Semester

Summer

Date of Graduation

2013

Document Type

Dissertation

Degree Type

PhD

College

Chambers College of Business and Economics

Department

Economics

Committee Chair

Jerald J. Fletcher.

Abstract

The dissertation consists of three essays directed towards energy resource allocation on micro-, regional- and macro- levels: 1. Economic Analysis of Coal and Biomass to Liquids Investment Decisions, 2. Spatial Dependence in Wholesale Gasoline Markets across the United States, and 3. Energy Prices, Inventory and the Business Cycle. The first dissertation essay entitled "Economic Analysis of Coal and Biomass to Liquids (CBTL) Investment Decisions" examines the economic feasibility of converting coal and biomass into liquid fuels in the U.S. The study investigates the investment decisions into the CBTL technology under fuel price uncertainty. The CBTL technology scenario draws upon the specifications of a 50,000 barrels per day CBTL plant with 7.7 percent biomass by weight as designed by the National Energy Technology Laboratory. By applying a discounted cash flow analysis and real options valuation assessment, the study develops an estimate of the net present value and the value of the investment opportunities relevant to the projected CBTL plant. The results show that the value of the option to invest is in excess of six times the net present value. This suggests that the current capital cost is too high to support investments in CBTL plants in the U.S. based on the assumptions and construction of CBTL plants can expect to be delayed. The second dissertation essay entitled "Spatial Dependence in Wholesale Gasoline Markets across the United States" examines the spatial effects in wholesale gasoline markets across 48 contiguous U.S. states. By employing spatial panel econometric techniques to analyze a monthly panel data set over the period 1995-2006, this study finds that the variation in wholesale gasoline price variables exhibit regionally dependent, cross-section differences across states with the spatial autocorrelation parameter of about 0.75 that is statistically significant at the 1% level. In the presence of spatial autocorrelation, the gasoline content regulation affects the wholesale gasoline margin on the state level. The proliferation of gasoline content regulations in newly designated areas of a state is estimated to increase the state wholesale gasoline margin by about 1%. Another finding is that a fall in gasoline inventories by 10% increases the wholesale gasoline margin by an average of 0.6% and the wholesale gasoline price change by about 0.1% in the state on a monthly basis. Similarly, a reduction in the refinery utilization rate below 85% will likely increase wholesale gasoline margins in both the state where the refinery is located and in neighboring states. The third essay entitled "Energy Prices, Inventory and the Business Cycle" analyzes the effects of the state of the national economy and inventory levels on the interest-adjusted basis and expected returns for five energy commodities. Using daily and weekly data for crude oil, natural gas, heating oil, gasoline and propane, the interest-adjusted basis and returns are shown to follow a business cycle pattern. Consistent with the theory of storage, demand shocks near business cycle peaks generate negative interest-adjusted basis and positive returns. In recessions, the basis become positive and the average returns are negative. For petroleum commodities, inventories have a significant effect on interest-adjusted basis at low levels of inventory, whereas at high inventory levels the effect of inventory on the basis is weak. Finally, the basis and economic conditions predict spot returns in energy commodity markets. The main result is to show that the state of the economy plays an important role in price variation in energy markets regardless of the level of inventory.

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