Oil is a mineral that since time immemorial has a powerful influence on the political and economical strength of a country. Nations that produce large quantities of crude oil can boast their influence to the way the economy of the world is run because, after all, they are the sources of fuel that runs the growth and development of the world as far as economy and politics is concerned. Any distraction on the supply and there will be a strong shake on them.
There are several countries that are responsible for the supply of oil to the world. Some are large quantity suppliers while the others produce a relatively small quantity. Saudi Arabia has been the leading producer since the extraction of oil began. Even though Eurasia and United Kingdom are also large quality producers, their production is surpassed by their consumption hence they cannot be compared to the countries in the Middle East and even some from Africa, which, even though they produce a small quantity, they do not consume as much.
There are still several explorations by geologists in hope that more oil reserves will be discovered. This might delay peaking, that is, when there will be no more extra reserves of oil for extraction, and the available reserves will not be increasing. So far, the current challenge is that the new discovered reservoirs are said to be further deep in the earth and there is need for mitigation in technology, a move that will enable the extraction of the reserves in the remotest locations.
In conclusion, we can see that there is potential for every needed move to be made. What is unfortunate is that little has been done. We therefore expect that there will be more effort to ensure that challenges in he oil industry are met appropriately.
Review of the World’s Oil Industry
Nations in the world today flaunt their superiority over others by basing their strength on the accessibility they have to energy. The hierarchical placement of nations in a certain position over the others is determined by the economic and political power it derives from possessing the new marker of power, enough energy reserves. This has made the oil industry a very influential player in the economic and the political field. Oil has actually become an international issue that is either beneficial to a nation or a source of problems for a nation.
Oil producing countries face various individual problems that are triggered by the economic status of those countries. Most of the largest oil producing countries export petroleum and petroleum products to the United States. Most of these countries are classified under developing since they have economic problems that are attributed to their dependency on external markets for their oil. In accordance with this, the countries are facing a great challenge trying to stay up with their lucrative resource in such an unpredictable industry. Nonetheless, oil has acted as a link to the global market in the world today. It is the blood that keeps modern civilization alive.
The bequest of oil is limited only to particular nations and yet its demand continues to increase as time goes by. According to geologists, the usual production of oil is bound to reach its peak in the near future, though there is no clear evidence as to how near the near future is. ( Falola & Genova, 2005) The problem with these statistics is that some of them are meant to serve some individual political interests, self-institutional interests and other complicated factors which include poor data collection and uncertainties. Either way, we expect that the peak will come, and as a result there is need for planning and accomplishment of improvements before the peaking. The earlier the improvement plan, the better. However, it is unfortunate that the problem of peaking of the usual production of oil is far from being corrected by the modern industrial society. There is hope that the improved technology is going to improve the problem. Nonetheless, timely insistent risk management is indispensable.
Production and consumption patterns
In the world, the Middle East generally leads in the oil reserves with its average production of 61.5 percent of the total reserves in the world. It is therefore the biggest player in the oil industry. Saudi Arabia alone boasts 21.9 percent of the oil reserves in the world. This has made it outstanding in the global political arena. The North Sea and Canada also have considerable reserves. No one can really estimate for how long these reserves will last since there was a report thirty years ago that said that the reserves will reach their peak, something that has not happened. The standing fact at present is that the production of oil has fallen and there is an effort to ensure that consumption is cut down to save the current available oil from getting depleted.
The current statistics show that there are about one thousand, two hundred and eight point two (1208.2) billion barrels that can be produced from what the reserves hold today. (BBC Business News, 2008). While the European Union, Russia and North America are also classified among the big oil producers in the world, they, unlike in the Middle East consume more than they produce. This has led to them being the major importers of oil from other oil producing countries, especially from the Middle East where consumption is way much lower than production.
Demand for oil is considered to be always on the higher side in comparison to the production. This is triggered by the ever expanding economies of the world. This has led to the all time increase in the consumption of oil in the world in general. Currently, the United States is the leading consumer of the oil produced in the world and its oil is consumed in the form of gas guzzles, a resource that they mostly produce on their own. Its percentage consumption is at 29.5 percent. It is closely followed by the European Union whose consumption percentage is at 19.1 percent. China comes third with the consumption rate of six percent. By 2003, China’s consumption of oil overtook Japan’s from its second position in the consumption of oil and it is fast closing in on the United States as its demand increases at the rate of approximately fifteen percent per year.
In Western Europe and Japan, there is heavy dependence on imported oil as the amount they produce cannot meet the high demand of the domestic users. In the Middle East, consumption is usually high due to the very low prices of oil and its products. However, the consumption in poorer countries is much lower per head. This is because of the tendency to export most of it at a price that is dictated by the major external market players who control the price setting. The prices of oil play a fundamental role in the economy of the world. If there is any interference in the supply of oil, the prices go high and as a result, the transfer income of the oil exporting countries increases. If a country heavily depends on the oil as a source of fuel, then the national expenditure goes up hence there is less money to spend on other commodities. Any given government cannot do away with the interruptions in the oil supply but they can try and regulate them.
The diagram below (Figure 1) shows the proved oil reserves in different regions of the world according to the 2006 report from the BBC World business news: (BBC Business News, 2008).
According to Walden, 2007, the whole world consumes eighty five million barrels of oil every day. Of these eighty five, United States alone consumes about twenty million barrels of oil in a day, an equivalent of eight hundred and forty million gallons in a day. (p.366).
This is almost a quarter of the average oil consumed in the whole world. The diagram (Fig. 2) shows the statistical representation of the oil in terms of production and consumption as recorded in the CIA World Fact Book.
Current and future trends
The fact that oil and gas consumption is fundamental to the sustenance of the growth of the economy in this industrialized economy is very important. For every nation that is working towards prosperity, oil is an important asset. For a nation to improve the efficiency of its energy sources there is need for more energy to enable them to achieve this. Without the energy, no improvement will be achieved and as a result, there will be high demand for the energy, a trend that automatically causes a turn down on production.
In the past fifty years, technology has benefited the exploration for and the production of petroleum. Sophisticated engineering aptitude, geological understanding that is advanced, highly developed tools, the widely and long-drawn-out computing power and so on, served as the major contributors to the exploration and production of petroleum. Some economists expect the oil prices to hike and with the improved technology, something that they expect will culminate into the increased production of oil in the anticipated future. Although most of them do not believe that there are still many undiscovered reservoirs that are yet to be discovered, they argue that the supply will soon be overwhelmed by demand, something that will cause the peaking of the world usual supply of oil. This means that while demand increases, supply will be going down.
According to Longwell, in the year 2010, there will be need to increase by eighty million barrels of oil to carter for the predictable demand at the time. (OPEC Report, 2005) This will be costly according to the estimates, as it is estimated to be done at the cost of approximately one hundred billion dollars in a year. This is in line with the ways in which the society has attempted to carter for the energy needs. Ever since World War II, there has been a steady increase in the demand of oil as it has been used to promote the exceptional growth in economy. The Second World War marking the first oil crisis, there was another crisis that caused a temporary stop to the supply of oil, but demand regained its growing trend by the mid eighties.
For there to be success in the future of oil, there is need to be a well set model that can be used to counter the problems that come with time. There is no doubt that demand will always increase. There is a great expectation of increase in the exploration for more oil fields and we hope for success. However, there is a prediction that the prices might or might not go high and the predictions from 2002 and the year 2020. There are those who believe that the prices are going to be raised while there are those who believe that there are no price increments anticipated. It depends on who you choose to believe. The only thing that can be controlled in this is the production costs that if reduced; (Longwell, OPEC Report, 2005) there will be reduction in the cost of the oil prices. There is need to ensure that production of the new and the available resources is done in a good way that is favored by both the environment and the economy.
Even though there are new discoveries that are being made in the oil industry, they are found in places that are virtually inaccessible for exploitation. They are either made in the deep sea beds or at great depths of the earth. This is posing a challenge on the possibility of ever exploiting these reserves of oil. There is a need for new better and improved technology to counter this challenge. In addition to this, there are those lands that are already considered environmentally challenging, something that hinders the exploration of oil prospects in this lands; for example, in Alaska and other parts of the world. If only there will be technological advances, then can we say that we are able to face the challenges that are posed by the industry.
Product marketing and utilization
Petroleum and petroleum products are the greatest commodities of trade around the world. Marketing of the oil products is the distribution of the oil products to either wholesalers or the retail traders. These products are expected to finally reach the business, industries, government and public consumers. The prices of oil are influenced by the economic and political status of a country, the rates at which they are needed for some specific functions and the oil contracts. The markets are chosen by the value that they provide to the suppliers, that is, the more the benefit, the more favored the markets. Most countries import crude oil for refining in their own country. The flow of crude oil is affected by the refining configurations, the mix for product demand and the specifications on the quality of the products.
There are various ways in which the oil products are utilized. Most energy and utilities companies do not experience the hustle of being controlled in their trade dealings and therefore they enjoy a certain degree of free marketing. The energy and utilities sector is made up of the oil, gas, petroleum, nuclear power, coal, renewable sources of energy like electricity, waste management and the water industries. The petroleum industry in general is an amalgamation of many companies that include the refining company, distributing company, marketing company, multinational oil companies, retail oil traders and the rural filling stations. (BERA, Is. 5/6, 2006).
Most products are utilized in industries as fuels for running various machines, automobiles and other fuel run appliances. There is also the use in making various products for instance petroleum jelly, oil based lubricants and so on. There are those that are used in making domestic fuel that is used in homes for lighting, cooking, heating and what a view.
The status of the world oil industry will determine the economy and politics of the world and the direction they will take. As a result, there is need for the improvement of technology to counter the challenges that involve the production of oil. This will determine whether there will be a price hike or reduction. Improvement in technology will also determine whether the reserves that are found in areas considered remote can be explored, something that can delay peaking.
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