Term Paper on "Gas and Oil Shortage"

Term Paper 5 pages (1616 words) Sources: 3 Style: APA

[EXCERPT] . . . .

Gas & Oil Shortage

Oil and Gas Shortage

The contemporaneous society is marked by various changes and the primary one within highly developed countries is that of increasing rates of consumerism. Due to increased wages and improved living standards, but also due to marketing strategies that place an increased focus onto the complete satisfaction of customers' needs and wants, the individuals have become eager to purchase more than they actually need. The rate of extraction and exploitation of the natural resources is increasing alongside with consumerism. In the past decade alone, one third of the planet's natural resources have been entirely consumed; they vanished. But this behavior has tremendous negative effects upon the surrounding environment. In the United States for instance, most natural resources are tending to become extinct. Within one year alone, the U.S., with 5% of the entire global population, consumes 30% of the entire global resources (if all nations consumed at this rate, we would require the resources from five planets). Foremost, only 4% of the initial forests still exist within the state and 40% of the water resources are undrinkable (Leonard, 2008). Due to globalization however, the country has the possibility to enter foreign territories, generally less developed countries, and get access to their natural resources. Two much desired resources by the United States are crude oil and natural gas. These are quite common in the countries of the Middle East, which however suffer from water shortages, that have often and could in the future lead to military conflicts. As a consequences of their rich oil reserves, the United States often imports from these regions.

2. Oil and Gas Shortage within the United States

The U.S. produces, consumes, imports and sometimes even exports oil and gas. The situation of the shortage has long been debated, and the general findings indicate that the crisis is more severe for oil, rather than gas. The country produces three fourths of the necessary gas and only imports one, whereas in the case of oil, the U.S. is only capable to produce one third, with the remaining two thirds imported. The actual numbers are reveled below, as measured by the United States Central Intelligence Agency:

Crude Oil

Production: 8.322 million bbl per day

Consumption: 20.8 million bbl per day

Imports: 13.15 million bbl per day

Exports: 1.048 million bbl per day

Proved reserves: 21.76 billion bbl

Natural Gas

Production: 490.8 billion cubic meters

Consumption: 604 billion cubic meters

Imports: 117.9 billion cubic meters

Exports: 19.8 billion cubic meters

Proved reserves: 5.551 trillion cubic meters

United States imports their crude oil from several countries, the first ten ones being (in order of quantities imported): Canada, Saudi Arabia, Mexico, Nigeria, Venezuela, Iraq, Angola, Algeria, Ecuador and Kuwait (Energy Information Administration, 2008). Most of these countries are OPEC members. The primary sources of natural gas imports are (also in order of quantities imported): Trinidad and Tobago, Algeria, Egypt, Nigeria and Qatar, (Energy Information Administration, 2007).

Up until recently, the United States has been able to manage their production and trade, but now, the increasing price of oil is threatening the country's economic well-being. "Higher fuel prices can cause unwelcome rises in inflation (and) restrict seconomic growth" (BBC news, 2004). And the most relevant example of how increasing prices of oil impact the American citizen and economy is given by the recent developments within the automobile industry. Ford Motors Company has for instance decreased in sales and lost supremacy to Japanese manufacturer Toyota. This was basically because the American company had been centered on producing large size and luxurious vehicles, which consume large amounts of gas and are expensive to upkeep in the context of increasing barrel of oil. As a result, consumers turned towards Japanese manufacturers that produced small size vehicles, which are fuel efficient, consume less and are as such cheaper to upkeep. But the switch has impacted the economy as a whole as due to decreasing sales, numerous jobs were lost, leading as such to an increasing unemployment rate.

3. Causes of Oil and Gas Shortage

The primary cause is given by increasing demands due to extended levels of consumerism and improved living standards. Combining this demand with the limited natural resources, it becomes only obvious that the price has to increase in order to reduce consumption and somehow attempt to preserve the natural environment. However, this is not by far the single cause. A list of other causes leading to increased prices in the past 3 years, as identified by various resources, is presented next:

The U.S. dollar is currently stable, but has been fluctuating along the past recent years, movements which generally reduced the trust in the country's economic status. As such, the exporting countries were able to charge larger prices. And the weakening dollar has also supported speculative operations, which once again increased the price of oil. "The U.S. dollar's weakness against major currencies inspired increased investment in the commodities market, particularly for crude oil, pushing prices to record levels" (OPEC, 2008). Then, another internal cause could be that the country possesses limited refinery capabilities. And as the requirements for these facilities increase, including the demands made by environmental organizations (such as superior technologies that reduce the eliminated waste and consequently pollution), so did their costs, which eventually materialized in increased retail prices to the end consumers (BBC News, 2004).

Other sources even indicate that the increased consumption is not reason enough for the record high price of oil, foremost when the reserves of natural gas are more than sufficient. They often blame the prices on market speculations. In other words, "some individuals with a specific vested interest in a certain financial outcome used the media to enrich themselves and their companies, leaving the public investor holding the bag" (Wallace, 2008).

In the international context however, the situation presents itself in a different manner and must be analyzed from two different angles. The first perspective is given by OPEC, or the Organization of the Petroleum Exporting Countries, and the regulations it has imposed to control the price of oil. On the other hand, influences are also manifested by the countries in OPEC (Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela), generally the countries in the Middle East, which possess large supplies of oil, are the primary exporters of the globe, but they are tormented by internal and external conflicts.

The Organization of the Petroleum Exporting Countries encourages the present state of affairs by refusing to allow a greater output of oil. In other words, the international institution limits the extraction and production of oil with the clear intent of creating the idea of insufficient resources, and as such maintaining the high price. They have often argued that due to the warming weather in the northern regions and the existent sufficient supply on the market, there was no need to increase the output. The organization holds 80% of the globe's natural crude oil resources and has therefore the power to influence the supply. "OPEC's expectations about "reasonable oil prices," as well as statements of some member countries that the prices have not significantly deviated from the reasonable level, are making analysts more skeptical about the cartel's readiness to curb the current high prices with an output increase" (Xuequan, 2008).

From the standpoint of the actual status within the exporting countries, it can easily be said that the region is politically and economically unstable and that the various conflicts only place increased pressure onto oil prices. "Five years have passed since the U.S.-led invasion of Iraq, but the situation there remains volatile. The conflict between Turkey and Iraq shows no sign of being resolved, and the future of the Iran nuclear issue is still uncertain. Moreover, several other important oil producing… READ MORE

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