Marek Kolodziej ASPO Workshop, Lisbon, Portugal May 19, 2005 Presentation of the paper by Douglas Reynolds and Marek Kolodziej FSU Oil Production and GDP Decline – Granger Causality and the Multicycle Hubbert Curve

Reasons for breakup  Economic inefficiencies of central planning  Reagan Administration policies  1987 oil production peak

Granger Causality Correlation is not causation Did the oil peak Granger-cause GDP decline and the breakup?

GDP-to-oil hypothesis Economic chaos decreased investment Lower GDP: destroyed internal demand Hypothesis rejected - we have 95% confidence that GDP does not Granger- cause oil production Tested for 1-, 2-, and 3-year lags

Oil-to-GDP hypothesis Oil Granger-causes GDP with 95% confidence This is data, so oil Granger- caused GDP even prior to the peak Tested for 1-, 2-, and 3-year lags

Granger Causality GDP=f(lagged GDP) GDP=f(lagged GDP, lagged oil)

Coal-to-GDP, Natural gas-to-GDP GDP Granger-caused a coal production decline (98% confidence) but not vice versa No Granger-causality between NG and GDP Therefore, Oil causes GDP but coal and NG do not This suggests oil affects the economy, but not vice versa

Multi-cycle Hubbert curve First cycle: 19th century to 1996, with a 1987 peak Discovery peaked in the 1960s 1996 – privatization of Russian oil Better property rights Production at old fields resumed and fueled recent growth

Multi-cycle Hubbert curve The basic Hubbert model is Take derivative to get

Multi-cycle Hubbert curve Solve QP for to get

Multi-cycle Hubbert curve Relabel a as and as Model becomes Dummy variable for 1996 institutional change – Privatization

FSU Time Hubbert Curve

FSU Cumulative Production Hubbert curve

Multi-cycle Hubbert curve Jean Laherrère (2002)

Conclusion 1987 oil production peak was a contributing factor to Soviet collapse Soviets were investing a lot in the energy sector, but scarcity caused production to decline

Conclusion First peak in 1987 at mb/d Secondary peak expected in at around 12.5 mb/d FSU URR = 255 Gb (Russia, Azerbaijan, Turkmenistan, Kazakhstan, Uzbekistan) Jean Laherrère: 250 Gb