EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Lesson 1 Introduction

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Overview

As the saying goes, “the only constant is change.” This statement can be used to describe the energy industry over the past few decades. “Booms” and “Busts” have occurred numerous times as prices rose and then fell back again. Companies have come and gone. Enron shook the very foundation of energy trading. Investigations of supply and price manipulation have occurred, resulting in fines and imprisonment. The new exploration ("3-D & 4-D"seismic), drilling (directional & horizontal), and completion techniques (so-called “fracking”) have not only led to a substantial increase in the production of crude oil and natural gas, but have also led to great controversy and new regulation over the methods themselves. The abundance of natural gas is leading to the exportation of liquefied natural gas (LNG), making the US a major player in that global market.

The “how” and “why” these occurred will be presented throughout the course, and you will come to understand the ever-changing landscape that is the energy industry in the United States.

Despite the reference to alternative & renewables energy sources in the course description, we will spend very little time discussing them. This course focuses largely on the five fossil fuels that are traded both physically and financially in energy markets. These are natural gas, crude oil, unleaded gasoline, heating oil, and natural gas liquids (NGLs). The reason for this is that these energy commodities are heavily traded in financial futures markets. Understanding how these financial markets work is the primary goal of this course. These fuels, along with coal, comprise the “non-renewable” energy sources. They are so named since their supply is seen as finite over the long-term. Then we will extend our knowledge to the electricity market, its characteristics, and differences. We will also introduce the risk management methods.

Each of these products has a profound effect on the United States and global economies. Billions and billions of dollars of infrastructure and hundreds of thousands of jobs are involved in the exploration, production, transportation, and distribution of these forms of energy. And, price volatility for these commodities has increased dramatically over the past several years going back to the historic run to $147 per barrel (Bbl) for oil in 2008. Since that time, crude oil has been recognized as a truly global commodity with a host of new factors influencing price. And, once again, in 2014, prices fell from $100 in June to less than $50 by December, caused largely by Saudi Arabia flooding the market with cheap crude. It was said they feared a loss of market share to the new shale oil in the US. One of the major players in the oil market is Organization of Petroleum Exporting Countries (OPEC), with about 40 percent market share of the world's crude oil production. OPEC decisions and members' agreement have a substantial effect on crude oil price. Following the oil price drop in late 2014 and 2015 to about $30/Bbl, OPEC members (and some other producers) came to an agreement to decrease their production, which caused the prices to increase in late 2016 and 2017.

However, before we proceed into the details of these fossil fuels, we need to understand how these fit into the overall profile of energy production and consumption in the United States. In order to do this, we must also include the various other forms of energy produced and consumed in the United States known as “alternative” and “renewable” energy. This is the only lesson regarding alternative and renewables.

Learning Outcomes

At the successful completion of this lesson, students should be able to:

  • Describe the major sources of energy in the United States
  • Outline the energy production/consumption environment
  • Explain what is meant by “renewable” vs. “non-renewable” energy
  • Evaluate the pro's and con's of 5 different types of alternative fuels including, the cost to produce, emissions profile, feedstock and likelihood of increased use
  • List the main fossil fuels
  • Critically assess the pros and cons of each type

What is due for Lesson 1?

This lesson will take us one week to complete. The following items will be due Sunday at 11:59 p.m. Eastern Time.

  • Introduce Yourself Discussion
  • Research on Alternative Fuels learning activity

Questions?

If you have any questions, please post them to our General Course Questions discussion forum (not e-mail), located under Modules in Canvas. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.