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The companies (Exxon, Chevron etc.) strongly prefer to have at least some title, some property rights to any oil (or gas) that may be found.

But, this has been a very unpopular position in many emerging nations especially in Mexico, Brazil and most of Latin America. These countries have been very wary of opening up their hydrocarbon sectors to foreigners. However, this situation is changing in Mexico, which is expected to allow foreign involvement in oil as early as 2016

These conflicting objectives require arrangements that might be seen as a compromise.

One possibility, now widely used, is the Production Sharing Contracts of the type pioneered in Indonesia 50 years ago and which have worked fairly well ever since.

The basic form of production sharing is quite simple:

Under production sharing:

  1. The host government takes a fixed percentage (sometimes variable) of oil produced under the contract. This can be as low as 60% and as high as 85%, depending upon many factors.
    And
  2. Governments allow the foreign contactor to take a fixed percentage of the oil produced.
    And
    The host government also imposes income tax on the net income of the company operating in the host country. This rate is almost never less than 50%.

The foreign oil firms accept these arrangements, because they

  1. Provide some certainty for contract provisions
  2. Allow the foreign firm to time sales of their share of oil, so as to get the best pricesand, most importantly
  3. The firm gets to deduct all exploration and development costs in determining net income for the income tax they must pay. So the firm covers the very heavy costs involved.

Production sharing contracts can be fine-tuned to get secure about any return the government as host wants, utilizing alternative combinations of the production share split, royalty payments or income tax rates to get for the host nation 70% of the value of oil, 80%, or 85%. Companies can bid for the rights to exploit. A host government can however go too far in setting terms for production sharing.

An example is the 2013 bidding for rights to exploit Brazil’s apparently rich pre-salt deposits.

These are super deepwater deposits under salt formations that can be quite tricky. One project involves billions of dollars in cost.

In the 2013 round of bidding, the terms were so unattractive that only on bid was received, and that involving a consortium of Chinese, American and Latin American firms.

Thus, production sharing in no panacea, but no one has yet found a better way to set contract terms on a basis that allows countries and oil firms to reach mutually satisfying agreements on oil exploration and development.

Hydropower?

One needs to be very careful about undertaking large-scale hydropower projects, anywhere. The main attraction is that Hydropower can be very cheap – as low as 7 cents per kilowatt in Quebec. Costs of hydro almost everywhere can be lower than gas, coal oil, nuclear, solar, or wind.

But, there is a need to consider all costs of hydro projects.

Consider the three gorges dam in China. Rising waters in reservoirs created by the dams has displaced millions of people. These costs were not counted as a cost of the project. Elsewhere, in Malaysia and Brazil costs of relocating families from reservoir areas have been large. Even so, hydo always should be considered where there are plentiful rivers and highlands.

Consider the huge river systems of tropical Africa, especially in Zambezi, Volta, Congo, Egypt, and Sudan. There is enough hydro potential there to light up 2/3 of Africa. But many new potential African hydropower projects tend to be infeasible because they are located well away from population centers. Losses in transportation of power over long distance, losses due to buildup of resistance can be as high as 11-13%.

Another region with substantial hydropower potential is that encompassing Nepal, Bhutan and North India. Rivers fed with Himalayan glacial melt in Nepal could furnish about 400 gigawatts (GW) of very clean electric power, or a sixth of installed power capacity in India. Morever, the total hydropower potential of Nepal, India, Bhutan and Pakistan approaches 120 GW. This would be the rough equivalent of 240 500 megawatt coal fired electric power plants – a very sizeable increase in energy availabilities involving near zero carbon emission. See the Economist, “Water in the Hills”, November 29, 2014.

Natural resource markets: volatility

The international market of oil has proven to be quite volatile. There have been bubbles (in 2012) and “busts” (2014) (see Figure 17-5 ). This high degree of volatility has notable consequences for all emerging nations, both oil exporting countries and those that must import their energy requirements. Volatility in energy markets will complicate emerging nation’s ability to maintain stable economic growth and avoid ruinous inflation.

For oil importing emerging nations managing deficits in trade and in the public budget management of both will become much more “taxing.” Why? Because, energy is such a large percentage of imports and government expenditure everywhere (except for oil exporters).

But oil exporters are vulnerable to volatility as well. For all emerging nations, large price swings in energy past and present greatly complicate efforts to control domestic inflation both in upswings in oil price cycles and downswings, as well. And we will see in Chapter___, this volatility will also make it more difficult to operate effective exchange rate policies. In sum, central bankers all over the world, but especially in nearby oil dependent Nigeria, Venezuela, Russia and Ecuador, will have a much tougher job in maintaining price stability in the 21 st century than in the 20 th , owing to this volatility.

Questions & Answers

What is stock market?
JOHN Reply
explain the various types of cost curve
Ruth Reply
Short-run average fixed cost (SRAFC) Short-run average total cost (SRAC or SRATC) Short-run average variable cost (AVC or SRAVC) Short-run fixed cost (FC or SRFC) Short-run marginal cost (SRMC) Short-run total cost (SRTC)
Romy
supply function Qs=0+20P price of bread 30
Maricar Reply
what's economic development and growth
Popoola Reply
gamitin Ang supply function na Qs=0+20P Presyo ng tinapay 30.Dami ng ibebenta
Maricar
what do you understand by Ceteris Paribus?
Gabriel Reply
explain the uses of microeconomics
Nikita Reply
uses of microeconomics
Nikita
Adam Smith's definition of economics
Sylvia Reply
what is economic deficit
Amjad
this is a situation whereby a nation's outcome or available resources are not enough to the people thereby causing scarcity
Ariel
prices of Quality demanded is equal to Quality supplied
NABUBOLO Reply
it's quantity demand and quantity supplied that's called equilibrium
Romy
no
NABUBOLO
they deal With prices
NABUBOLO
define the elasticity
NABUBOLO
explain different types of elasticity
NABUBOLO
oops 😬 you are right you talk about quality I tell about quantity
Romy
elasticity is the measurement of the percentage change of one economic variable in response to a change in another
Romy
Cross Elasticity of Demand (XED) Income Elasticity of Demand (YED) Price Elasticity of Supply (PES)
Romy
anything else?
Romy
I need to know everything about theory of consumer behavior
Grace
How does one analyze a market where both demand and supply shift?
Gabriel Reply
That's equilibrium market
Ramon
but an equlibrum can appear twice on the same market... both in Movement along the Demand/supply curve of shift in the Curve
Gabriel
I Mean on the same curve..
Gabriel
how can consumer surplus be calculated
Franklyn
How can we analyze the effect on demand or supply if multiple factors are changing at the same time—say price rises and income falls? 
Gabriel Reply
because of fall of income, less will be demanded and much will be supply as a result of price rises. Rise in price always motivate new supplier to enter into the system. But it only possible in the short run
Kweku
yeah.. I think Ceteris Paribus is applied in this case
Gabriel
that is the law of Demand is Inversely related to the law of Supply... so that mean a positive change in demand may produce a negative return to supply I think.
Gabriel
what are the difference between Wants and Needs
Gabriel Reply
When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
Gabriel
economic problems
Manishankar
yeah please Explain
Gabriel
I don't know this is my question
Manishankar
no it was a mistake...😂😂 can you explain how Wants and needs differs 😌
Gabriel
wants is what human desire but might not need them, human want are mostly articles of ostentatious while need is what human must get to live e.g inferior goods
Ramon
what's equilibrium price
james
equilibrium prices is a situation whereby the price of goods supplied equates to the demand
Ariel
this whereby the prices of quality demanded is equivalent to quality demanded
NABUBOLO
wants are numerous desire man that man can do without if not purchased e.g. cosmetic while need are desires that you cannot do without e.g. food
Franklyn
equilibrium price is that level of output were quantity demanded is equal to quantity supplied
Arthur
what are the importance of studying economics
Bherla Reply
To know if the country is growing or not through the country's GDP
Ariel
to manage our resources
TOBI
compare base years GDP and the current years GDP
james
To tell whether a country is growing there are many factors to be considered not necessarily only the GDP due to weaknesses of GDP approach
james
What is the law of demand
Yaw Reply
price increase demand decrease...price decrease demand increase
Mujahid
ıf the price increase the demand decrease and if the demand increase the price decrease
MUBARAK
all other things being equal, an increase in demand causes a decrease in supply and vice versa
SETHUAH
yah
Johnson
how is the economy of usa now
Johnson
What is demand
jude Reply
Demand is the quantity of goods and services a consumer is willing and able to purchase at various prices over a given period of time.
Yaw
yea
SETHUAH
Okay congratulations I'll join you guys later .
Aj
yes
MUBARAK
demand is the quantity and quality of goods and services a consumer is willingly and able to purchase at a particular price over a given period of time.
TOBI
calculate elasticity of income exercises
HABANABAKIZE Reply
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Source:  OpenStax, Economic development for the 21st century. OpenStax CNX. Jun 05, 2015 Download for free at http://legacy.cnx.org/content/col11747/1.12
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