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Divestiture and the Economics of Energy Supplies

In: Inflation, Open Economies and Resources

Author

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  • Paul Davidson

Abstract

In 1973, the onset of the so-called ‘energy-crisis’ — a crisis primarily involving petroleum supplies — caught many knowledgeable observers by surprise. As late as 1970, for example, a prestigious Cabinet task force had reported that a 1980 US demand of 18.6 million barrels per day (MMb/d) could be easily supplied. The task force noted that ‘without import controls, the domestic wellhead price would fall from $3.30 per barrel to about $2.00, which would correspond to the world price. Although we cannot exclude the possibility, we do not predict a substantial price rise in world markets over the coming decade’.1 At this $2.00 price ($3 in 1976 dollars), the Cabinet Task Force predicted that approximately half of total US demand, or 9.5 MMb/d, could profitably be produced from domestic wells, while if the 1980 price was $3.30 ($4.95 in 1976 dollars) US producers could profitably produce 13.5 MMb/d in 1980.2

Suggested Citation

  • Paul Davidson, 1991. "Divestiture and the Economics of Energy Supplies," Palgrave Macmillan Books, in: Louise Davidson (ed.), Inflation, Open Economies and Resources, chapter 28, pages 422-443, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11516-7_28
    DOI: 10.1007/978-1-349-11516-7_28
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