Oil Production and Its Effects

Introduction

Nowadays, the question about the future of oil in our environment is becoming more and more important. What will happen and how will it change our behaviours? Research in the past has shown that the supply of oil is limited, but the demand is rising steadily. Our whole economy depends on oil production and nearly everything we use in our daily live comprehends oil as a major ingredient. On the other hand, it has also shown that the prediction about its limits can not be made one hundred percent correctly. In the 1970Ð'Ò's and the 1980Ð'Ò's, economists predicted that a barrel of oil would cost a hundred dollars by the year 2000, due to limited resources. Will the world economy change and switch to alternative resources or will it totally collapse in our near future? What will the leading oil companies do? Focusing on Shell/Royal Dutch as one of the biggest and most profit making oil producing company in the world, it will be shown how they as a modern business have an effect but also changed the world’s oil availabilities. Reviewing the two opinions about the future of oil, this paper will as well as possible discuss what we can expect from our economic future from the pessimistic and optimistic point of view. Starting with short background information to give a slide overview on how I got to the point where I am at right now, I will also look at both sides of the argumentation for the supply of oil. Furthermore I will analyse the work of Shell/Royal Dutch by focusing on technological restrictions, technical developments and socio-cultural developments.

1. OPEC countries and the oil crises

Until the 1950Ð'Ò's coal was the leading energy source for private and economical usages, but this drastically changed in the 60th. As the result of that the main producing oil countries decided to form an organization to safeguard their interests and to organize their major concerns to have a secure stabilisation of the oil price. This was the foundation of the Organisation of the Petroleum Exporting Countries (OPEC). In 1965 Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela signed the OPEC contract. Together they are in possession of an estimated two-thirds of all oil reserves and make up to 40% of the world’s oil production (Wikipedia, 2005c).

The first oil crises occurred in 1973, when the members of the OPEC (Organization of Petroleum Exporting Countries) disclosed that they would stop their oil export to those countries that encouraged Israel during the Yom Kippur War. This war was fought between Israel and the coalition of Egypt and Syria during October 1973. Egypt and Syria tried to retrieve it lands which had been captured form Israel six years before (Wikipedia, 2005e). Additionally, the OPEC decided to use their monopolist position to multiple raise the oil price in order to underline its power in the oil economy. Quickly, the dependence of the western world and its industry on the oil from the Middle Eastern countries became clear and the oil price drastically increased.

The second oil crises appeared only 6 years later caused by the Iranian Revolution. Oil fields were battered because of the changing regime and power over the oil sector. This had the lower production and exporting quantities as a result. The other OPEC members had to increase their production to uphold the inevitable amounts of oil. In addition to this occurrence did the first Golf war in 1981 force Iran to an almost total stop of oil production. Both of those events had an economical panic as result which immediately increased the price of a barrel of oil again.

2. Oil supplies

Today, our economy and industry depends even more on oil and its appurtenant price than ever before. The oil crises of 1973 has shown how powerful oil is and what it can cause. Already the image of not having any oil reserves left is frightening and the possibility that the world will fall into a worldwide energy crises initiates trepidation. The confirmed global oil supplies for the year 2004 were 1260 billion barrels, stated by the World Resource Program (Wikipedia, 2005d). Economists also estimated that the oil reserves will only be able to cover the oil demand for another 50 years if we keep on using it like we do today.

Since the importance of oil for our economy and industry has become clear from the beginning of the 20th century, economist and experts were always discussing about how long the recourses will last and what we will do when they are all gone. Estimations and statements were made every year. The resources are coming to an end, but since those predictions were made new source and techniques were established to enhance oil. Furthermore, all the estimations are made about sources that are economically detected at present. New supplies could be found and used with the help of new technologies.

3. Pessimist and optimist model

The pessimist model for oil supply is based on argumentation that the world’s oil production will get to the peak and than constantly decrease with in the next 20 years. This curve is called the Hubbert peak named after the American economist M. King Hubbert (Wikipedia, 2005b). For this reason the oil production will back slide and will cause a steady increase of the oil price. Since the world’s oil consumption will continue to raise, due to a growing world economy, industry and world population, the demand will prosper to the declining supply. This theory will include a economic disaster in the long-run if we do not start to look and work on alternative resources which will be significant to use for the industry and every day life.

In contrast to the pessimist model stands the optimistic view of the future of oil. The optimist argues that the main reason for the unpredictable future of oil is the industrial technology. This is why the forecast for the total oil reserves can not be made within the next century. Developments, new innovations and unexpected incidence have always changed the proposition of oil reserves, so that the assumption for a continuous trend, like we have nowadays, has to be treaded as wrong. Underlining this thesis is that the production of oil and its methods have improved drastically in comparison to the past or present. Further more did the efficiency increase with tremendous success. Optimists are convinced that the upcoming technology and the corresponding know-how will drastically slow down the inanition of oil reserves.

To underline both the pessimistic and optimistic model about the future of oil, experts believe and