Energy modelling: A new challenge for management science

The Arab oil embargo in 1973 and the subsequent price rises and production restrictions have given birth to a distinct branch within Management Science: energy modelling. This paper gives a critical and selective review on energy modelling, an industry which though thriving in an era of general economic anxiety, is showing signs of arrogant immaturity. After giving a historical background, the paper classifies energy models into three groups: open loop demand or supply models; energy closed loop models; energy-economy closed loop models. For each group the problem area is analysed and some illustrative examples are described. In the last sections, an attempt is made to sum up the experience that has been gained with energy modelling: the basic deficiencies, the impact of this activity on policy formulation and its position within Management Science. It is concluded that energy models, though very poor forecasting devices, can be very useful to policy makers as tools for analysis; energy model developers must convince potential model users and for that purpose they can benefit immensely from the 35-year-long experience accumulated by their colleagues in Management Science.

A methodological approach to strategic petroleum reserves

Energy constitutes a small fraction of the production inputs in the economy, yet the rigidity imposed by the short and medium term inability to substitute energy with other production factors in case of an energy shortage, requires the establishment of safeguard mechanisms to ensure sufficient energy supply during an emergency. These safeguards usually take the form of strategic energy reserves. A methodological approach is presented here, relating the level of strategic petroleum reserves, the decision variable, with the costs associated with their storage and the economic losses incurred by an energy shortage. This approach is based on the use of a decision tree, to portray emergency scenarios. Each scenario, a branch of the decision tree, can be evaluated in terms of a cost function which includes the inventory procurement and maintenance cost and the shortage cost inflicted by a petroleum shortfall.