Prerequisites This course is restricted to students who have passed ECO 420K with a grade of C- or better.

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1 DEPARTMENT OF ECONOMICS UNIVERSITY OF TEXAS AT AUSTIN Syllabus Economics 335K Energy Economics Spring 2017 Unique No : MW 1:00 2:15, CLA Instructor: Michael A. Sadler, Ph.D. Office: CBA Phone: Office Hours: Monday, 11:00 12:00; Wednesday, 2:30 3:30. Teaching Assistants TBD Course Objectives This course is intended as a survey of the economics of various resource and energy markets, both in the U.S. and globally. The course will emphasize traditional economic models and their application to relevant energy markets. In addition, we will discuss major issues and trends associated with global and local energy markets, how these markets have impacted economic growth and development, and how they are regulated. In each major area of the energy industry that we investigate, broadly speaking, we will also address sources of supply and well as the major sources of consumption. How is the resources processed? How does it get from one point to another? How do the markets work where the resource is traded? How is it priced? Of course, in our current environment, the prices of crude oil and other commodities decreased to levels not seen in several years, only beginning to increase in the past few months. We will pay particular attention to the determinants and consequences of these price declines. Prerequisites This course is restricted to students who have passed ECO 420K with a grade of C- or better. Classroom Etiquette No smart phones or other wireless devices, and no computers, please. You should be focused on the content presented in class for 75 minutes. Questions and comments are encouraged, and history shows that there is a positive and significant correlation between your final grade and your willingness to laugh at my jokes. Be on time and don t miss class.

2 Course Materials Class slides: Before each class, I will post pdf versions of PowerPoint slides on Canvas. You may print these out and use them during class, but they are not intended as a comprehensive set of notes for the class. You will still be required to take notes to have a full accounting of the topics covered in class. Calculator: You will need at least a scientific calculator capable of powers and logarithms. Financial calculators may be helpful by are not required. Please do not rely on smartphone apps for the simple reason that these will not be allowed during exams. No graphing calculators or calculators with sophisticated memory will be allowed in exams or quizzes. Textbook: Carol Dahl, International Energy Markets: Understanding Pricing, Policy and Profits, 2 nd edition (PennWell, 2015). This book is required reading. The last edition was published in 2004 and is very out-of-date, so make sure that you get the new edition. Other readings: In addition to the textbook, there are several other readings listed in the Course Schedule below. I have provided links to all of these readings, as I believe that all are available in the public domain. Grading Policies Exams (Best 2 out of 3) 60% Homework 30% Participation 10% There is no extra credit available in this course. Grades will not be curved. Grading Scale percent letter grade A to A to B to B to B to C to C to C to D to D to D < 60 F

3 Course Requirements Exams: There will be 3 mid-term exams and a comprehensive final exam. The first 3 will take place during normal class time and the fourth will take place during the scheduled final exam period. The final exam is optional and will replace your lowest exam score (but note that it is comprehensive). This removes the need for any sort of make-up exams. If you miss an exam for any reason beyond a documented, official university excuse (NCAA athletics, for example), then you must take the final exam to replace the zero. If you are an NCAA athlete or belong to some other official UT organization for which excused absences are required, you need to notify the TA and me via at least one week in advance if you are going to miss a quiz or an exam. All midterm exams will be held during normal class time. You must arrive promptly on exam days. If you arrive more than 15 minutes late, you will now be allowed to take the exam. The final exam for this class is scheduled for Saturday, May 14 from 9:00am to 12:00 noon. Do not plan on leaving campus for the holiday before the end of the semester, which includes finals week. Do not ask to take the final exam early, as it will not be allowed. Exams will be comprised of both multiple choice questions emphasizing mostly qualitative material and problems that require an understanding of the analytical methods we develop during the course. The quizzes and problem sets that I assign are intended as practice for the latter. There are no makeup exams or homework assignments. In the absence of official, university-sanctioned absences, you must take exams and hand in assignments at the specified time. Homework: There will be a maximum of 6 problem sets that you are required to complete and turn in. However many we wind up with at the end of the semester, the lowest score will be dropped. These problems sets are intended to provide an incentive to keep up with the material during the semester and will consist entirely of analytical problems. Prepared solutions to the problems will be posted as of the due date for each assignment. If you do not come to class to turn in your assignment, or if your assignment is otherwise late, you must submit it directly to one of the TAs, and your score will be penalized at least 10 percent.

4 Participation: The most fundamental requirement of any traditionallystructured university course is attendance and participation in class. This class is no exception. You are expected to attend class and be prepared to discuss the required material. This is not a seminar course, but contributions to class discussion are helpful and welcome. Students who do not come to class, are clearly unprepared or are disruptive will receive lower participation scores. This includes those that are texting or using any other device or computer to engage in activities unrelated to the course. In fact, you are best served by leaving your notebook computers, phones and tablets stowed away. Participation counts for 10 percent of your final grade. This will be based primarily on attendance. On occasion, I may distribute a sign-in sheet, although I have other methods that I use to keep track of class attendance. On days that we have guest speakers, attendance is absolutely required. Attendance is also required for the forum during the final week of the semester. Academic Integrity The core values of The University of Texas at Austin are learning, discovery, freedom, leadership, individual opportunity, and responsibility. Each member of the university is expected to uphold these values through integrity, honesty, trust, fairness, and respect toward peers and community. You should refer to the Student Judicial Services website at to access the official University policies and procedures on scholastic dishonesty as well as further elaboration on what constitutes scholastic dishonesty. If the application of the Statement on Scholastic Dishonesty to this class or its assignments is unclear in any way, it is your responsibility to ask me for clarification. Students who violate University rules on scholastic dishonesty are subject to disciplinary penalties, including the possibility of failure in the course and/or dismissal from the University. Since dishonesty harms the individual, all students, the integrity of the University, and the value of our academic brand, policies on scholastic dishonesty will be strictly enforced. Religious Holidays By UT Austin policy, you must notify me of your pending absence at least fourteen days prior to the date of observance of a religious holy day. If you must miss a class, an examination, a work assignment, or a project in order to observe a religious holy day, you will be given an opportunity to complete the missed work within a reasonable time after the absence. Documented Disability Statement The University of Texas at Austin provides upon request appropriate academic accommodations for qualified students with disabilities. For more information, contact Services for Students with Disabilities at (voice) or (video phone) or

5 If you desire accommodations for exams and or quizzes, then you must contact me as soon as possible with your letter from SSD. One of our TAs will be assigned to organize and facilitate exams for students with SSD accommodations. At least one full week before any exam or quiz, you must contact that TAs and I and let us know that you seek accommodation. From there, you will receive instruction on what to do.

6 Course Schedule Week Topic Dahl Other Readings 1/18 Course Introduction Energy in History 1/23 Perfect Competition Other Microeconomic Concepts The Coal Industry 1/30 The Coal Industry (cont d) 2/6 The Crude Oil Industry Background 2/13 The Economics of the Crude Oil Industry 2/20 Dynamic Allocation of Production: The Hotelling and Storage Models 1, 2 1. International Energy Agency -- World Energy Outlook 2016, Executive Summary 2. EIA 2016 Annual Energy Outlook, Executive Summary 3 Video: Economics of Perfectly Competitive Industries Verleger, Philip K., Jr., Structure Matters: Oil Markets Enter the Adelman Era, The Energy Journal (2015) (AVAILABLE ON CANVAS] James D. Hamilton, Understanding Crude Oil Prices, Energy Journal (30,2), James L. Smith, "World Oil: Market or Mayhem," Journal of Economic Perspectives (23,3) (2009) 3. James D. Hamilton, The Changing Face of World Oil Markets, IAEE Energy Forum (2014) [All available on Canvas] 17 2/27 The Economics of Refining and Transport 3/6 The Natural Gas Industry 8 1. Wang, Z. and Krupnick, A, A Retrospective Review of Shale Gas Development in the United States: What Led to the Boom? Economics of Energy & Environmental Policy, Vol. 4, No. 1 (2015) and are available on Canvas. 3/20 Modeling Markets for Natural Gas EXAM 1 Wednesday, March 22 3/27 Valuation of Energy Resources 1. James L. Smith, "Petroleum Property Valuation" (2003) [available on Canvas] 4/3 Introduction to Energy Finance /10 The Economics of Electricity 5 4/17 The Electrical Sector and 6 Restructuring 4/24 The Role of Renewables EXAM 2 Wednesday, April 26 5/1 Class forum on environmental issues (Participation Required 10

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