Free Custom «The Global Oil Industry Present and Future» Essay Paper

Introduction

Oil is an organic substance that occurs naturally in rock formations. It is believed that oil is formed from the fossil remains of dead animals and plants that have been exposed to both pressure and heat in the earth’s crust over a long period of time. Over time, the decomposed deposit of dead animals and plants transforms gradually into oil reservoirs. Statistics reveal that oil plays a major and significant role in ensuring the survival of most nations and industries in the world. Records also portray that thirty  million barrels(4.8 km³)  of  oil  are consumed every year, with the developed nations being the main consumers .In terms of dollar value, the whole process of producing, distributing, refining and retailing of oil represents the largest trade in the world (Abdallah, 2009).

Present ConditionThe world population grows at a rate of 1 million people every 24 hours. By the year 2030 it is expected that the world population will increase to 8 billion people. The population today is 6.5 billion. 95% of the growth is expected to occur in the developing world. A secure, affordable, accessible and ample supply of energy is essential to both economic growth and reasonable standard of living. It is therefore natural to expect that the developing countries, with their growing economies and populations will drive increased energy demands, more so for fuel (Ashley, 2010).

 

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There are two main sources of oil: OPEC and non-OPEC countries. Most members of the OPEC are Middle East countries: the very countries that have been proven to possess the world’s main oil reserves. Demand for oil varies among different countries according to the various uses that the oil is put into. The graph below indicates the average consumption of oil in the world alongside the cost in  million barrels per day from 1965-2000.

 It is possible to extract about 40% of oil from most well reserves using current technology, as most of the easy to extract oil has already been extracted. The recent profitable prices of oil have led to oil being explored in areas where it is much more expensive to extract. Such areas include locations where high technology will be required and in deep wells with extreme temperatures in order to extract oil. This exploration has also led to the increase in prices of steel used to make drilling equipment and the general exploration costs will be required to extract the oil (Greer, 2006).

According to records there are few proven world oil reserves. The graph below indicates present proven oil reserves according to a research conducted in 2009.

Demand for

Oil is a critical factor in most industries and to a large extent affects virtually all the industries in the world, with their production levels and prices being pegged on oil prices. The consumption of oil in the world has been on an ever increasing trend. But the world’s oil production has been predicted to reach its peak at around 2020. Peak oil is a period when the ceiling of oil extraction is reached, and its production starts declining significantly. With decreasing supply of oil, prices are expected to rise followed by oil shortages and economic disruptions (Izundu, 2007).

The Future of the Global Oil

Since oil is a non-renewable resource, the oil industry is faced with the conviction of future shortages occurring when the global oil supply finally gets depleted. Studies by the BP Statistical Review of World Energy 2007 have placed the probable lifespan of proven reserves in North America at 12 years; Latin America at 41.2years and the Middle East at 79.5years.Most economic sectors rely greatly on oil and with its depletion this might lead to the collapse of most industries. The oil industry has a great influence on modern society. In that, while it is actually evident that oil capacities are getting depleted. The future of global supply is vital to modern society as it will have various implications on the economy. The period of “peak oil” a concern that became very evident from the year 2004, indicates that the supply of oil products falls short of global demands. It is expected that the global productive capacity will reach 115 million barrels of oil per day by 2030.This suggests that oil supply will fall below demand at some future date due to depletion of major oil reserves (Kenneth, 2007).

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The excess demand for oil and oil products will eventually lead to nations scrambling for the little that is available and consequently lead to an increase in oil prices .This may finally lead to wars erupting between countries as they compete against each other in a bid for the scarce oil. The cost of most items will increase leading to a great unrest in the world. Therefore most oil consumers in the world are urging for investment in alternative source of fuel and a policy change by governments as regards the extreme prices of oil and oil products. This might lead to the collapse of global civilization. 

Oil price increases are predicted to have negative effects on the global economy, especially on most industries in the agricultural, industrial, and chemical and transport sectors. Because of their heavy reliance on oil, these industries are expected to suffer most in the wake of the oil peak. Although there are optimistic revelations of nations; investing in alternative sources of fuel before the post-peak crisis. As evidenced in 2008, the global recession was made worse by an increase in oil prices worldwide. The graph below indicates the general trend of oil prices from 1995-2009.

The concept of Peak oil which is the point of maximum production; is based on observations carried out on the production rates of  individual oil wells, and their combined production rates in a field of related oil wells.  Aggregate production rate from a field of oil wells over time usually grows increasingly until the rate of growth reaches a peak after which it starts declining until the field gets depleted. This concept is well illustrated by the Hubert curve on oil production. This model show the price of oil escalating at first and then retreating sharply after the peak. The peak is attributed to effects from rapid urbanization and development which have driven up the use of oil. Developing economies like India and China are becoming major oil consumers, hence increasing significantly the demand for oil (Kenneth, 2007).

Besides the economic effects, there also other concerns as regards the effect of oil on the environment. The oil industry operations have been responsible for water pollution through oil spills and the by-products of refining. Combustion of fossil fuels causes air pollution through production of greenhouse gases that lead to the global warming. Also, there are agricultural effects attributed to a fall in global oil supply. Since oil is essential to most modern agricultural techniques like production of fertilizers. Therefore, a fall in supply would lead to high food prices and finally a famine may occur after a few years time.

Alternatives to fuel use

Permanent fuel shortages would cause the world to plunge into an economic depression, and most people would end up losing their jobs. This implies that we are in a world where we need great amounts of additional energy, on which we are entirely dependent upon. Otherwise, wars will ensue due to lack of sufficient fuel.  This has in turn increased the need of using an alternative form from   of energy universally. Since the global price of oil is expected to keep on rising, social and economic problems of hyper-inflation and rationing are expected to follow. This is attributed to the explosive population growth over the past few years which have led to over consumption of resources such as oil. Researchers have advocated that solar, coal and nuclear energy are the most viable potential sources of energy alternatives to oil. But, switching to other alternatives of fuel supply may not be such an easy task according to current evidence (U.Kenergyresources, 2009).

Alternatives like liquid petroleum gas and compressed natural gas are non-renewable fossil resources whose reserves will also get depleted over time. Producing methanol, ethanol and hydrogen technology would be very expensive, while other sources like and fusion energy would be harmful to health as it produces radioactive elements as by products (Wood, 2004).