Abstract
This paper examines the issue of production of unconventional resources of energy and their impact on energy security. Energy security is influenced by several factors, among them the endowment of natural energy resources, either conventional or unconventional, and the level of their production. A VAR model has been constructed to examine the influence of tight oil production on the price of oil and on other variables, moreover, which variables influence the price of oil most. These findings may be interpreted by generalization as influencing the energy security and by extrapolation the results hold same for the American market than for the rest of the world, as the US largely dictates the price of oil worldwide. Our results inter alia suggest that, unconventional oil Granger causes the price of WTI, and the opposite in not true. We found also that there is a slightly positive correlation between the stocks and tight oil and stocks and oil exports, hence we can conclude that a higher production leads to higher amount of oil stocked and exported. What is more interesting is that tight oil reports greater correlation than conventional oil production. Keywords: Granger Causality, Oil Price, Energy Security, Unconventional Resources JEL Classifications: Q32, Q41, Q43 DOI: https://doi.org/10.32479/ijeep.7878
Highlights
Over the last 50 years, the world has gone through developments that have never been seen before
Since we focus on the US market, we choose to use the The Chicago Fed National Activity Index (CFNAI), which is a weighted average of 85 economic activity indexes and drawn from four broad categories of data: (1) production and income (23 series), (2) employment, unemployment, and hours (24 series), (3) personal consumption and housing (15 series), and (4) sales, orders, and inventories (23 series) (Brave, 2009)
The variations in the variables with high R2 are best explained by the model, such as oil exports (85.36%), oil imports (73.85%), CFNAI (55.33%)
Summary
Over the last 50 years, the world has gone through developments that have never been seen before. Increases in the standard of living, extension of the length of human life, improved technology, and progress in science are only a part of what kind of improvements the world has undergone. These advances could not have been achieved without adequate energy sources and their almost unlimited quantity. Energy security is defined as the availability of uninterrupted energy supplies at affordable prices. It is to be beard in mind that energy security is a key part of each country’s national security, where energy supply flexibility, stability and diversification of suppliers, infrastructure resilience to internal and external impacts, reduced consumption through energy efficiency and environmental sustainability are its important elements (Obadi and Korček, 2013, International Energy Agency [IEA], 2012 and 2013)
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