A Model for Continental Oil Supply and Distribution
Authors: Debanne J.G. 
Published: December 2007

This systems approach provides a theoretical framework and a procedure to study the supply, distribution, and pricing of primary resources such as oil and gas. It was first applied to North America's oil supply and distribution system to study in particular the impact of the Arctic oil discovery.

Introduction

The North American oil industry, which has been the main supplier of oil to the North American refineries and which has heretofore been protected against cheaper overseas oil through a U.S. and Canadian imports control program, is now faced with a new competitor, the seemingly prolific Arctic oil fields. This has prompted the reassessment of the oil industry and of related government policies on this continent. In particular, the short-, medium-, and long-term impact of the Arctic oil discoveries must be assessed with respect to:North American oil producers and Canadianproducers in particular (production levels andprices).The distribution pattern of North Americanproduction and of overseas oil imports.The regional economies affected by the Arcticoil discovery, in particular Northerndevelopment.The national economies.

These assessments must be made under various assumptions about:U.S. and Canadian oil imports control policies, import duties, subsidies and tax incentives aswell as variations in the price of imported crude.Transportation modes and routes andcorresponding technologies and costs.The magnitude of oil reserves and producingcapacities as well as their rate of developmentin the Arctic and other oil producing or oilprospective regions in North America.Wellhead prices and the regional costs offinding and producing oil.Market growth in the various regions.

The above statement of the problem begs a global or general solution at the macroeconomic level. It also seeks specific answers at the microeconomic level: e.g., the eventual linking of supply and demand points by pipelines, the capacity of such pipelines, their cost of pipelines, the capacity of such pipelines, their cost of transportation, their effect on the field prices, investments and producing capacities in the various producing regions. Furthermore, this reassessment is producing regions. Furthermore, this reassessment is particularly difficult to make by traditional methods in particularly difficult to make by traditional methods in the absence of information as to the magnitude and economics of the Arctic oil discovery, the intentions of Arctic oil producers and the subsequent price structure of oil in North America. Yet, it was possible to develop in less than 15 man-months an operational version of this model representing some 30 supply regions and as many demand centers in North America. The strategy adopted consisted in:Representing the North American oil supply and distribution system as an interconnected network of existing and potential transportation links between supply and demand centers.Developing appropriate investment models for producers and transporters of crude, and an producers and transporters of crude, and an appropriate crude pricing mechanism.

JPT

P. 1089