Black gold

Debates rage as the fuel burns. Should we utilise it or leave it to the earth? A multifaceted question. One thing is certain: industry feeds off of it.

The problem is of course not only found in it’s origins and the way in which we obtain it, but what it turns into. Most manufacturers may not think about it much, but most of the oil we rely on comes from porous rock formations deep underground, and the dead plankton that over a period of time has accumulated and been processed through various geological transformations. From this we produce petroleum to be generated into disposable energy.

Looking back at the very early stage of production – thousands and millions of years ago – one wonders how human life has only recently become so dependent on what is essentially rotten plankton.

Produced energy: the cornerstone of civilised life and a fact that every single person on the planet has come to rely upon. Although recent years have offered up new and various forms of production, burning oil off seems to be the

easiest, most logical and economically viable. Certainly in the short term. The nuclear debate is still at an early stage – as many countries still seem to think back to Chernobyl when proposals of nuclear energy come to the political floor. Coal is difficult to transport, awkward to burn, and just as unpopular amongst the environmentalists. Those greener modes of energy production – such as wind, solar, or geothermal, have all proved to be fairly cost ineffective and not entirely productive. Oil, it seems, is the answer to all our woes.

And it isn’t just essential for producing energy. Many different industries rely on it for one reason or another after the initial phase. From pharmaceuticals to the mass media, to construction to distribution, all sectors of the world economy need petroleum. The consumer, whether they like it or not, should pay oil the respect it deserves. Although it seems popular in the twenty–first century to turn one’s nose up at the black god, most consumables are made with oil involved in the production line somewhere – even the so called “eco–friendly” products. Step into your kitchen some time and count how many items have not utilised oil. Walk into a warehouse and note how many products and systems don’t rely on oil. A short list. Plastics and other disposable goods are based solely on oil in one form or another. Environmentalists might not like it, but we rely on oil and the plastics that are acquired from it.

For that reason, demand for oil isn’t likely to shrivel up dramatically. Prices in the US dropped marginally after the highs of early 2008, soaring again in late February. These fluctuations are due to strained demand, and the wonderful excuse in the form of the credit crunch and the fact that consumers have panicked. Most economists consider this as a mild blip: petrol buyers will be back in droves, as will the manufacturers who can survive the current predicament. President Bush recently went to several of the larger oil producing countries in the Middle East, asking for price to be dropped so as his nation can get back on her feet. He was quickly rebuffed.

Many Middle East countries are keen to show distaste for America’s aggressive foreign policy. In a recent case, Saudi King Abdullah refused to increase production in order to lower rates. The point made by the Saudi head of state was that oil can make the world’s largest economy seem of minimal importance, and beat it to its knees.

London Brent – known among distributors and economists alike as the perfect oil for petroleum use – supplies not only the UK but many nations across Europe. Due to it’s geographical position, it is easily transported, making demand quite high. However, much of the oil that fulfils Europe’s demand comes from the region covered by the former Soviet Union. The Russian government of course takes a certain degree of political acumen as it holds such a great reserve, and can easily distribute either to China or the west. Many argue that if Russia’s largest oil distributor, Geoprom, decided to, they could make European markets fold at the drop of a hat.

The supply of the world’s favourite commodity has become of great interest among politicians, and to an extent manufacturers’ hands are tied. For this reason, larger companies become entwined in political fracas and financial debates. Perhaps worryingly, more markets are learning fast, as Africa and China bring their chips to the table. This raises endless political debacles and entanglements, as larger oil companies scramble for poorer nations, keen to exploit those governments ill equipped for mining and production.

As so many companies, networks and agents are so reliant on oil and petroleum, world economies are constantly stretched by changes in supply and oil prices. If oil takes a dip, so do world economies. This spiralling affect can be reversed: when a market crisis ensues, oil prices become affected and further drag those same markets down. Such was the situation that unfolded recently in the US. The credit crunch, which was essentially produced by paranoia in the markets, affected much of Wall Street and stock exchanges. This fuelled further paranoia, as oil soared to the $100 mark that we witnessed in January and again in February. As that happened, inflation rose whilst real estate prices went through the roof. Since then, more market paranoia regarding a fallout and the mention of a recession have knocked oil prices down to a new low in months. It seemed devastating that oil fell around the $80 neighbourhood in late January: although that is still relatively high considering barrel prices sat at around $50 this time last year. Someone has made an awful lot of money. As the prices remain consistently high, the US home office cannot simply use fiscal strategies to pull itself out of the current slump. Oil is holding it all down. Those suppliers markets are able to sit tight and hold onto reserves, having affected the market just at the right time. The demanding markets continue to suffer.

The potential power of oil and petrol on world markets should not be underestimated: as a product on the market, it holds more importance than any other commodity. In early January, as oil prices seemed to affect so much of the market, Mike Wittner, global head of oil research at Societe Generale said: “One week does not make a trend, but if diesel demand in the US starts to weaken, that to me is a warning for the economy as well.” He was right. The economy is gasping for oil to loosen it’s strenuous grip.

There have, over the past few years, been many who have suggested that scores of the wars across the world have been oil related. Spilling over from the Cold War have been constant disagreements between this country and that, of which sceptics are keen to seek alternative reasons from those outlined by governments and politicians.

Are there grounds for such cynicism? As nation’s struggle to seize this great commodity to secure a prominent future, it would seem that there are no limits to the measures employed to detain reserves. When oil is found it must be claimed, and issues of geographical importance can be disregarded. Even then, pipelines must be built across many different borders and various political climates.

The most probable of the recent wars to have an oil basted background could be the first Gulf War. Political theorist and sociologist Jean Baudrillard provoked outcry when he announced that the war didn’t even happen, then went on to explain how the whole thing was surrounded in a scramble for those precious reserves. Of course his theories have been denounced, having declared such a dubious claim in the first place. The finger has recently been pointed at America, whose recent invasions of Iraq and Afghanistan have been mooted as carrying an oil based subplot. No matter what the initial intentions are of war in an oil rich area, the victor will walk away with cheap or free oil.

Political instabilities have been a constant issue outside of the formal folds of war – as regions across the globe have been targeted by guerrilla warfare and severe struggles. In Nigeria, armed groups have attacked oil facilities, costing the nation around 20 percent of its output. This year’s Chinese Olympics have been tarnished by the host nation’s involvement in the Sudan crisis: as the country sells much of its reserves to China, in exchange for guns and ammunition. Similar manifestations have occurred in Zambia, Ukraine and Mexico.

The most popular, and therefore the most controversial political ordeal that involves oil is within US borders. It is no secret that President Bush was CEO of a large oil firm before changing his line of work. His electoral campaign was then funded by some of his contacts in the petroleum business. Many argue that Bush was paying his debts off when he invaded Afghanistan. This would have shocked few political theorists, as the US presidency has been funded by big industry

sponsors for decades.

The obvious political implications of having a world economy based implicitly on a single currency – oil – have been fuelled by the theory of “peak oil”. Disputed by many, the theory argues that oil reserves are running out. A recent study asserted that reserves will have dried up by the early 2020s. When oil production hits this peak, it will then hit a period of terminal decline, during which price will soar and demand will begin to become less and less satisfied. More alternative energy productions have been coaxed out of the woodwork in order to gauge potential replacements. Although many countries still question the feasibility and safety of nuclear energy, the world’s major economic and political powers have developed means of implementing nuclear facilities. The UK, Germany, and Europe’s biggest producer of nuclear power, France, have all upped their output and network distributions. To that end, the world’s manufacturers should consider where they will obtain energy from in the next few years. The peak oil argument seems to make sense.

As the world relies so much on it, those strips of plankton will surely dry up. The theory however has been set aside, as dates for maximum production have been debated readily, and have come and gone. M K Hubbert first coined the term in 1956, arguing that US oil production would reach it’s limit somewhere between 1965 and 1970. It has proved impossible to predict, as the nation still produces. Tony Hayward, chief executive of BP announced at a conference recently, “I am no subscriber to the theory that oil supplies have already peaked”, although his turn of phrase would suggest that a peak is in the offing. When that happens, humanity will need a replacement, or production of goods may suffer.

With that in mind, recent developments have posed that new oil research – an intensely lucrative business – is a waste of money. Research and exploration costs roughly $50bn annually but may not be worth it. Academic studies have calculated that the amount of carbon emissions the earth can sustain without significant change in global temperature would be around 500 billion tones from oil, gas and coal reserves. An estimated figure for the current output would suggest the actual amount to be around 700 billion: meaning we must stop producing carbon. So says former BP manager Peter Onstwedder. “It prompts the question, where does more exploration fit, do we already have all the reserves we possibly need?” he said.

As prices of oil stay so high, extraction has been occurring in places that used to be considered “unattractive” by economists and oil specialists. Oil–rich sands in Canada are dredged for their low quality fuel as a means to enrich the economy. BP have suggested that those regions contain around 12 percent of the planets future reserves. But what if they are proven wrong? Many of the European countries who have started the energy replacement process are developing nuclear facilities. Although waste may be an issue, this seems to be the most popular and economic route. Poorer countries, such as already struggling African nations, will fall further behind as funds simply aren’t there to establish facilities and process uranium. More popular resources, such as wind and hydro power, may be needed to fulfil green demand and avoid the potential political issue that oil will surely pass on to the nuclear generation.