This book has grown out of a course that I have been teaching since 2008 at the Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP) at the University of Dundee to postgraduate law, business and economics students. Although the interest in understanding the economics of oil and gas has never faded, there is a lack of an updated text covering the entire value chain of the petroleum industry. Partly for this reason, I agreed to write this book when the publisher approached me a couple of years ago.

The book is primarily intended to provide students in business, economics, law, engineering and other related subjects with an introduction to the workings of the petroleum industry. It is also aimed at professionals who want a perspective and understanding on energy economics and policy, including such questions as these: are we running out of oil? What is the value of a petroleum find? How to monetize a gas discovery? Why is the oil price so volatile? Why is there a disparity between changes in crude oil price and gasoline prices at the pump? Can the “shale gas revolution” occur outside the United States? And why is it that countries with abundant natural resources do not always grow rapidly? These are important and exciting questions, and the interest in them is certainly not limited to those who might want a career in the petroleum industry or policy areas dealing with petroleum and energy issues.

The emphasis of this book is the economics of the oil and gas industry, from upstream exploration and production to downstream refining and marketing. At each stage of the value chain we will present the economic theory and analytical tools, along with the technical and institutional knowledge necessary to understand the economic and policy issues. The gas industry is specifically discussed with an emphasis on ways of monetizing gas.

The book begins with a chapter on why oil matters and the characteristics it has that make it difficult to be substituted by other fuels. We then move on to the relationship between oil price movements and macroeconomic performance, for both net oil-importing countries and net oil-exporting countries.