Category Archives: Oil

Global Problem in Oil Production

Global Problem in Oil Production

There is a global crisis affecting each and every one of us in the future: oil production levels around the world are at their peaks. Exxon Mobil Petroleum Company published a chart demonstrating that oil production for non-OPEC countries will peak at mid 2010s and start decreasing after that. The International Energy Agency also predicted that oil production had peaked in 2006.  Oil production in the North Sea has peaked since 1999. The Daqing oil field in China will most likely peak within the next two years. If the global oil consumption continues its current trend, OPEC countries are required to produce additional 19 million barrels per day to compensate for the decrease in oil production from non-OPEC countries. Since OPEC countries do not publically address information in regarding to their oil production, it is difficult to judge whether or not they are able to do so. However, many experts believe OPEC countries are producing oil at nearly their peak production level (Drum).

In 1956, Shell geologist M. King Hubbert predicted that the oil production in the United States would peak by 1970. His prediction proved to be accurate; the oil production in the U.S peaked during 1970. The current oil production in the United States is half of the oil production in the 1970s (Drum).

The fundamental difficulty in maintaining peak oil production lies at the technical aspect of oil extraction. Unlike a cup of water, in which a person may suck water out of a straw in a constant speed until the water hits the bottom of the cup, oil extraction is more like drilling holes into styrofoams. When a driller first penetrates the foam, crude oil rushes out in high pressure. These high quality pressurized oil is easily extracted at a very fast speed. However, as more oil is being extracted, the pressure in the foam decreases, and crude oil no longer bursts out in high quantities. In fact, as pressure decreases inside these foam-like oil pools, underground water may potentially leak in and contaminate the oil. In other words, the more oil that we extract, the harder and slower it is for us to extract the same quality of oil at a constant speed (Drum).

The issue of declining oil production extends beyond giving up your sports cars with poor fuel economies. Dropping oil production may cause potential economic recessions in the future, such as causing instability in oil prices. There are some economists who argue that spikes in oil prices may cause economic recessions. Of course, not all global recessions are cause by oil price spikes. However, there is strong evidence to note the correlation between spikes in oil prices and economic recessions. There have been 4 major spikes in oil prices in the past 35 years in which oil prices rose 50% in less than 18 months: 1973, 1979-81, 1989-90, and 1999-2000. During those time frames, there were also 4 economic recessions that occurred, in 1974-5, 1980-82, 1991, and 2001. Although there are many arguments from various sides explaining the main causes of economic recessions, it is clear that there is a strong correlation between oil price spikes and economic recessions (Drum).

So far we have identified the limit of oil production levels as the main cause of potential catastrophic consequences that may occur if don’t take actions near the future. In the past, if there are wars or political instability near the regions close to OPEC countries, oil production levels drop, and the global economy goes into panic mode as countries scramble to find solutions to maintain their oil consumptions. During those instances, Saudi Arabia usually bumps up its production level in order to maintain global oil production levels. A stable oil production level is strongly correlated to a stable global economy. However, the days in which Saudi Arabia heroic interventions may potentially be a thing of the past. As experts generally predict, OPEC countries are producing oil at near peak levels. In other words, there is not enough extra oil for Saudi Arabia to pump out if the global political economy turns sour in the future (Drum).

Now that we have addressed the main problem with global oil production, how do we ease our dependency in oil? There are a couple potential ways to ease this problem.

First, we can lower oil production levels. It is the simplest and most straightforward way to slower the process of oil extraction. However, it will be hard for anyone used to the life we have now to adjust to the life with decreased oil consumption. The US government has set Corporate Average Fuel Economy, CAFE as a standard for all cars to have certain levels of fuel efficiency. The UK, on the other hand, prefers high taxes on gasoline.  At a taxation rate of $3.40/gallon, the UK has the highest gas taxation in the world. Other Asian countries like China, Hong Kong, Singapore, Taiwan, and Korean also install high gas taxes in order to persuade the public the ride mass transportations that save fuel.  However, most politicians and businessmen especially wouldn’t welcome an idea that might potentially anger the public. Also, as I mentioned earlier, lower production level may potentially cause oil prices spikes, which is highly correlated to economic recession. In a day in which everyone is being exposed to the aftermaths of the recent mortgage crisis, no one wants to risk going through that again (Drum).

Secondly, we can increase exploration in frontier oil fields. Frontier oils are polar and deepwater oils that researchers believe to contain ample resources. However, technological researches in those areas are not as mature as other traditional means of oil extraction. The cost/reward ratio of producing frontier oil is also higher than current extraction methods. In the past, Kazakhstan has successfully extracted frontier oil at significant production levels. However, other places like the Gulf of Mexico and the Caspian Sea have not reached expectation (Drum).

All solutions mentioned so far have either focused on slowing down oil production, or change different extraction methods and locations. However, these suggestions only serve as short-term solutions to a big problem. If someone is experiencing a cold, a doctor may give the patient medications that soothe cold symptoms like coughing, sneezing, and running nose. However, decreasing symptoms only makes the patient feel better, it does not get to the main cause of cold symptoms. If the doctor prescribes antibiotics instead, this achieves the goal of killing off bacteria, which is the main cause of a cold. Using the same analogy, if we need to have a long- term plan in dealing with the oil crisis, we need to tackle the main problems that cause us to have such high oil consumption. Based on the report “Peaking of World Oil Production: Impacts, Mitigation, and Risk Management” created by US Department of Energy, the main use of oil is in transportation. Due to that reason, it is crucial that we find ways to decrease our dependency on oil in transportation vehicles (Drum).

One way to achieve maximize every drop of oil we extract is to increase the fuel efficiencies of cars. This solution is already popular in the automotive industry, as anyone can witness the craze in car brands to present new models with better fuel efficiencies. Almost everyone who is interested in getting a car now asks the question “how many miles per gallon can this car do”? 40 years ago all anyone cared was the size of engine cylinders. Consumers nowadays not only have options to buy cars with efficient fuel economies, they can also choose form a wide variety of cars with hybrid engines. Hybrid cars save gas by fusing electronic batteries with traditional engines. Although each hybrid engine has it’s own way of operating, the basic idea of how a hybrid engine works is that the car uses traditional fuel to start the engine. For example, Toyota Prius, once the engine starts, the car propels using electronic batteries to run its engine. Unless the car reaches above certain speeds, the Prius continues to only take power from its battery.
Consumers find hybrid cars attractive because they see hybrid cars as the perfect combination of saving gas, yet retaining the engine smoothness of traditional fuel injection methods. There are also other alternative fuel sources like ethanol fuel. These types of biofuels are mainly additives for traditional gasoline. Countries like Brazil and the United States have invested in these types of fuels.

However, if we want to completely cut off oil dependency, we need to increase our investments in electric cars. Electric cars differ from hybrid cars in that electric cars have the capability to run completely on battery without the use of any traditional fuel. Usually this is about the time when younger car enthusiasts start yawning out of boredom due to the traditional stereotype of electric cars being extremely slow and dorky looking. This stereotype, however, no longer holds true, as more and more sports car companies come up with electric-powered versions of their fast supercars.

ABB, a business specialized in power and automation technologies, recently published a list of high end electric cars that shatter land records for the fastest electric cars on the planet. Take the Telsa Roaster for example, this electric auto-beast has the capability to go up to 125 miles an hour. The Audi R8 e-tron also goes up to 154 miles an hour. Of course, the price tags of these monsters are out of range for the average American looking to save some gas money. However, the future holds bright for hybrid and electric cars as car companies continue to look for cheaper methods to provide non-oil dependent cars with speeds that consumers are satisfied with. As more research is put into electric and hybrid cars, prices of these automobiles will drop (ABB).

So far I have paid attention to transportation vehicles from an individual perspective. There are also steps governments can take to ease our oil consumption. Governments around the world need to start educating their citizens to get in the habit of riding public transportations. Countries in Europe and Asia have focused extensively on constructing subway and railway systems that provide a safe, fast, and efficient way of transporting large numbers of people from destination to destination while saving gas at the same time. The United States, on the other hand, have mostly stuck to its highway system. One only need to drive in a major US highway to notice the abundance of cars with only one driver per car. Not only this cause major blockage during rush hours, it also wastes a lot of fuel in the process. Critics point out that the geographical factors in the United States does not allow railroad or subway transportation to operate at a financially efficient way. They are right, most cities in the US excluding a few concentrated areas in the northeast, are dispersed evenly with long distances from one place to another. Subways, which thrive in carrying large amounts of people in short distances with multiple stops, simply isn’t the best solution for a spread out country like the U.S. Therefore, United States may be better off focusing on hybrid and electric cars in the mean time. For long-term planning, however, municipal governments around cities in the US might consider future city planning to revolve around methods that utilize public transportation in a cost and fuel-efficient way.

There are, however, critics that argue against peak oil theory as demonstrated in Hubbert’s study. Other people like the president of Royal Dutch Shell’s U.S. operations John Hofmeister says that the theory regarding peak oil production overly focuses on Saudi Arabia.  Dr. Christoph Ruhl, chief economist of BP further states that the problem with oil is with its price, not availability.  In terms of peak oil production, he found no evidence to suggest that such trend is occurring.  Daniel Yergin of CERA, Cambridge Energy Research Associates also consur with Ruhl’s argument (Ruhl).

Despite all potential solutions listed above, the truth is that fuels, no matter if its traditional crude oil or advanced electric or biofuel, will cost more in the future than they do in the past. The days of buying V8 American muscle cars without regards to their fuel economy are long gone. As oil production levels drop around the globe, gas prices will rise, plane tickets will skyrocket, and large engine cars will go into extinction. If we want to save ourselves from long-term catastrophic effects of extracting oil at our current speed, we must find ways to combat the trend of drying oil fields by decreasing our dependency on traditional oil.

All Sources from:

Dr. Christoph Ruhls study-http://www.euractiv.com/de/energie/bp-preisschwankungen-wahrscheinlich-zunehmen/article-175931
ABB. 2012. “12 insanely hot electric and hybrid cars of 2012.”
http://www.abb.com/cawp/seitp202/9eb9d7ffad753a5fc12579ba0039652a.aspx
Drum, Kevin. 2005. “Political Animal.” Washington Monthly.
http://www.washingtonmonthly.com/archives/individual/2005_05/006380.php

Syriana “What are they thinking?”

Often times the best way to address an issue is to show a movie that amplifies the underlying issues in the real world.  This short video clip is taken from the move Syriana, which depicts a story of political and business corruption between advanced countries like the U.S and China and a fictional oil producing country in the Middle East.  It serves as a nice introduction to the topic of “Oil.”  In this clip, Prince Nasir, the foreign minister of the emirate, thanked the U.S for its past efforts in aiding the oil producing country stand on its feet economically.  However, he was furious that when his country tried to lessen its dependency on oil production and foreign companies, by investing in economic infrastructures, setting up a independent government and oil exchange, and giving women rights to vote, advanced countries like the U.S step it to anything that might lessen the United States financial control in the emirate.

I think this clip demonstrates some of the potential drawbacks of globalization.  I think globalization has benefits.  Take this movie for example, due to the U.S’s investment in the country, citizens of the emirate have higher qualities of life compared to before.  Prince Nasir and his family have the oil money to own collections of Range Rovers with fully trained bodyguards.  Prince Nasir’s brother also gets to buy private boats and spend hotel rooms costing up to 50k a night.

However, from an Anti-Globalization perspective, all these financial benefits come at an expense.  By reeking financial rewards of a luxurious lifestyle, princes in the emirate are bound by the United State’s control.  The U.S has a military base in the region. USA flexes its political muscle by trying to gain oil-drilling rights in the country through means of corruption and bribery.  In the end, Prince Nasir and his team were bombarded by American missile in order to stop his plan to give away drilling rights to China.  Ironically, Prince Nasir was killed by the same country that granted him all the financial benefits of globalization.

To me it is like selling my soul to the devil.  The devil grants me anything I want: sports cars, women, houses, watches.  However, in return, I will listen to whatever the devil tells me to do.  Am I really better off? Is globalization, especially in situations relating to oil, truly beneficial?

Although in this instance, I agree with the Anti-globalization perspective, I don’t think there is much oil producing countries can do about it.  The U.S is too politically and economically strong for any developing country to resist aid and foreign investments from.  However, it is important to recognize what needs to be done, and not get lose focus from all the luxurious lifestyles.  The main focus of developing countries, as it is for the emirate in this movie, is to accept foreign investment, but at the same time seek ways to decrease dependency from advanced economies.  Obviously, advanced countries do not like to lose political and economical control in countries that are in allegiance with them, but developing economies must find ways to stand up on their own.

“Syriana” https://www.youtube.com/watch?v=-4IdWUzrcJM