long-term-to-2025-data-and-charts> Marginal Cost, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2014. Retrieved January 24, 2014>. Theory of mind: Autism Theory of mind: Autism The term theory of mind in cognitive psychology allows individuals to describe and understanding of other individuals metal state about their beliefs or thoughts no individual can be certain what another individual is thinking but can have a good understand in what they may believe what they are thinking or about their thoughts Baron-Cohen (1997) theory of mind is exclusive to humans and allows humans to have a better understanding about the social world around and allows individuals to interact with other individuals in appropriate way Baron-Cohen (2003) Autism is a developmental disorder which occurs in the first 2 years of the Childs life and can affect approximately four in every ten thousand children (Baron-Cohen, Leslie Frith, 1985), the disorder is more four times more likely for a boy to have the disorder than a girl (Gilberg and Coleman, 1992; Rapin, 1997). An individual who has the disorder may find it hard to interact with another individuals and find it hard to understand what they are saying or understand the emotion of behaviour from another individual that also cannot understand their inner self and the other individuals thoughts and believes. Early signs of autism in a child cannot keep eye-to eye contact with another individual for a long period of time. (Swettenham et al., 1998) Also they cannot spontaneously play with a toy because it may be the fact their disorder cannot let them understand what the toy does. A study took place where individuals where ask to sort out pictures giving to the by category, children wi th the artistic disorder sorted the pictures out by objects example hat scarf (weeks and Hobson, 1987) this shows that not all social communication is impaired but they have little understanding of what is being asked of them. The Reading the Mind in the Eyes Task(Baron-Cohen et al., 1997). Baron-Cohen et al. (1997, 2001a, 2001b) showed some individuals pictures of peoples eyes and where giving four different type of words describing emotion this study was allocated to individuals with autism and also individuals without the disorder but show some signs of the autistic disorder. Baron-Cohen et al. (1997) believes that is a pure test of theory of mind and believes that the results from this study can be an in sight to see if an individual has got the autistic disorder. Children without the disorder start to use the terms think and want this shows they have some understanding of their inner self Most autistics children are delayed in learning a langue which can lead them to make new words up which is called neologising this make it harder for them understand communication and participate in social chat with other individuals Rutter (1987). An autistic individual finds it hard to keep up with the subject of conversation and also shows in ability to use feedback which (Bailey et al., 1996). Children at the age 2 Â ½ can to understand pretend play and the thoughts of other people when as children with autism have mind blindness this is an inability for them to understand social interactions which the individual finds it hard to develop a loving relationship with another individual. The disorder makes the individual find it hard to understand how some else is feeling and its difficult for the autistic individual to interact with another individual with out warning and may feel cold or distant towards other individuals. (Karmiloff-Smith, 1988, 1992) believes that all children explore the environment around them and automatically think of hypothesis and testing them this allows them. The social problems which under go in everyday life which autistic individuals have to face in everyday life, there has been studies which have been created to see if the problems they occur are related to the theory of mind. The Sally- Ann test false belief task was created to see if the individual on going the task had theory of mind skills or not. A child was introduced to two dolls called sally and Ann and where allocated with their own box with a marble hidden inside of it. The child was then told that sally has to go for a minute removing her from the scene and leaving her box behind this. The child is then told Ann is going to play a trick on sally and removes the marble from sallys box. Sally is then returned and the child is then asked where sally should look for the marble. A child with theory of mind will remember that sally doesnt know where her marble is and unaware that it is missing and will look it sallys box by using worlds for example he thinks however a child lacki ng theory of mind skills will only see it from her point of view and would look in Anns box Baron-Cohen, Leslie, and Frith (1985) Many children passed this false belief test which have the autism disorder. Nearly 80 percent of artistic children failed this task which shows that most of the children taking part have not got the inner ability to understand other peoples thought and emotions. Baron- Cohen et als (1992 brought out a checklist for autism to see if any children have the autistic disorder to allow parents or guardians to find out in case of the risk of developing the disorder. The most common signs of autism is mental retardation is most common with 75% of all cases (Rutter, 1979; Rapin, 1997) there is no strong evidence to prove autism is inherited disorder (Rutter, 1994) Autism is clearly understood as a developmental disorder which makes it difficult for that individual to express him/her self and find it hard to understand any other individuals feelings or understand that they can feel emotions and think thoughts. There is not enough evidence to suggest that theory of mind can allow us to understand about autism to its full potential and that theory of mind describes the disorder to where it is completely understood.