Hotteling Rule was evolved by Harold Hotteling as a result of analysis of non-renewable resource management, is a distinct theory which gives us clear idea of non renewable resource economics and provides a close insight into long run behaviour of price and supply in market for non renewable resources.
The paper deals with the application of Hotteling rule to Oil and Natural Gas Corporation (ONGC) to find the sustainability of the oil resources and analyse the reserve trend scenarios. ONGC is the only fully–integrated petroleum company in India, operating along the entire hydrocarbon value chain. It also contributes to over 78% of India’s oil and gas production. The analysis was carried out taking 2000-01 as the base year till 2007-08 to find out the sustainability of the oil reserves of ONGC.
It is found that according to the baseline scenario, the resources would deplete in 3-4 years, but as every year new reserves are found, the resource is being sustainable since 2000. Thus Hotteling Rule is said to be indifferent for the firm and the firm is said to sustainable.
The paper also carries the assessment of the exhaustion rate of oil and natural gas in India considering 1990 as the base year. The exhaustion rate of the reserves is found to be 13 to 21 years until and unless there is a new reserve replacement.
Table of Contents
1. Introduction:
1.1 Substitution of depleted resources by other sources
1.2 Example of Hotelling Rule Application
1.3 Concluding Remarks
2. Background to the Study- ONGC
2.1 Competitive strength:
3. Application of Hotteling rule to ONGC:
3.1 Methodology
4. International Energy Agency (IEA) calculations of India’s reserves sustainability:
4.1 Analytical Overview:
4.2 Technical Notes for oil:
4.3 Years Covered and Frequency of Update:
4.4 Methodology:
4.5 Calculation of Crude oil for finding out the exhaustion period:
4.6 Technical Notes for natural gas:
4.7 Methodology:
Research Objectives and Core Themes
The primary objective of this study is to apply the Hotelling Rule to the Oil and Natural Gas Corporation (ONGC) to evaluate the economic sustainability of its oil reserves and to analyze long-term reserve trend scenarios within India's competitive petroleum market.
- Application of the Hotelling Rule to non-renewable resource economics.
- Evaluation of ONGC's firm profitability and resource sustainability.
- Analysis of oil and gas reserve exhaustion rates using historical data.
- Assessment of reserve replacement strategies in the context of resource depletion.
- Comparison of internal sustainability metrics with IEA/WRI global depletion models.
Excerpt from the Publication
1. Introduction:
Hotelling rule was first evolved by Harold Hotelling as a result of analysis of non-renewable resource management, first published in the journal of Political Economy in 1931. A simple expression of the rule says that; “price of an Asset will rise at the rate of Interest Rate.” Energy and non renewable resources are assets, of which price rises over a period of time. Hotteling Rule is a theory through which we can define the net price and fluctuations in net price with time line. Price of resource will rise with the maximization of the rent in time of fully extraction of non renewable resource. This rent can be defined as Hotelling rent or scarcity rent which means maximum rent acquired while emptying or depleting the fixed stock.
In terms of non renewable resource, supply is limited, therefore non renewable resource have scarcity value. Hotelling rule is a distinct theory which gives us clear idea of non renewable resource economics and provides a close insight into long run behaviour of price and supply in market for non renewable resources. The price of these non-renewable resources will vary in 2 conditions. Price will increase if the rate of return of the capital investment is larger than the capital depreciation rate. Price will remain constant when there is consistent production of resource.
Summary of Chapters
1. Introduction: This chapter introduces the Hotelling Rule as a foundational economic theory for managing non-renewable resources, focusing on scarcity rent and price dynamics over time.
2. Background to the Study- ONGC: This section provides an overview of ONGC's operational structure, its market position as India’s primary integrated petroleum company, and its competitive strengths.
3. Application of Hotteling rule to ONGC: This chapter details the quantitative methodology used to calculate reserve sustainability and firm profitability, applying the Hotelling Rule to ONGC's financial and production data from 2000-2008.
4. International Energy Agency (IEA) calculations of India’s reserves sustainability: This section utilizes external data from the IEA and WRI to assess India's oil and gas exhaustion periods and compares these findings with internal firm-level data.
Keywords
Hotelling rule, Non-renewable resources, Oil and Natural Gas Corporation, Resource depletion, Sustainability, Exhaustion rate, Reserve replacement, Scarcity rent, Competitive market, Petroleum economics, Reserve-to-production ratio, Capital depreciation
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the application of the Hotelling Rule to assess the economic sustainability and reserve exhaustion patterns of the Oil and Natural Gas Corporation (ONGC) in India.
Which theoretical framework is used in the study?
The study utilizes the Hotelling Rule, an economic model developed by Harold Hotelling, which explains how the price of non-renewable resources should behave relative to interest rates as the resource is depleted.
What is the primary goal of the researchers?
The researchers aim to determine if ONGC’s operations remain sustainable given the inherent finite nature of oil reserves and to model future scenarios based on current extraction and discovery trends.
Which methodology is applied to analyze ONGC?
The authors calculate variables such as unit extraction costs, scarcity rent, and reserve-to-production ratios, comparing these against historical data from 2000 to 2008 to evaluate firm profitability.
What does the main body of the paper cover?
The main body details the competitive strength of ONGC, the step-by-step application of the Hotelling Rule to internal data, and a comparative analysis using global benchmarks from the IEA and WRI.
Which keywords characterize this work?
Key terms include Hotelling rule, non-renewable resources, resource depletion, sustainability, scarcity rent, and reserve replacement.
Does the paper conclude that ONGC’s oil reserves will run out soon?
While a baseline scenario suggests depletion in 3-4 years at current rates, the paper notes that the discovery of new reserves has kept the company sustainable since 2000, rendering the Hotelling Rule effectively indifferent to the firm.
How does the IEA/WRI analysis differ from the firm-specific analysis?
The IEA/WRI analysis provides a macro-level perspective on national resource exhaustion using historical data from 1971 onwards, whereas the firm-specific analysis focuses on ONGC’s operational data from 2000-2008.
- Citar trabajo
- Yenneti Komalirani (Autor), Joshi Gaurav (Autor), 2009, Application Of Hotelling Rule For Analysing Utilisation Pattern Of Non-Renewable Resources In India Through ONGC, Múnich, GRIN Verlag, https://www.grin.com/document/183551
