The Global Oil Industry-Present and Future

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Introduction

The past decade has been marked with significant upheaval in the global oil industry. There has been an increased demand for oil throughout the globe and yet there are difficulties in establishing new sources of oil supply. This has increased the geopolitical tensions linked to the exploration, refinement and eventual sale of oil. According to Gorelick (2009) the consumption of oil increases each day as more machinery is manufactured and as the population also increases. For instance, the quantity of oil products consumed in the US alone lies at around 20,687 barrels every day with gasoline being the most used product. China consumes about 7,201 barrels each day making it the second largest consumer.  

The global oil industry is also among the oldest industries in the world and has tremendous effects on all parts of business. It is also the most sought after source of energy as it fulfils about 40% of the energy needs in the world. There are so many products from the oil industry that have changed the lives of people across the globe. Falola & Genova (2005) argue that oil can be used as a source transportation fuel, heat, and electricity. Petroleum products can also be found in various household items. For instance, shoes and sweaters together with other plastic products used in homes are all made from petroleum. However one thing people should understand is that just like the previous human actions and structural changes affect the current condition of the oil industry, our present action will affect the future of the industry. The future international relations will also be affected by these changes. Almost all the easily accessible oil reserves have been found. Similarly as the demand and consumption of oil increases so is the increase in oil prices. However what will happen after we have made use of all the oil reserves that can be easily accessed?

There are three major sections in the oil industry: upstream, midstream and the downstream sections. The midstream section involves the processing, storing, transportation and marketing of commodities such as natural gas and crude oil. The upstream section on the other hand involves the two main processes of exploration and drilling of oil. Technological innovation has enabled explorers to access more oil deposits and therefore establishing more oil reserves. Lastly, the downstream section is involved with refining, marketing and transportation of oil products (Falola & Genova 2005).

There are fears concerning the depletion of oil reserves in future. Oil is a non renewable resource that takes quite along time to form. With the current increase in consumption of oil, environmentalists believe that the world will one day run out of oil. This is one of the reasons as to why there are calls for exploring other renewable resources such as solar energy and wind energy. Moreover these two do not pollute the environment like fossil fuel. Despite the cries about depletion of oil reserves, the demand for oil is till increasing (Paul 2007). In fact, it might be very difficult for oil supply to meet the demand of its customers after the year 2030.

The greatest success in exploration of oil occurred before OPEC for formed. This was driven by the discoveries of various oil reserves in Russia, Middle East and Alaska. At this time there was very little or no control on whatever one does with the oil reserves and there every country was out to benefit as much as possible from the reserve (Paul 2007). There is no doubt that the technological advancement witnessed in development has also been utilized in the exploration of oil. This has a brought about an increase in oil production because the new technology is faster and effective as compared to the past. Currently, computer technology is use to detect the presence of oil in a region. It is even possible to estimate the amount of oil that could be explored from a reservoir. Whit such technology, production has increased drastically.

There have been oil discoveries in the former Soviet Union and Africa, thanks to the advancement in technology. New discoveries coupled with supply from OPEC have led to an increase in global oil supply. Nonetheless, just like the supply has increase, the demand for oil has also increased because of the increased global population and industrialization. Almost every industry has machines that are either run on electricity or on oil products like diesel. With the supply of electricity not being reliable, most industries prefer to use machines that are run on oil products like diesel and petrol (Odell 2004).

Goldthau and Witte (2010) claim that several challenges have also come up due to the use of oil products for running machines. For instance, environmentalists are constantly campaigning for the use of bio-fuel to protect the environment from pollution and potential effects of climate change. The growing concerns over environmental protection have created so much pressure on energy use. This might in one way or the other affect the development of the oil industry. For instance, if environmentalists continue to fight for cleaner energy sources, then most people will be forced to begin using the so called clean sources of energy and turn away from oil and its products.

According to Skjaerseth and Skodvin (2001) energy sources like wind, solar, electricity and bio-fuel have an advantage over oil since they are renewable. If governments decide to strongly invest in such energy sources, then the future oil industry will defiantly be negatively affected. A good example has been the introduction of electric cars and cars that run on bio-fuel. A massive production of such vehicles might decrease the demand for oil and therefore slowing down or completely stalling it exploration because there will be very few people using it. Similarly, if governments set up and strictly implement environmental policies like the polluter pay principle, industry will turn to alternative environmental friendly sources of energy to reduce on their production cost. This will also decrease the interest and demand for oil products as sources of energy therefore reducing its exploration efforts and its supply.

Labban (2008) believes that there is however still some hope for further development and maintenance of the oil industry as seen from the corporate resources. There have been mergers by oil companies and this helps to lower the cost incurred in production and transport and also increase the companies’ efficiency. A good example is the merge between Mobil and Exxon. Merging is not necessary meant to make companies bigger; it is instead made to make them better.  Merging increases the competitive advantage by reducing cost. 

Oil has also become a part of the global politics. With its diverse uses, such as being a source of energy, oil has quickly become a significant commodity that is traded for political and economic building. Since time in memorial, oil has been a key component during military engagements. Countries with oil reserves have been awarded strategic advantage over those that do not have oil. The reason here is that oil is an essential commodity for every country. If a country enters into bad books of another country that has oil, then definitely it will not be supplied with oil. Oil is a resource that no country can create. You need oil reserves for you to produce oil (Shojai 1995). Countries with no oil reserves therefore have to maintain good relationships with those that have it so that they could be supplied with it in time of need. Countries with oil have also found international recognition because of the precious commodity. They also have some bargaining power over those that do not have.

The political instability is most of the oil producing countries puts some worry over the future of the oil industry. Most of the countries with oil reserve have civil conflict internally or externally. For instance Southern Sudan and Somali have enough oil reserve but there has never been peace in such countries. Despite the many agreements signed and peace talks, there is lack enough peace required for the development of the nation. The former Soviet Union has had several historic changes all because of oil (Odell 2004). The problem with exploration of oil reservoirs is that countries with the resource do not benefit from it. Instead other countries that fuel the civil wars by providing ammunition are the ones that benefit. Oil is therefore associated with insecurity and this might negatively affect its production in future.

The Middle East is another popular example of instability and yet it is so rich in oil. The threats of using oil products for nuclear power have made countries like Iran to be regarded as threats to the global security. This does not only threaten piece in the world but also threatens the future production of oil. The future oil industry will be affected if governments decide to ban countries like Iran to produce oil for being a threat to the global security. Even though this might seem impossible, countries are now uniting for economic development as the world is becoming a global market. If it happens that all countries if not all of them join hands and restrict Iran from producing oil on the fear of insecurity then the future of oil supply will be affected since Iran is a great producer and supply of oil in the world (Odell 2004).

Another source of problem to the future of oil industry might come from the difficulty in finding required resources for investment into the industry for it to significantly increase its supply. Taverne (2008) claims that both non-OPEC and OPEC countries have several development projects still under way. A fall in the oil prices might slow down the rate at which these projects are developed since there will be very little amounts of profits made. Low profits will restrict the countries from investing into the oil industry since there are other more important sectors that might require more government investment. For instance the education sector is an equally important social sector that the government might give priority over the energy sector. As it is known, the oil industry requires great amounts of investment if any projects are to be sanctioned and developed. The economy there has a very great impact in the future of the oil industry. Normally a slow down in the supply rate is an effect of the economy.

The anemic condition of non-OPEC growth for the last five years also calls for alarm for the future of the industry. This has been majorly caused by the slow growth in the capacity of production in Russia. Non-OPEC might be required to work hard for them to regain their previous annual growth of moiré than 500,000 bd. OPEC countries should play a very fundamental role in the growth of the industry (Taverne 2008). However, if the low prices of oil are prolonged, it might negatively affect the growth in long term supply of oil. This is a condition that could however be rectified when the economy stabilizes and recovers. Nevertheless structural changes that are currently underway in the service sector due to the fall in the price of oil will most likely pose a threat to the expansion of the supply of oil in the future.

Leggett (2006) argues that service sector companies have been the backbone of oil supply for almost a decade for various purposes. They have for along time created an increasing demand for oil for the numerous machines and automobiles. The restructuring and down sizing that took place because of the recession period definitely affected their ability to create new supply when the oil demand starts to pick up.  It will take quite some time for the supply of oil to go back to the way it was for the last decade. By the time companies gain enough capital and money to reestablish themselves to the levels they were before the economic recession, it will have taken quite along time.

Conclusion

The oil industry is one of the most lucrative industries of the world. Almost every sector of the economy depends on oil products in one way or the other. It is also very important in the world’s economy. For us to be optimistic about the future of the oil industry, it is important that we maintain good relationships between the countries that produce oil, those that consume its products and more so the energy companies (Leggett 2006). Even though differences might arise as it is in any other normal society, all these three sectors have to work together towards adequate production of oil and its products.

However, everyone has a role to play to ensure that oil supply is maintained in the future. For instance conservation of energy resources could ensure that the oil reserves are not depleted. Everyone should understand that oil is a nonrenewable resource and therefore there is a need to use it sparingly. There are many ways by which this could be done. For instance if people could use public transport instead of private transport, so much oil could be saved (Skjaerseth & Skodvin 2001). If everyone uses a private car, more oil will be consumed because everyone will need to fuel his/her car. However, with the public transport we will not only conserve our oil reserve but we will also help protect the environment which is as important as the oil industry. 

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