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What is Energy Economics

 Energy economics is the study of
human utilization of energy resources and commodities that provides energy services such as lighting, cooking, heating, cooling, mechanical, electrical or electronic power. It also includes the analysis of energy systems with supply chain processes, demand structure and investment, production cost, price drivers, the market forces and regulatory frameworks. Since the industrial revolution, energy markets have been dominated by fossil fuel resources. Despite continuous reports throughout the twentieth century warning about oil shortages, the end of cheap oil or foreseeing global environmental disaster, technological advancement has over time open up the availability and potentialities of fossil fuels for many more decades to come pushing away the prospect of finite resources.

Energy Markets

In its 2014 annual report, the International Energy Agency (IEA) estimated the world total primary energy production to be at 13 461 Mtoe in 2012. The total final energy consumption was 8,979 Mtoe almost doubled from its 1973 level of 4,672 Mtoe while electricity consumption reached 20,915 TWh. Based on the 2013 data, coal, crude oil and natural gas production respectively represented 7,823 Mt, 4,117 Mt and 3,479 bcm with the top fossil fuel producers being Saudi Arabia (540 Mt crude oil), United States (689 bcm nat gas) and China (3, 561 Mt coal). As demand continues to grow, massive investments will be required to secure the world energy supply, especially to support economic development in emergent economies. Usually, oil consumption is higher during expansions and lower during recessions while prices are driven by market forces. Low prices are often a direct consequence of overproduction and oversupply as witnessed with the US shale oil boom. While low oil prices are generally good for economic growth, they may lead to recessions in oil exporting countries, especially in those where energy return on investment (EROI) is low.