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International Futures Help System

Energy Equations Prices

The global energy market is a highly integrated one. Thus regional prices are strongly affected by global ones. In this energy model we assume that changes in prices over time are determined largely by two factors: (1) long-term changes in the global capital costs of energy production and (2) regionally-specific levels of energy inventories or stocks (which determines a regionally-specific "markup" factor.

World production costs (WCOST) per unit of production depend on the capital investment in energy across energy categories, relative to the total production.

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IFs uses both the first order stocks (immediate stock levels) and the second order stocks (the change in stocks over time), so as to smooth the markup response. The base against which stocks are compared is primarily energy demand (for stability), modified when production initially exceeds demand by the ratio of initial production to demand (this formulation provides an adequate base for both importing and exporting countries). IFs weighs first order stocks against a desired (DSTLEN) portion of the stock base.

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Putting together both cost information and price information, we can compute price. An exogenous term allowing the user to introduce price pressure that might be exerted by an energy cartel (encartpp) is added.

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It is possible for the user to override this price calculation altogether. Any positive value of the exogenous energy price specication (ENPRIX) will do so.

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There is a also a computation of capacity utilization in energy (CPUTF) that uses the same general structure as price change, but with different elasticities (elenpst, elenpst2). In addition, the capacity utilization is smoothed over time.

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