Financial Spreads Research Articles

The Use of Financial Spreads As Indicator Variables: Evidence for the U.K. and Germany

There has been growing interest in the use of financial spreads as advance indicators of real activity and inflation. Empirical evidence is marshalled on a range of spreads when these are used in vector autoregressive models of the UK and German economies. It is found that they do have significant information, even after allowing for the effects of other influences upon macro-economic activity.

The Use of Financial Spreads as Indicator Variables: Evidence for the U.K. And Germany

There has been growing interest in the use of financial spreads as advance indicators of real activity and inflation. Empirical evidence is marshalled on a range of spreads when these are used in vector autoregressive models of the UK and German economies. It is found that they do have significant information, even after allowing for the effects of other influences upon macro-economic activity.

Financing Canadian Energy Projects

Summary Canada's energy resources are enormous by world standards. It is well known, for example, that Canada's Athabasca tar sands contain over one-third of the world's potential supply of these resources. However, having energy in the ground on the one hand, and getting it financed and delivered to the market at an acceptable price on the other hand, is the issue that Canada faces today. Although estimates vary, it is quite likely that by the year 2000, conventional supplies of Canadian crude oil will account for only 10% of Canadian oil production. The other 90 % will derive from costly nonconventional and frontier sources of energy. These must be developed more quickly to fill the shortfall from conventional sources of supply. To curb our growing trade deficit in crude oil and to improve our energy efficiency, the adoption of much higher energy prices in Canada is required. It is also likely that to achieve energy self-sufficiency in Canada, massive investments in other energy systems, most notably electric utilities and natural gas pipelines, will also have to be undertaken. Over the next 20 years, our forecasts indicate that roughly $1.5 trillion* of new energy investment capital will be needed to develop Canada's conventional and nonconventional sources of energy supply. About $530 million of this total will represent conventional and frontier petroleum development. In the decade ahead the annual investment in energy will be ten times as large as in the pre-1973 era. Extensive use of offshore capital markets will be required to develop Canada's energy resources. Innovative and nonrecourse financing methods will have to be used for large-scale projects. Increased government involvement in high-risk projects seems likely. Some $350 billion in offshore capital is needed over the next 20 years. Although capital will be available to credit-worthy borrowers, higher financial spreads will be required to compensate lenders for increased risk. Completion risk, capital cost overruns, and market risks are the principal project-related risk factors. Canada's Energy Potential Oil and gas currently provide nearly two-thirds of Canada's primary energy. Coal provides about 9%, while nuclear and hydroelectric systems provide the remaining 26 %.** There are unquestionably many energy projects and developments that we must get on with to fulfill Canada's policy of energy self-sufficiency. Although official government policy announcements have not been made, a reasonable time frame for energy self-sufficiency, especially with respect to crude oil, would be the mid-1990's. Major oil indications in Canada in the Beaufort Sea and off the east coast on the Labrador and Atlantic shelves have made promising new discoveries (Fig. 1). But this will be expensive and technically difficult to develop, requiring large sums of capital and long lead times. Natural gas discoveries off the east coast and in the Arctic Archipelago have also significantly enriched our energy, Potential (Fig. 2). Pipelines in the high arctic and extensions to the U.S. east coast are currently being planned to develop these resources. At current production rates, the life-index for Canadian crude oil from conventional sources is about 10 years. For natural gas, our position is somewhat stronger, at 26 1/2 years (Table 1).1 The largest potential new sources of supply are located in western Canada, the Arctic, and the Beaufort Sea. Although Canada's proved oil and gas reserves are modest compared with those in the Middle East (Fig. 3 and Table 2), Canada's potential for development is exceedingly large. Athabasca tar sands arid heavy oils in the Lloydminster region of Alberta have nearly 1 trillion bbl [0.16×1012m3] of oil in place (DIP). Although reserves and recovery factors vary (Table 3), estimated recoverable reserves could be on the order of 100 billion to 250 billion bbl [159×109 to 397×109 m3] (Fig. 4). However, the cost of even one synthetic tar sands plant has escalated from Syncrude Canada's $2.5 billion in 1976 (129,000 BID [20 509 m3/d)) to $7 billion for the proposed Alsands project (140,000 B/D [22258 m3)) today.***