The dynamic simulation model PETRO2 analyses the impact of market conditions and/or climate-/energy-policies on the oil market. PETRO2 models oil as a non-renewable resource which implies that the oil price contains scarcity rent. PETRO2 models OPECs of market power. The model yields long run oil prices and oil production/consumption.
PETRO2 contains seven demand and supply regions: OPEC, Western Europe (EU/EFTA), USA, Rest-OECD, Russia, China and Rest of the World. Each region contains seven sectors demanding oil: industry, household, other sectors (private and public services, defense, agriculture, fishing, other), electricity, inland transport (road and rail), aviation and domestic and international shipping. Separate demand regions and sectors permits for close consideration of developments in, for example, in the transport sector in selected regions. PETRO2 includes six energy commodities: oil (which is an aggregate of different oil products), gas, electricity, coal, biomass and biofuels for transport. The oil price is endogenous and all other energy prices are exogenous. This feature of the model permits for studies of the impact in the oil market of changes in demand and/or price of the five non-oil energy goods. A crucial feature of the model is that it makes both short and long term adjustments to supply and demand taking into account that responses to changes in the oil market often are delayed or sluggish.
Non-OPEC regions (the fringe) are modeled as perfect competitors and OPEC has market power. OPEC may be modeled to either include all OPEC countries or to include just the OPEC-core (the Gulf States: Saudi Arabia, Kuwait, Qatar, UAE). OPEC maximizes profit over time and takes into account that demand is price sensitive and therefore produces less than a perfect competitor would do. PETRO2 has a rich data foundation from multiple sources and is calibrated to match the New Policies price scenario of the International Energy Agency. The start-year is 2007 and the time-period is one year.