Option to Operate a Reserve of Energy Resource

Abstract

In this paper, the value generated by releasing petroleum reserves at the time of a crude oil price spike is analyzed to show the utility of releasing petroleum reserves. Japan's petroleum reserve currently only releases oil for the purpose of coping with a crude oil supply disruption. However, at present no disruptions to the supply of crude oil are occurring. To determine the value of the petroleum reserve if reserves are released when crude oil price spikes occur, option theory based on financial engineering is used to quantitatively calculate the value of a release into a market with stochastically changing prices. In addition, by examining the value that would have been generated as a function of release price if petroleum reserves had been released at the time of the crude oil price spike of 2008, it is possible to demonstrate the utility of such a release. Furthermore, input-output analysis is used to measure the impact on petrochemical product industries and other industries affected by price increases when crude oil price spikes occur to determine the degree of the price mitigation effect of a petroleum reserve with a release function.