Oil And Gas Industry

Oil and Gas Industry

Petroleum in one form or another has always been the most useful natural resource worldwide. More than four thousand years ago, Herodotus, a Greek historian of 5th century B.C.E and Diodrus Siculus, a historian of Agyrim Sicily in C A 90 B C– C A 30 B C discovered that Babylon were using Asphalt black substance found in Petroleum during the construction of the walls and towers of Babylon. In 1410 AD, native Americans were harvesting the oil for medicinal purposes. It was in 1859, in the quite farm country of North Western Pennsylvania that the drilling of the first most important crucial oil well took place. This well began to be known as the Drake Well after the name of "Colonel" Edwin Drake, the man who gave the idea of drilling the well for commercial use. This was the first phase of the history of Oil Industry, which gave new lease to our lives. (The Paleontological Research Institution, The History of Oil)

Today, the Oil and Gas Industry has touched every sphere of our lives. It is the most depleted and yet the most used natural resource by the economies all around the world. With the increase in new explorations and technological developments, the natural oil and gas production is increasing at the rate of two billion cubic feet a day, and currently Devon Energy is one of the largest and independent oil and gas producers in the United States. Based in Oklahoma City, it is supplying three percent of the gas consumed in North America and producing 600,000 barrels of oil a day. The company is also drilling more than 2000 oil wells every year in North America in an area stretching from the Gulf of Mexico to the northernmost reaches of Canada. (O & G Next Generation Oil and Gas, 2007)

There are many unpredictable reasons, like over all economic growth, continuous development in technology, change in energy prices, change in weather patterns and public policy decisions which led to the changes in the levels of production and in demand and supply. According to Energy Information Administration projections from 2007 to 2030, the total production of domestic liquid embracing crude oil, natural gas plant liquids, refinery processing gains and other refinery inputs, is expected to see a tremendous increase. The reason behind the increase is the growth in refinery processing and other refinery inputs. It is projected that this

Oil and Gas Industry

growth will compensate any predicted reduction in crude oil production after 2017. This increase in the production owes to some extent to the high tech oil recovery methods, the increase in the production in the deep waters in Gulf of Mexico, higher resource assumptions for the Bakken Shale formation in the Williston Basin. (Energy Information Administration, 2007)

As per the AEO2007 reference case, the total domestic natural gas production including the supply of supplement natural gas reflects an increase from 18.3 trillion cubic feet in 2005 to 21.1 trillion cubic feet in 2022. (Energy Information Administration, 2007) This clearly shows that in-spite of the factors that have led to the increase in the energy prices since 2000, the growing influence of developing countries on world-wide energy requirements, enactment of legislation and regulations in the United States, the rising need for the alternative source of energy and the need for the energy technologies did not hamper the growth of Oil and Gas Industry.

United States of America is one of the largest economies in the world with the per capita Gross Domestic Product

to be $43,500. (The Central Intelligence Agency, 2007). The economy of America depends on the crude oil for fuels to be used in the transportation purpose. Seeing the current economic scenario and increase in the demand for the fuel, the demand for the light oil production all over the world is expected to increase and will reach to the point where supply of the oil will be going to be far less than the demand. This will result in the imbalance in the supply and increase in the price of oil and fuel especially for military and strategic purposes. More than 60 per cent of the fuel requirements of United States of America is met by imports and at this current state of affairs, United States of America have to bear the cost at price level of $55/Bbl could be increased twice, from 9.9 MM Bbl/d to nearly 20 MM Bbls/dby2025. (Online Edition) As the imports will increase, there is every possibility that America could face price shocks, supply disruptions, and fuels shortages. According to the EIA/AEO estimates, the average import price of oil from 2005 to 2020 could make United State

Gross Domestic product

to be reduced by more than $ 1.1 trillion. (Online Edition) The department of Energy and the honorable President of America suggested that the need of the hour is to rely on the domestic sources for the increase in the liquid supplies. (Online Edition) And the best source is the production of Shale Oils; converted into liquid fuels, provide fuel for the transportation of military and civilian purposes. Currently the Oil shale resources can be found in Colorado, Wyoming and Utah and hope is on the anvil that with the efforts of the Government, industry and other stakeholders, the oil shale production can reach 2 MM Bbl/D by 2020. (Online Edition)

Oil and Gas Industry

The prices of the Crude Oil which have been showing an increase since last two months is expected to reach at the pinnacle of its monthly average price in August. The RAC of crude oil in 2007 is estimated at the rate of 64.86 per barrel as compared to $ 60.23 per barrel in 2006 and in 2008 is expected to be 68.75 per barrel. This increase is due to the tight world oil supply and demand balance.

2007 can witness the increase in the total gas consumption by 4 percent and the LNG imports can go up to 850 bcf, which would be a record in upper scale. This is clear from the fact that despite of the increase in the demand of bio-fuels and other non-hydroelectric renewable energy sources and subsequently the construction of new nuclear power plants, the Oil and Gas Industry is expected to supply same 86-percent share of the total U.S. primary energy in 2030, which they were giving in 2005

Year after year, there has been very less growth in retail sales to just 3.2% year in April whereas there has been increase in the gas stations. Because of the growth of wholesale energy prices to 3.4 per cent, the Producer Price Index

(PPI) increased to 0.7% in April. Due to the increase in oil prices and stable demand, there was a

trade deficit

by $6 billion. (Pod cast Directory, 2007).

According to Chicago Fed’s annual Automotive Outlook Symposium, the economic growth in 2007 is seen to be slower than in 2006, with inflation and the unemployment rate increased. The prices of the Energy also increased in the middle months of 2006, but after that they fell, at an average of $60 per barrel in the fourth quarter. This led to the increase in inflation by 1.9 per cent as measured by the Consumer Price Index (CPI), which is less than 3.7 per cent than previous year. (Strauss & Engel, 2007)

This phrase “Oil flows the Nation grows” is evidently true when it comes to Oil and Gas. The

Oil and Gas Industry

increase in the price of Oil also increases the over all Consumer Price Index, especially in September 2005, which was 1.2 per cent, highest in 25 years. The increase in imports of energy increases the trade deficit, on the average the increase in oil prices to 10 per cent leads to 150,000 Americans to lose their jobs, and over and above we had to lose between $80 billion and $160 billion in economic growth. In September 2005, it was estimated that 40 percent increase in gas prices reduced the total domestic consumption by 0.4 percent and the GDP fell to an estimated 0.9 percent. In fact even the Consumer spending was reduced. But there is an increase in the profits among the major players in Oil and Industry. Only in the beginning of 2005, the five largest oil companies were making profits of $52.2 billion, which was less in 2004, only $39.5 billion. (Democrats Policy Committee, 2005).

The study on the impact of Oil Price by An International Energy Agency in 2004 revealed that the repercussions of the high prices on economy will be minimum and this proves to be as High oil prices became most important macro economic variable. It is apparently quite clear that with the new technologies are in the offing, the Oil and gas Industry will strike more. The earnings from the Industry are being invested in new technology, new production, and environmental and product quality improvements to meet the requirements of Generation next. According the Oil & Gas Journal estimates, the Industry spends $85.7 billion in 2005, whereas in 2004 it spend just $80.7 billion in 2004 and in 2003 $75.5 billion. (Cavaney, 2006). The threat to the Oil Industry is from the alternative sources of energy like bio fuels and other non-hydroelectric renewable energy sources and subsequently the construction of new nuclear power plants, yet the Oil and Gas Industry is expected to supply same 86-percent share of the total U.S. primary energy in 2030, which they were giving in 2005.

(Energy Information Administration, 2007). As the study above reveals that though the production of oil and gas is on the increase but it is not able to meet the demand and to maintain a balance between the demand and supply, The Government and Energy department is taking initiative to increase in the Shale Oils for liquid fuels.

Work Cited

Oil and Gas Industry

Cavaney R. (2006) API Updates Congress on Oil & Natural Gas Industry Efforts. Retrieved on

August 12, 2007 from W.W.W:

http://www.api.org/Newsroom/archive/013006lettercongress.cfm

Democratic Policy Committee (2005) UPDATE: The Impact of Skyrocketing Energy Prices on

American Families and Businesses                                                                                       . Retrieved on August

12, 2007 from W.W.W:

http://democrats.senate.gov/dpc/dpc-new.cfm?doc_name=fs-109-1-113

Energy Information Administration (2007) Short-Term Energy Outlook. Retrieved on August 12,

2007 from W.W.W: http:// www.eia.doe.gov/emeu/steo/pub/

Energy Information Administration (2007) Annual Energy Outlook 2007 with Projections to 2030.

Retrieved on August 12, 2007 from W.W.W:

http://www.eia.doe.gov/oiaf/aeo/overview.html

Online Edition. America’s Oil Shale Can Increase Fuels Supply, Support National Security, and

Create U.S. Jobs and Economic Growth . Retrieved on August 12, 2007 from W.W.W:

http://72.14.235.104/search?q=cache:2B-xVDYvcDIJ:ds.uhoc.utah.edu/dspace/bitstream/1234 56789/1523/2/America%27s%2520oil%2520shale%2520can%2520increase%2520fuels%252 0supply%2520etc.pdf+Impact+of+increase+in+GDP+on+Oil+and+Gas+Industry+in+United+St ates+of+America&hl=en&ct=clnk&cd=1&gl=in

O & G Next Generation Oil and Gas. (2007) State of Independence. Retrieved on August 12,

2007 from W.W.W: http://w ww.ngoilgas.com/pastissue/article.asp?art=270292&issue=205

Oil and Gas Industry

Pod Cast Directory.Com (2007) Weekly Economic Update: Week of May 14, 2007 Episode.

Retrieved on August 12, 2007 from W.W.W:

http://www.podcastdirectory.com/podshows/1520445

Strauss W.A. & Engel E.A. (2007) Chicago Fed Letter: Economy in slower traffic through 2008.

Retrieved on August 12, 2007 from W.W.W:

http://72.14.235.104/search?q=cache:kMgOLkLCgWAJ:www.chicagofed.org/publications/fedle tter/cflaugust2007_241a.pdf+inflation+rate+as+measured+by+the+consumer+price+index(CPI )+in+oil+%26+gas+industry+in+USA&hl=en&ct=clnk&cd=30&gl=in&ie =UTF-8

The Central Intelligence Agency (2007) The World Fact Book. Retrieved on August 12, 2007 from W.W.W

https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

The Paleontological Research Institution. The History of Oil. Retrieved on August 12, 2007 from

W.W.W:

http://www.priweb.org/ed/pgws/history/pennsylvania/pennsylvania.html