Publications: The Petroleum Economics Monthly

Energy Price Wedges: Development, Expansion, and Consequences (November 2013)


The term "energy price wedge" will almost certainly be new to readers. It was coined by Kenneth Rogoff, who authored with Carmen Reinhart the economic study This Time is Different. Rogoff coined the phrase at a Group of 30 meeting following this author's presentation of a paper titled "Energy: The North American Advantage." Rogoff suggested it after viewing a graph that compares Dated Brent crude oil prices with natural gas wellhead prices measured in dollars per barrel. The wedge is the difference between the two.


Oil and energy markets have been subject to "wedge" issues from their beginning. The increasing "Rogoff wedges" in energy prices will also have significant impacts on energy use patterns, particularly in North America. Low natural gas prices, should they persist long term as now seems possible, could quickly transform the mix of energy use in the US. The magnitude and rate of change induced by the divergence of energy prices is only beginning to be understood. Furthermore, the change could reduce the importance of natural gas exports for the US while leaving the rest of the world at the mercy of natural gas prices linked to world crude prices.


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