The Global Oil Industry - Present and Future - Report Example

Global Oil Industry Review of the World’s Oil Industry World population grows at an alarming rate and the need for basic requirements such as food, medicine and energy is continuously increasing. The world in drive by energy especially oil energy. Most economies and every day, million of barrels of crude oil are consumed all over the world. Most industries require oil while most transport means requires oil to move from one point to another. Oil has become part of our lives for long periods and has become the backbone of the economy. Oil industry brings into consideration global processes of extraction, exploration, transporting, refining and marketing of petroleum products. Moreover, oil is raw material for many chemical products that may include solvents, pharmaceutical and plastics. Oil consumption accounts to large number of energy requirements. Oil forms the bulk of world energy requirements as shown by the following statistics. In Europe and Asia, oil accounts 32% of energy consumption, Africa accounts for 41%, South and Central America 44%, Middle East accounts for 53% while in North America it accounts for 40% (Energy Administration Information 2009). Most of the countries that consume the 30 billion barrels of oil yearly are those that have developed and one of them is United States that consumed 24% of oil in 2004 while in 2007 the volume had decreased to 21%. This shows that the requirements of energy are continuously increasing especially in the rise of China and Asian countries. Moreover, the expansion of African economy and other third world countries has resulted in increase in demand for energy and thus most countries and economies depends on oil (Energy Administration Information 2009). Production and Consumption Patterns Specific countries or blocs are associated with production and supply of oil. According to Energy Information Administration, the major players who hold large reserves of oil as at the end of 2006 were OPEC countries 76%, Former Soviet Union countries 11% and other countries hold 13% as illustrated by the pie chart (Energy Administration Information 2009). The players can generally be grouped into non-OPEC, OPEC, Persian Gulf Nations and other parts of the world. OPEC countries bringing together twelve countries and since they control large amount of crude oil, they usually determine the way other countries. The table below shows the contribution of different blocs in producing oil. The aim of OPEC is to influence the amount of oil produced through changing financial regulations. Moreover, political affiliation and leadership factors usually determine production and supply of oil. An example of production impact is the 1973 oil crisis that was a conflict between Arab countries and Western countries. Since OPEC controlled most of the oil, it resulted in the increase in the price of oil. The table below shows production of oil in some specified countries and regions (Energy Administration Information 2009). Year World OPEC Non-OPEC Persian Gulf 2002 67.161538 27.641192 39.520346 17.793762 2003 69.434475 29.135865 40.29861 19.062811 2004 72.493007 31.503726 40.989281 20.787224 2005 73.736856 32.937619 40.799237 21.500973 2006 73.460835 32.610337 40.850499 21.231904 2007 73.006038 32.173864 40.832175 20.671981 2008 73.791236 33.441452 40.349784 21.870929 Not only do countries, blocs or regions control amount of oil produced but also determine the companies that can be involved in production of oil. Generally, oil production countries can be categorised in three perspectives, which are investor owned oil companies such as Royal Dutch Shell, National oil companies with own anatomy such as Petrobas (Brazil), and National oil companies that are controlled by the government such as Saudi Aramco (Saudi Arabia). These companies usually determine production and supply of oil. For example, in 2007, fifty companies produced around 78% of total world oil, while from that estimate 70% was from national oil companies. The chart shows the percentage of barrels of oil produced per day as at 2007. The following table shows the top fifteen countries that contribute in production of oil per day in terms of barrels (Energy Administration Information 2009). Rank Country Consumption 1 United States 10,984 2 Japan 4,652 3 China 3,858 4 Germany 2,418 5 South Korea 2,144 6 India 2,078 7 France 1,915 8 Spain 1,534 9 Italy 1,477 10 Taiwan 939 11 Singapore 925 12 Netherlands 891 13 Belgium 706 14 Turkey 629 15 Thailand 572 However, research has shown that production of oil has decreased either because of peak oil or because of requirement of large capital investment. For example, production in the Alaska region in United States has declined by 65% from amount produced in 1988. Additionally, among the largest oil fields, most of these companies production are declining. It is estimated that the decline of oil annually from the oil fields lies between 4% and 8%. According to International Energy Agency in the report of 2007, the global supply averaged 85.24 million barrels in 2006 while in 2005 it was estimated that it was estimated that it was less by 0.76 million barrels per day. Moreover, in 2008, International Energy Agency predicted that production of oil would decline from initial estimate of 3.7% a year to 6.7% a year. This change on view is based on actual research and better accounting approaches. Production balances with the requirements of consumption since of them yields the other. Energy required of the world is expanding and it is estimated that by 2030 the amount of energy required could be increased by 50%. The demand of energy will continue because of robust economics and expanding economies of developing countries. However, members of OECD countries’ economies are expected to grow slowly at a rate of 0.07% while the non-OECD countries the expansion rate will be 2.5% annually. These details can be shown by the following table and chart (Energy Administration Information 2009). India and China are the fastest growing economies that currently demands for more oil compared to other countries. The table below shows top five countries that consume most oil (Miller, Brewer & Spoolman 2008). Current and Future Trends The amount of oil reserves is decreasing at an alarming rate. Many oil fields are being closed because they are not economical. Developing countries are relying on oil for their energy requirements, additionally; economic growth has resulted in increase for demand of oil. The increase in demand and decrease in supply has resulted in increase of oil princes. Such issue was illustrated in 2008 when oil price was more than US$140 per barrel. Nevertheless, the demand for oil is decreasing because of fuel substitution and efficiency gain. Moreover, is facing numerous challenges including the imbalance between supply and demand, and the growing concern on impact of oil on global climate. Global climate is an issue that has continuously been discussed by government institutions, organisations and individuals. Temperatures are increasing because of hydrocarbons that is present in oil and since oil contributes about 85% of world energy requirements. Nevertheless, there has been discrepancy between supply and demand. Supply of oil is decreasing, thus, resulting in higher prices. This feature has made the future of oil to be bleak. The instability of oil in terms of prices and its impact to the environment has made technology to introduce new energy means. The use of natural gas and other renewable energy will result in decrease of oil requirement to fuel economies. Many countries are advancing technology that uses oil and this has increased efficiency of oil. Thus, small amount of oil is required to fulfil many energy requirements. Additionally, the amount of oil reserve is decreasing and a scenario called peak oil is advocated. This is the time that demand will be greater than supply requirements. Thus, the price will increase and economical benefit of oil will decrease. It is estimated the production of oil will decrease by 2030 has illustrated by the following diagrams. Product marketing Product marketing is an important sector within the oil industry. Companies market their products so that consumers can appreciate their products while the company will have competitive advantage through enlargement of market share (Harford, 2007). Oil marketing brings into consideration many sectors that are beneficial to field management and corporate appraisals, strategic planning, sector analysis, privatisation, new market entries, organisational restructuring, and market liberalisation. Product marketing brings into consideration factors such as marketing mix, market segmentation and developing appropriate strategies and approaches to ensure that each market segment is maximised. Marketing mix brings into consideration product, price, place and promotion. Oil refining usually results into different products that are applied to the economy (Harford, 2007). Thus, marketers should understand the product before determining the price relative to competitors and existing economic conditions; promote the product as per regulations in place and using promotion device that will ensure most benefit is achieved. Positioning ensures that customers are aware of the product and determining the most appropriate means of ensuring that the consumers can access the product. Market segmentation is splitting the entire oil market into segments that can easily be reached and maximisation of organisation resources is achieved. Oil products range from gasoline (car fuel) to solvents, and this means that segmentation should bring these unique features into consideration when determining marketing approach of the product. On the other hand, it is important to develop appropriate strategies that will be used to ensure that the product is known in the market and thus the oil organisation will have competitive advantage. Utilisation Oil is common in the society and some of oil components are not easily recognisable. Oil has become vital to virtually all activities in human life. Not only oil is used for transport fuel but also oil is used for heating and other numerous products that are rarely associated with oil (Pomeranz & Topik, 2005). Every day, oil is required for everyday activities and multitude of ways such as fertilizers and pesticides for crops, fuel for vehicles and refined into chemicals has a building block for numerous products such as vinyl, nylon, polyester and acrylic all of which are derived from petrochemicals. The major products of oil include gasoline for cars and trucks, diesel fuel is used for heavy-duty vehicles, jet fuel e.g. Jet A, plastics such as in carpets, curtains, clothes and ropes. Paints that are used for painting are products manufactured from petrochemicals while detergents are used to wash dishes and clothes. Moreover, oil is used in numerous products that are beneficial to the society (Energy Administration Information 2009). Conclusion Global oil industry is been faced by numerous challenges. Demand and supply of oil is a major issue since it contributes to development and economic growth. Fluctuation of oil prices has been a major concern and decrease in oil reserves and thus the future of oil industry is bleak. Countries consume large amounts of oil such as United States while developing countries are increasing consumption of oil. Oil marketing is an important concern and companies are developing strategies that will ensure their market share is increased. Oil is used as raw materials for many products such as pesticides, fuel and detergents. Reference Energy Administration Information. 2009. Information on Oil Industry http://www.associatedcontent.com/article/744421/do_video_games_really_have_a_negative.html?cat=25 Falola, T. & Genova, A. 2005. The Politics of the Global Oil Industry: an Introduction. London: Greenwood Publishing Group. Harford, T. 2007. The Undercover Economist. New York: Random House Trade Paperbacks. Miller, G., Brewer, R. & Spoolman, S. 2008. Living in the Environment: Principles, Connections, and Solutions. London: Cengage learning Publishers. Pomeranz, K. & Topik, S. 2005. The World that Trade Created: Society, Culture, and the World Economy, 1400 to the Present, 2nd ed. New York: M.E. Sharpe Publishers. Read More