Axel Pierru

Acting Vice President/ Program Director

  • Primary Program Energy and Macroeconomics
  • Research Interests Energy modelling, energy economics, energy policy, oil pricing and finance

Biography

In February 2023, Axel Pierru was assigned as Acting Vice President of Knowledge and Analysis for the Center. He received his Ph.D. in economics from University Paris 1 Pantheon-Sorbonne (France). He also holds an HDR degree, which is a French accreditation to supervise research. In 2007, Dr. Pierru was appointed Chevalier dans l’Ordre des Palmes Académiques (knighthood award in the academic field) by the French Ministry for National Education. He is the recipient of the 2023 OPEC Award for the Best Energy Research Paper (issued by OPEC for the first time).

In 2011 Dr. Pierru joined KAPSARC in Saudi Arabia, after spending 15 years at IFP Energies Nouvelles (France) where he led research, consulting and training projects and taught energy economics and finance to postgraduate students.

Dr. Pierru has served in various leadership positions at KAPSARC, including as interim Vice President for Research. Since 2014 he has been a program director, and currently he leads the Energy Macro & Micro-economics Program.

He undertakes applied research that combines methodological innovation with practical relevance for policymaking. His expertise covers energy economics, policy, finance, modeling, the oil market, and commodity-exporting economies.

Dr. Pierru has a proven track record of methodological innovations with 50 journal papers to his name. He has been a key contributor to the development of novel lines of research, such as the role of OPEC in stabilizing the oil market, the economic modeling of price controls, or the evaluation of investment projects by international oil companies facing various tax systems.

He also coauthored with Denis Babusiaux the book Corporate Investment Decisions and Economic Analysis: Exercises and Case Studies (2005), which is the fruit of years of teaching, consulting and research, and contains numerous examples from the energysector.

Publications

See all Axel’s publications
  • Discussion papers
  • Methodology papers
  • Commentaries
  • KAPSARC journal articles
  • External journal articles
  • Think20 (T20)
Assessing Climate Mitigation Benefits of Public Support to CCS-EOR: An Economic Analysis

Assessing Climate Mitigation Benefits of Public Support to CCS-EOR: An Economic Analysis

By storing carbon dioxide CO2 captured from the atmosphere or point sources into oil fields, carbon capture and storage with enhanced oil recovery (CCS-EOR) increases the fields’ output by raising reservoir pressures. Since CO2-EOR has been experimented with for decades and the revenues from the additional oil production improve projects’ economics, CCS-EOR is the most readily deployable CCS technology. However, public support for CCS-EOR projects is sometimes contested on the grounds that the resulting increase in oil production undermines their environmental benefits. Addressing this concern requires determining the effects of implementing CCS-EOR on global CO2 emissions. This note presents a simple approach based on a marginal reasoning consistent with economic decision-making. It produces analytical formulas that account for the effects on the global oil market of incentivizing CCS-EOR. In addition, we quantify the volume of oil that can be decarbonized by storing a tonne of captured CO2 through EOR from different perspectives. We produce numerical results based on a first-cut calibration. Results suggest that, from an economic perspective, CCS-EOR is a technology that mitigates global emissions. However, after accounting for the need to decarbonize the EOR oil, the reduction in emissions is significantly less than the stored quantity of CO2. If fully allocated to oil production, the environmental benefits of capturing a tonne of CO2 and storing it through conventional EOR can allow the oil producer to decarbonize 3.4 barrels on a well-to-wheel basis and 14.4 barrels when offsetting its oil-upstream emissions only. Fiscal incentives granted by governments to support CCS-EOR as a climate-change mitigation technology should be sized accordingly. We compare our findings to the size of the subsidy in the revised Section 45Q of the 2022 United States Inflation Reduction Act.

8th June 2023
Resilience of Saudi Arabia’s Economy to Oil Shocks: Effects of Economic Reforms

Resilience of Saudi Arabia’s Economy to Oil Shocks: Effects of Economic Reforms

We assess the extent to which the implementation of Saudi Vision 2030 policies enhances the Saudi economy’s resilience to oil price and production shocks, and to the productivity of tradable and non-tradable goods. We extend Blazquez et al.’s (2021) dynamic stochastic general equilibrium model to capture the country’s economic diversification policies and build a resilience index based on impulse responses to shocks.    

23rd September 2022
Sectoral and Economy-Wide Effects of Domestic Energy Price Reforms in Saudi Arabia

Sectoral and Economy-Wide Effects of Domestic Energy Price Reforms in Saudi Arabia

This paper simulates the sectoral and economy-wide consequences of deregulating energy prices in Saudi Arabia. Our analysis is based on KAPSARC’s general equilibrium energy model (KEMGE), a new hybrid computable general equilibrium model (CGE). The model examines the effects of full price deregulation, starting in 2019, on economic activity and revenue in the year 2030.

19th August 2020
Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

Structural changes in the global oil sector are disrupting conventional market dynamics and the roles played by competing and cooperating producers. Industry players are adjusting to the shale (or ‘tight’) oil revolution and the possibility of plateauing or peaking global oil demand. In particular, OPEC and Saudi Arabia, its top producer, are reshaping the organization’s role as the primary residual supplier to the world oil market. In recent years, OPEC has invited other major exporters, including Russia, to cooperate under the OPEC+ production agreement in an effort to stabilize prices.

6th August 2020
The Opportunity Cost of Domestic Oil Consumption for an Oil Exporter: Illustration for Saudi Arabia

The Opportunity Cost of Domestic Oil Consumption for an Oil Exporter: Illustration for Saudi Arabia

When appraising investment projects from a public perspective, a barrel of oil displaced from or added to domestic consumption has to be valued at its opportunity cost. This paper develops a partial-equilibrium framework to assess the opportunity cost of domestic oil consumption for an oil-exporting country. The framework takes into account that (i) the usual ‘small economy’ assumption does not necessarily hold, (ii) the domestic oil price can be set either at a fixed level or as a function of the international price, and (iii) oil production, level of exports, or domestic consumption can be constrained. We derive the opportunity cost for each case considered and a formula quantifying the net welfare gains from reforming the domestic oil price

1st March 2020
Estimating the Household Consumption Function in Saudi Arabia

Estimating the Household Consumption Function in Saudi Arabia

This research is part of a joint project between the Saudi Arabian Monetary Authority (SAMA) and the King Abdullah Petroleum Studies and Research Center (KAPSARC). This paper estimates a micro-based life cycle consumption model for Saudi Arabia over the period 1970-2017 The estimate of consumption behavior in this paper is identified as centering on the income effect and the wealth effect: The income effect is defined as the direct impact on consumption of a variation in income. The wealth effect is defined as a consumer’s perception of a change in his or her wealth and a concomitant decision either to liquidate some of that wealth to enable an increase in consumption (in the case of a positive wealth change) or to decrease consumption in order to restore the consumer’s desired level of wealth (in the case of a negative wealth change). The wealth effect on consumption can be substantially different from the income effect because it is more closely related to consumers’ expectations of, and fluctuations in, the value of real and financial assets. The authors’ estimation shows that both income and wealth have significant effects on household consumption in Saudi Arabia, with a long-run marginal propensity to consume (MPC) out of income of around 0.73-0.95, and out of wealth of around 0.06. The sensitivity of consumption to income and wealth in Saudi Arabia appears to be consistent with the growth of the Saudi economy.

5th February 2019
The Costs and Gains of Coordinating Electricity Generation in the Gulf Cooperation Council Utilizing the Interconnector

The Costs and Gains of Coordinating Electricity Generation in the Gulf Cooperation Council Utilizing the Interconnector

Countries in the Gulf Cooperation Council (GCC) have installed a network of high-voltage transmission lines, known as the GCC Interconnector, which links the member states of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates (UAE). The Interconnector has successfully provided reliable services to GCC countries but has not yet realized its full potential as a platform to fully integrate individual electricity systems. This paper analyzes the potential costs and gains of electricity exchange among the GCC countries. Given the current political climate, it does not consider electricity exchange with Qatar, except as a sensitivity case.

10th June 2018
The Economic Impact of Price Controls on China’s Natural Gas Supply Chain

The Economic Impact of Price Controls on China’s Natural Gas Supply Chain

Despite significant progress made by China in liberalizing its natural gas market, certain key areas such as market access and pricing mechanisms remain heavily monopolized or controlled by the government. To assess how such distortions impact the market, we developed a Mixed Complementarity Problem model of China’s natural gas supply industry, calibrated to 2015 data.

24th May 2018
The Value of Saving Oil in Saudi Arabia

The Value of Saving Oil in Saudi Arabia

What is the value of saving a barrel of oil that would otherwise had been consumed domestically? This study explores the question, taking a long-run perspective into a general equilibrium approach. In the case of Saudi Arabia, the difference between the domestic price of oil and the international price represents an opportunity to improve economic efficiency across different activities and sectors. In this context, we study different policies aimed to reduce the domestic consumption of oil.

25th March 2018
Restructuring Saudi Arabia’s Power Generation Sector: Model-Based Insights

Restructuring Saudi Arabia’s Power Generation Sector: Model-Based Insights

Saudi Arabia plans to reform and privatize its power generation sector as part of the Kingdom’s Vision 2030. To provide analytical insights, we developed a model that simulates the restructuring of the electricity market, along with reforming fuel prices to an energy equivalent of $3/MMBtu.

20th December 2017
Managing Oil Revenue Stabilization Funds: A Framework for Developing Policies

Managing Oil Revenue Stabilization Funds: A Framework for Developing Policies

Oil revenue stabilization funds provide short-run protection against oil revenue fluctuations – in the way that Saudi government deposits and reserve at the Saudi Arabian Monetary Authority (SAMA) have historically served as a buffer to decouple government budget from oil revenue fluctuations. By contrast, sovereign wealth funds create income for future generations to replace revenue streams from depletable resources – one of the purposes of Saudi Arabia’s Public Investment Fund. We developed a framework for optimizing policies for adding to and withdrawing from stabilization funds, which we apply to Saudi Arabia as a case study based on publicly available data. The quantitative results are sensitive to the specific assumptions on the likelihood of particular oil prices arising but the overall results are robust to a wide range of assumptions.

4th October 2017
Potential Gains From Reforming Price Caps in China’s Power Sector

Potential Gains From Reforming Price Caps in China’s Power Sector

When energy sectors transition from government-controlled to market-driven systems, the legacy regulatory instruments can create unintended market distortions and lead to higher costs. In China, the most notable regulatory throwback is ceilings on electricity prices that generators can charge utilities, which are specified by plant type and region. We built a mixed complementarity model calibrated to 2012 data to examine the impact of these price caps on the electricity and coal sectors.

29th September 2016
The Prospects for Coal-fired Power Generation in Saudi Arabia

The Prospects for Coal-fired Power Generation in Saudi Arabia

Almost all of Saudi Arabia’s electric power generation is fueled by oil and gas. Plans for future capacity envisage nuclear and renewables supplementing this mix and freeing up oil for other revenue-generating opportunities. Coal-fired generation has been promoted in some Gulf Cooperation Council (GCC) countries but not, so far, in the Kingdom.

24th December 2015
Economic Impacts of Debottlenecking Congestion in the Chinese Coal Supply Chain

Economic Impacts of Debottlenecking Congestion in the Chinese Coal Supply Chain

China’s coal industry grew at unprecedented rates during the first decade of the 2000s in order to support equally unprecedented economic growth. In that type of environment, it is impossible for the capacities of every link in the supply chain to be correctly sized all the time. In order to understand the consequences of such mismatches, KAPSARC has developed a production and multi modal transshipment model of China’s domestic coal market, calibrated to 2011 data. This allows us to examine what the global and domestic consequences might have been had the bottlenecks not existed in 2011.

7th September 2015
Efficient Industrial Energy Use: The First Step in Transitioning Saudi Arabia’s Energy Mix

Efficient Industrial Energy Use: The First Step in Transitioning Saudi Arabia’s Energy Mix

External observers worry about whether Saudi domestic consumption of oil will crowd out exports. This is based on simple extrapolations which suggest that in a little more than 20 years Saudi Arabia may become a net importer of hydrocarbon fuels. However, our research does not support this. Based on the “baseline scenario” macroeconomic assumptions in Oxford Economics’ global economic and industry models, we project Saudi Arabia’s energy balances until 2032 using the KAPSARC Energy Model (KEM).

7th June 2015
Why build energy models as MCPs? An economic perspective

Why build energy models as MCPs? An economic perspective

The discipline of microeconomics focuses on the outcomes of the actions of economic agents, where economic agents can be individuals as producers and consumers or organizations that deliver goods or services. Microeconomists have developed a collection of models to understand and represent these behaviors. Mixed Complementarity Problems (MCPs) are among the most recent such models. This paper addresses the community of energy economists who are not necessarily focused on modeling but want to know more about current methods for representing economic equilibria. We describe in non-mathematical terms the advantages of using MCPs over other representations of markets and how to decide when they should be preferred to a more traditional (and possibly simpler) optimization approach such as linear programming.

6th January 2015
Lowering Saudi Arabia’s fuel consumption and energy system costs without increasing end consumer prices

Lowering Saudi Arabia’s fuel consumption and energy system costs without increasing end consumer prices

Saudi Arabia aims to reduce the growth of its energy demand. This paper outlines an approach that could help the country to reduce substantively its current fuel consumption and could result in a net economic gain without increasing current end consumer prices and while maintaining positive utility sector net cash flows. Using a new multi-sector equilibrium model developed by KAPSARC (the KAPSARC Energy Model or KEM), we estimate the magnitudes of the potential economic gains that different policies would generate. Our long term static version of the model reveals that an annual economic gain exceeding 23 billion USD in 2011, or almost 5% of that year’s GDP, could have been achieved while the water and power sectors continue to live within their cash flows. Our approach—which introduces investment credits for solar and nuclear and allows more natural gas consumption in the power sector—achieves almost all the benefit of raising inter-sector transfer prices for fuels to world market equivalences, but only moderately increases current transfer prices. Importantly, this gain does not require an increase in consumer prices of electricity or water.

7th March 2014
Implementing Alternative Pricing Policies in Economic Equilibrium Models Using the Extended Mathematical Programming Framework

Implementing Alternative Pricing Policies in Economic Equilibrium Models Using the Extended Mathematical Programming Framework

Standard economic optimization models represent markets in perfect competition. They are commonly used, though they may not accurately represent real-world policies and regulations. Equilibrium models built using a mixed complementarity problem (MCP) approach are capable of simulating more flexible pricing structures, including regulated prices. This approach can provide a more accurate representation of real-world economic systems. However, it is significantly more difficult to develop and requires more complex formulations, as well as advanced skill sets.

12th March 2020
K-DSGE: A Dynamic Stochastic General Equilibrium Model for Saudi Arabia

K-DSGE: A Dynamic Stochastic General Equilibrium Model for Saudi Arabia

This paper describes a dynamic stochastic general equilibrium (DSGE) model of the Saudi Arabian economy, developed by KAPSARC researchers. The K-DSGE model is to be used for simulations and experiments to assess the impact of economic reforms within the Saudi Vision 2030 framework. The model will also complement the suite of models currently used at KAPSARC for macroeconomic analysis, to assess the impact of the Kingdom’s public policies.

3rd February 2020
Simulating a Global Oil Market With No Residual Supplier

Simulating a Global Oil Market With No Residual Supplier

Motivation and objective of the study What if OPEC decided to abandon organizing residual production collectively, transitioning the world permanently to a competitive oil market? This commentary is based on a forthcoming KAPSARC paper, “Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier” (Rioux et al. 2020). It constructs scenarios in which OPEC members, or OPEC members other than Saudi Arabia, start behaving as competitive price takers in 2020 and stop participating as part of a collective residual oil supplier. This analysis employs a standard economic equilibrium model to simulate the transition to a purely competitive world oil market from 2020 to 2030.

16th July 2020
KAPSARC’s Contribution to Evaluating the Impact of Price Controls

KAPSARC’s Contribution to Evaluating the Impact of Price Controls

The European Journal of Operational Research has just published a paper, “Measuring the effects of price controls using mixed complementarity models” (2019). It detailed a series of innovative modeling approaches developed by KAPSARC researchers over the last six years. The models were used to study the effects of administered energy prices in Saudi Arabia and assess the potential benefits of price reform. This commentary gives an overview of that research, including its motivation, coverage and findings.

1st September 2019
Country risk, ownership concentration and debt ratio of gas transport projects: a statistical analysis

Country risk, ownership concentration and debt ratio of gas transport projects: a statistical analysis

Energy Procedia

2012
Effects of the uncertainty about global economic recovery on energy transition and CO2 price

Effects of the uncertainty about global economic recovery on energy transition and CO2 price

MIT CEEPR Working Paper WP 11-005

2011
Financing mix and project valuation: alternative methods and possible adjustments

Financing mix and project valuation: alternative methods and possible adjustments

Kolb Series in Finance, John Wiley & Sons, Inc., Hoboken, New Jersey

2011
Examining the role of financial investors and speculation in oil markets

Examining the role of financial investors and speculation in oil markets

Journal of Alternative Investments

2011
Le modèle de Pakravan (1981), le modèle de Pindyck (1978), p. 193-198, Calcul économique et prix du CO2 en univers incertain, un retour sur la loi d’Hotelling, p. 660-661 in “Energie, économie et politiques” (Jean-Pierre Hansen and Jacques Percebois)

Le modèle de Pakravan (1981), le modèle de Pindyck (1978), p. 193-198, Calcul économique et prix du CO2 en univers incertain, un retour sur la loi d’Hotelling, p. 660-661 in “Energie, économie et politiques” (Jean-Pierre Hansen and Jacques Percebois)

De Boeck, Bruxelles

2010
The simple meaning of complex rates of return

The simple meaning of complex rates of return

The Engineering Economist

2010
Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices: a reply

Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices: a reply

Energy Economics

2010
WACC and free cash flows: a simple adjustment for capitalized interest costs

WACC and free cash flows: a simple adjustment for capitalized interest costs

Quarterly Review of Economics and Finance

2010
Uncertain long-run emissions targets, CO2 price and global energy transition: a general equilibrium approach

Uncertain long-run emissions targets, CO2 price and global energy transition: a general equilibrium approach

Energy Policy

2010
Speculation without oil stockpiling as a signature: a dynamic perspective

Speculation without oil stockpiling as a signature: a dynamic perspective

OPEC Energy Review

2010
Allocating the value of an open-loop optimal control problem between its state variables

Allocating the value of an open-loop optimal control problem between its state variables

Optimal Control Applications and Methods

2009
The weighted average cost of capital is not quite right: a comment

The weighted average cost of capital is not quite right: a comment

Quarterly Review of Economics and Finance

2009
Investment project valuation: a new equity perspective

Investment project valuation: a new equity perspective

The Engineering Economist

2009
The weighted average cost of capital is not quite right: a rejoinder

The weighted average cost of capital is not quite right: a rejoinder

Quarterly Review of Economics and Finance

2009
Financing and valuation of a marginal project by a firm facing various tax rates

Financing and valuation of a marginal project by a firm facing various tax rates

Frontiers in Finance and Economics

2008
Valuation of investment projects by an international oil company: a new proof of a straightforward, rigorous method

Valuation of investment projects by an international oil company: a new proof of a straightforward, rigorous method

OPEC Energy Review

2008
Adjustment of the standard WACC method to subsidised loans: a clarification

Adjustment of the standard WACC method to subsidised loans: a clarification

Estudios de Economia Aplicada

2007
Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices

Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices

Energy Economics

2007
Short-run and long-run marginal costs of joint products in linear programming

Short-run and long-run marginal costs of joint products in linear programming

Louvain Economic Review

2007
Modelling and allocation of CO2 emissions in a multiproduct industry: the case of oil refining

Modelling and allocation of CO2 emissions in a multiproduct industry: the case of oil refining

Applied Energy

2007
Economics and the refinery’s CO2 emissions allocation problem

Economics and the refinery’s CO2 emissions allocation problem

Oil and Gas Science and Technology

2007
Présentation d’une propriété nouvelle des multiplicateurs de Lagrange et application à la fonction de coût d’une firme avec produits liés

Présentation d’une propriété nouvelle des multiplicateurs de Lagrange et application à la fonction de coût d’une firme avec produits liés

Revue d'Économie Politique

2006
Loan subsidy valuation: an alternative approach

Loan subsidy valuation: an alternative approach

The Engineering Economist

2006
Corporate investment decisions and economic analysis

Corporate investment decisions and economic analysis

Exercises and case studies, 214 pages, Editions Technip, Paris

2005
Breaking down a long-run marginal cost of an LP investment model into a marginal operating cost and a marginal equivalent investment cost

Breaking down a long-run marginal cost of an LP investment model into a marginal operating cost and a marginal equivalent investment cost

The Engineering Economist

2004
Discount rate value and cash flow definition: a new relationship and its implications

Discount rate value and cash flow definition: a new relationship and its implications

The Engineering Economist

2002
De la solution d’un problème concret (projet d’investissement soumis à une fiscalité spécifique) à une avancée théorique (unicité des méthodes de calcul de valeurs actuelles)

De la solution d’un problème concret (projet d’investissement soumis à une fiscalité spécifique) à une avancée théorique (unicité des méthodes de calcul de valeurs actuelles)

Revue Economique

2001
Capital budgeting methods in the upstream petroleum industry: simple adjustments for complex problems

Capital budgeting methods in the upstream petroleum industry: simple adjustments for complex problems

Oil and Gas Journal

2001
Capital budgeting, investment project valuation and financing mix : methodological proposals

Capital budgeting, investment project valuation and financing mix : methodological proposals

European Journal of Operational Research

2001
A general approach to different concepts of cost of capital

A general approach to different concepts of cost of capital

Contributions to Management Science, Springer-Verlag, Heidelberg

2000

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17 Jul

Opportunity Cost of Oil for Saudi…

Saudi Arabia’s economy is passing through a phase of transformation in which some resources will be freed from existing usages and allocated to new development opportunities. Making decisions based on an incorrect assessment of the opportunity cost or value of these resources could lead to incorrect capital allocations toward investment in various projects. For instance, […]

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