OIL & GAS INDUSTRY

Oil & Gas Industry



Oil & Gas Industry

Introduction

In order to set up an oil industry, the country will have to consider a number of different factors in order to ensure that the industry is setup to provide the results and outcomes that are expected from its development. Furthermore, the industry will have to ensure that these measures are taken completely and adequately. It is imperative to realize that unless these measures are taken with care and concern, the establishment of the industry will not provide the productivity that is the purpose of the establishment of the industry. The following discussion will attempt to highlight the areas that the country should consider and the measures that can help ensure that the eventual establishment of the industry comes across as a productive venture.

History

Oil is a fossil fuel, 150- to 300-million-year-old “solar energy” buried underground. Up until the Industrial Revolution, most of the world's energy was supplied from renewable sources. But with the Industrial Revolution and the depletion of wood in England in the early eighteenth century, the transition to technologies that run on nonrenewable sources of energy occurred as production and transportation began to rely increasingly on coal. Earlier in the twentieth century, we observe another shift to a new nonrenewable resource pioneered first by the introduction of battleships that run on oil to the Royal Navy and then by the mass production of cars in the 1920s. Today, our highly industrialized, and predominantly capitalist, world economy continues to be heavily dependent on this nonrenewable energy source (Yergin, PP. 234-269) .

Anticipation

This state of dependence inevitably begs the question of the exhaustion of this nonrenewable resource. How far is it? How much oil is in the ground? What is the rate at which new oil reserves are found? How difficult is to extract them? How reliable is the reserve-to-production ratio that indicates the length of time the remaining oil reserves will last if the production will continue at the current levels? What is the rate at which the consumption of oil is growing? Even though the answers to these questions are heavily contingent upon the assumptions one is willing to make in calculations, if one were to accept the “optimistic” predictions of the International Energy Agency (from the 2004 edition of their World Energy Outlook) regarding the possibility of reaching peak production sometime between 2013 to 2037, it will be probably safe to assume that the current reserve-to-production ratio of 42 years (reported in the 2009 edition of British Petroleum's Statistical Review of World Energy) will not improve drastically in the coming decades (Devarajan and Fisher, pp. 65-73).

Economic View

The relatively low price elasticity of demand for oil means that the consumers are highly dependent on oil in their consumption and cannot easily reduce their demand or switch to substitutes when its unit price increases. Nevertheless, it is important to understand the historically dynamic nature of the price elasticity of demand. For instance, in the late 1970s and early 1980s, when the ...