Energy Economics and Trade

Although all main groups of commodities are of paramount importance to our everyday lives, energy is the one that manages to capture our immediate attention, particularly in times of crises. Both by value and volume, energy constitutes the largest of the key commodity groups (the other two being metals and agriculture). In this chapter, we look at the role of the key energy commodities which drive economic development, focusing on the hydrocarbons which generate most primary and secondary energy today. Together, they account for over 80% of primary energy consumption and 40% of world seaborne trade. The latter two are also responsible for nearly 60% of global electricity generation. We examine the economics of crude oil and refined products, natural gas and coal, together with their physical characteristics and pricing mechanisms. The predominance of these fossil fuels would not have materialised without the ability to move large quantities of the three commodities. And although pipeline, railroad and truck haulage play a vital role, it is seaborne transportation which accounts for the majority of international trade flows, which we also examine for each of the three hydrocarbons.