Optimal intertemporal supplies of crude oil and natural gas for Canada

Abstract

Several circumstances complicate determination of an optimal depletion path for an exhaustible resource. For Canadian crude oil and natural gas, these include the importance of a multiregional perspective, the presence of import or export options, supply options with particular recovery profiles, and the differing demand-supply circumstances of light/medium crude and heavy crude. In this paper twelve conclusions are drawn regarding optimal, supplies of oil and gas for Canada using an intertemporal optimization model allowing for these and other considerations. Canadian prices and demands are based on world oil prices, which surge toward the end of the 1980s, fall subsequently, then rise later. The most important finding is that crude oil supplies are sensitive to supply costs and the discount rate, and there are many near-optimal depletion patterns. Non-efficiency performance criteria therefore acquire greater importance for selecting a socially optimal depletion path. These conclusions appear applicable to other countries with indigenous oil and gas supply prospects.