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Fundamentals of Global Energy Business Michael J. Orlando University of Colorado - Denver Week 2: Supply of Energy video 6: Market Equilibrium

3 Global Energy Management Program---- Business School. Equilibrium in energy markets What determines a particular level of price and output for a particular good? A1: what is a good? a product (or service) of - a particular quality - at a particular place - at a particular time A2: market price is that which equates quantity demanded with quantity supplied

4 Global Energy Management Program---- Business School. Equilibrium in energy markets e.g. What determines the price of natural gas? A1: what is ‘natural gas’? – need to be specific – e.g. if quoting ‘Henry Hub’ gas traded in 10,000 MMBtu increments, quoted in MMBtu’s a particular quality: –energy content (BTU’s), typically determined via in-line GC –also in-line measures to verify no H 2 S, little moisture at a particular place: –Henry Hub = Sabine Pass Pipe Line LLC, near Erath, LA at a particular time: –spot market –futures contracts for various months, up to 10 yrs out

5 Global Energy Management Program---- Business School. Equilibrium in energy markets Price and Quantity will be determined by position of demand and supply curves recall determinants of demand –income <= productivity, population –cost of complements, substitutes <= technology? –preferences <= ? recall determinants of supply –technological capabilities –cost of production <= input factor market conditions, technological change

6 Global Energy Management Program---- Business School.