Peak Oil and Its Relationship with Oil Price and Global Economy - Essay Example

Running head: Peak oil Peak Oil Oil resources are exhausting as fast as the automobile industry is growing. Petroleum is a non-renewableenergy source and the current petroleum stock may be enough for at the most, 40 more years. Global economy is connected to the oil prices because of wide effect oil has on world economy. This paper briefly analyses the term peak oil and its relationship with oil price and global economy. Introduction Oil is an invaluable fuel since most of the automobiles use it as fuel. So far no reliable energy sources have been identified which can replace the oil though solar energy and electrical energy concepts are still there. The problem with other energy sources is the increased processing expenses. For example, the storage and conversion of solar energy to other forms of energy is an expensive process at present. So for the time being oil is the only reliable source which is cheap and best though it is exhausting day by day. Oil production and oil prices can not only affect the oil producing countries, but the entire world as well because of the global economies huge dependence on oil prices. Peak Oil Peak oil is the oil produced at a time when the maximum oil production occurs globally. After the peak has reached the production may reach terminal decline. The term Peak oil represents the peak in oil production which indicates the energy crisis we are going to face in future. Oil resources are finite which clearly states that at some point of time we may run out of the stock. “The rate of oil production, meaning extraction and refining (currently about 84 million barrels/day), has grown almost every year of the last century. Once we have used up about half of the original reserves, oil production becomes ever more likely stop growing and begin a terminal decline, hence peak. The peak in oil production does not signify running out of oil, but it does mean the end of cheap oil, as we switch from a buyers to a sellers market. (Anderson) (Oil and gas liquids, 2004 scenario) Relation between Peak oil and oil price hike Oil companies have, naturally enough, extracted the easier-to-reach, cheap oil first. The oil pumped first was on land, near the surface, under pressure, light and sweet (meaning low sulfur content) and therefore easy to refine. The remaining oil is more likely to be off-shore, far from markets, in smaller fields and of lesser quality. It therefore takes ever more money and energy to extract, refine and transport. Under these conditions, the rate of production inevitably drops. (Anderson) When the cheap oil (land oil) content exhausted, oil companies will not go for the offshore oil resources if the processing and pumping requires more money and efforts. Thus, even though oil resources are available even after the peak oil, it may not be economical to use, which force the oil companies to reduce or stop their production. Thus the oil prices will begin to increase. As there is no viable substitute for the oil at present, the only option available to the oil companies is to increase the price of the oil in order to control the demand Peak oil and global community “Oil currently accounts for about 43% of the worlds total fuel consumption and 95% of global energy used for transportation” (Anderson) It is unimaginable, a world without automobiles. Smooth and economical transportation of goods are essential for the growth of global economy. In order to transport materials to and fro, automobiles are essential irrespective of whether it is through road, rail, water or air. In other words, the supply and demand which controls the global economy will be affected drastically if the transportation means are interrupted or become expensive. Oil companies have already reported that they were unable to find out new oil resources which are economically feasible to process. “Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970, Indonesia in 1997, Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004” (Anderson) This is not a good sign for the global economy. The oil production remains constant for the last five years and it may continue like that for few more years. The global economic crisis which has started in 2008, reduced the oil consumption considerably which resulted in less oil consumption. In America people already started to use line buses instead of own vehicles in order to counter the negative effects of the current economic recess. The change in life style along with the decreased sale of automobiles contributed to the oil price dip in 2008. Peak oil is not a good scenario either of the oil producing countries or others. Though peak oil may bring temporary benefits to the oil producing countries, their economy will be suffered in the long run. For example, most of the Gulf countries are depending oil revenue for their economic growth. These countries don’t have much other resources and the oil resource exhausting may not be a good sign for them. Even though, most of the global community are anxious about the future of the world because of the exhausting oil resources, environmentalists consider the peak oil situation as a blessing to the human population. Oil processing and the usage of it in automobiles liberate toxic gases which is at present destroying the atmospheric protective ozone layer. Moreover these toxic gases increase the atmospheric temperatures also. So, any reduction is oil usage or processing may be beneficial to the environment which is a necessary condition for sustaining life in our planet. Global policies to mitigate oil crisis issue “In the face of the immense perils now facing life on the planet, the world desperately needs to take a new direction; toward communal well-being and global justice; a socialism for the planet” (Foster). The global policies to mitigate oil crisis issue must be based on reducing the oil usage, spending more on finding new economical- oil resources and the judicious handling of the oil resources. Since it is already confirmed that oil resources are exhausting, conscious efforts must be needed to find alternate solutions. Efforts are already on way to produce more Biodiesel. More researches are needed to reduce the processing cost of solar energy which considered as the future source of energy because of its renewable nature. At present the conversion of solar energy into the useful forms of mechanical energy is slightly expensive and the global community needs to concentrate more on this topic. Conclusions Peak oil is a state in which the maximum oil production is recorded. After peak oil, the production may start to decline which is not a good sign for either the oil producers or the users. Global economy is heavily dependent on oil prices. Automobiles are essential for the transportation of goods to keep a balance between the supply and demand. Supply and demand determines the economic growth of the global community. Substitutes for oil must be researched and developed without any time delay. At the same time new technologies must be developed in order to utilize the distant offshore oil resources economically, which are expensive at present because of lack of feasible technologies to utilize it. Oil is the blood of global economy. As our body or life cannot survive without blood, the global economy also cannot survive without oil or alternative energy sources. References 1. Oil and gas liquids, 2004 scenario, retrieved on 23 July 2009 from http://transitionguelph.org/images/peakoilgraph.jpg 2. Anderson, Bart, 2009, Peak Oil Primer, retrieved on 23 July 2009 from http://www.energybulletin.net/primer.php 3. Foster John Bellamy, 2008, Peak Oil and Energy Imperialism, retrieved on 23 July 2009 From http://www.globalpolicy.org/component/content/article/154/25939.html Read More