The Oil Supply Dependence Of The Automobile Industry - Research Paper Example

? A Research Essay on the Oil Supply Dependence Of The Automobile Industry Problem ments And Background Is the USA automobile industry heavilydependent on the world oil supply and/or domestic oil supply? If so, what will be the impact of such a dependence ? What can be done to avert the negative effects of dependence? Considering the rising oil prices worldwide, there were recent attempts to pave the way to alternative sources of energy so as to gradually reduce the demand for oil. In 2010, Li, Xiaogu, Clark, Christopher, et. al. conducted a survey (Abstract) of the peoples’ likelihood that they will prefer flexible-fuel or hybrid automobile given the choice when they purchase one. The result showed positive response to less dependence on oil for automobiles. Statistics show a declining dependence on foreign petroleum since 2005, according to the U.S. Energy Information Administration in mid-2011. Nonetheless, what has been the actual situation pertaining to a dependence on automotive oil? There was an increase in the use of domestically produced biodiesel, ethanol, and natural gas. However, by the mere fact that crude oil from domestic production realized increase in demand, dependence on oil as source of energy remains high. Imported oil declined. As can be seen from Figure A, consumption of oil also declined in 2010. But there will be a growing demand for liquid fuels including oil in the coming years as shown in Figure B. For automobiles, the trend in demand for Motor Gasoline also shows a projected increase in demand. See Figure C. Even as the production volume of crude oil will be increased in the USA, the prices of oil will also increase in the coming years. This can be clearly seen in Figure D. Apparently, the people are feeling the financial impact of the seemingly endless price increases of oil in the world market as well as in the local market. There is a domino effect on even the prices of basic goods whenever oil price increases are announced. Oil price increases eventually jack up the prices of goods and services since sources of energy like gasoline, motor oil, and liquefied petroleum gas are part of the cost of production and operating expenses like transportation or travelling expenses. It reduces the value of family income because each dollar will have a lower value in the sense that the same amount of money can only buy less and less as the prices of oil increase to push up the prices of prime commodities. Thus, people have been adjusting to these trends by finding ways and means to reduce dependence on oil. Many have resorted to alternative energy sources. 2. Analysis of the Problem The world has limited supply of oil while there has been increasing demand for oil. Tverberg, Gail E. wrote that oil supply of our world had stopped increasing since 2005 (Abstract). As a matter of fact, his report mentioned (3): “We show in this section that world oil supply constriction started about 2004 based on price trends, and that restriction affected primarily OECD countries”. It will take about 20 years to mitigate the decline in oil supply by producing alternative sources and by replacing vehicles capable of utilizing alternative sources (4). It was estimated that wind and solar energy sources can only contribute an insignificant capacity for the production of energy compared to the total energy supplied by oil-based power generators. “Growth of emerging economies” (1) certainly led to an oil shortage given such a fact about no more rise in the production of oil supply. To confirm this phenomenon as of a very recent date, January 3, 2012, Brad Plumer of the Washington Post reported the prediction of Goldman Sach’s Investment Bank pertaining to oil production in the world, which says that demand will hit the production capacity of oil by the year 2013. China and India have reached 2.5 billion population. Their demand for oil in order to achieve economic growth was reported to be rising as a result of these two countries’ fast developments. In contrast, oil supply production could not expand as fast. Due to dependence on oil for economic growth while the alternative sources have yet to gain momentum in mitigating the problem of rising prices as well as lack of supply, it was forecasted that there can be another recession or depression simply because countries cannot grow with lack of oil supply and high prices of oil. Then economic growth worldwide would come to a halt since there has been oil dependence and it will take many years before there can be a substantial reduction in the world’s dependence on oil as a means for economic growth. This same analytical writing about the limits of world oil supply reported the correlation between economic growth and oil supply availability, and also traced how people realize rising cost of living as a result of the increasing cost of oil (2). Part of the main reason is also the growing consumption of oil over the years. By 2010, the oil producers struggled to meet the rising demand and failed to do so in spite of the price increases. The Economist Online reported signs of oil supply production limits being reached. Oil producers could not meet world demand. See Figure F. 3. Alternative Solutions Towards Less Dependence On Oil By The Automobile Industry With a general slowdown in the economic growth of nations, interest and debts are expected to be hard to pay. Risk of defaults will increase. This anticipated situation should alert investors about the need to expedite the development of alternative sources of energy so as to quickly reduce dependence on oil as the primary source of energy for the industries heavily dependent on oil. 53% of demand for oil was reported to be coming from the transport sector (Ricardo Strategic Consulting and Lindemer, Kevin J., 2). See Figure G – Energy Demand By Sector. This unfavorable outlook will take place if nothing much is implemented to expedite a faster reduction in the world’s dependence on oil. As earlier mentioned, the estimated time for mitigating the problem of dependence will take 20 years. But governments worldwide can take better initiatives towards expediting the replacement of vehicles as well as expediting investments and development of infrastructures that will lead to the ultimate replacement of automobiles dependent on oil. Battery charging networks can be built wherever there are businesses and roads for automobiles. Standardization of battery specifications can be imposed for the duration of time while the implementation of higher technologies would have to wait. This should be done for the purpose of similarly standardizing all charging outlets where they can be installed by business owners. Greater incentives for the mass production of electric vehicles can be given while protective regulations favoring oil-dependent automobiles should be eliminated. Perhaps as of this time, there would have to be a cost-benefit research and analysis about elimination of import taxes on imported parts of electric vehicles which can be purchased at lower costs from other countries. This can lower the cost of production in favor of electric and/or hybrid vehicles capable of performing at par with oil-based vehicles but with far less dependence on oil. Perhaps the steel industry will realize less demand for iron metals because electric vehicles can run faster with less weight and the bulk of the automobile weight would be on the heavy duty batteries and charging system. Fiber enriched plastics might become in demand instead. Will that not be compensated for by the lower demand for oil over years? Loss of jobs in the steel fabrication industries can also be compensated for by substantial increases in jobs favoring those educated in the field of electronics and electrical engineering, and in the field of producing fiber rich and heat-tempered plastics for automobile bodies. Deloitte revealed some of the manufacturers of electric vehicles that are already producing electric vehicles. Their existence was considered an indicator of a bright new future for the automobile industry. Figure H – Automakers of Electric Vehicles With Their Launch Dates will tell anybody that it could be just a matter of mass producing the electric vehicles and discouraging the purchase and use of oil-based automobiles for the good of a country’s economic growth. After all, a failure to shift to alternative sources will mean a halt to economic growth as a result of high prices of oil and the prime commodities, followed by recession, and possibly depression. Figure H shows the investments areas are all set. Yet there has been low demand for various reasons. One possible reason is the low level of production to cover for fixed overhead expenses leading to high selling prices. This can be solved by mass production with government incentives like initial lower taxes and tax-free importations of parts available at lower prices in other countries. It would be understandable why other industries like the steel industry would have less business once the cost-benefit analysis shows overwhelmingly greater returns and the assurance of economic growth and stability due to less dependence on oil. In the analysis of Deloitte, “trends point to a fully electric long-term future (17).” Deloitte also sees the importance of government roles in the development of longer-lasting technologies for the automobile industry. The author of this research essay believes in barring enterprise lobby in governments just to favor the retention of all activities bent on maintaining an oil-based auto industry and all parts of the automobile supporting the oil-based auto industry. There must be sacrifices in order to arrive at the brighter future wherein economic growth can continue to improve the quality of lives of the people. Figure A – Petroleum Consumption, Production, and Import Trends, 1949 – 2010 Figure B – Projected Supply Of Liquid Fuels Shows Growing Demand ( Source: US EIA, 2011. http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2011&subject=0-AEO2011&table=11-AEO2011®ion=0-0&cases=ref2011-d020911a ) Figure C – Projected Growth In Demand For Motor Gasoline in the USA ( Source: US EIA, 2011. http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2011&subject=0-AEO2011&table=11-AEO2011®ion=0-0&cases=ref2011-d020911a ) Figure D – Crude Oil Projected Supply Prices and Production Quantity ( Source: USA EIA, 2011. http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2011&subject=0-AEO2011&table=14-AEO2011®ion=0-0&cases=ref2011-d020911a ) Figure E – Forecast of Light Vehicles & Mixture of Vehicles in the USA ( Source: Becker, Thomas A., Sidhu, Ikhlaq, and Tenderich, Burghardt (2009). “Electric Vehicles in the US: A New Model With Forecasts to 2030”. Center for Entrepreneurship & Technology (CET) Technical Brief. 2009.1.v.2.0. University of California, Berkeley,August 24, 2009. Accessed from http://cet.berkeley.edu/dl/CET_Technical%20Brief_EconomicModel2030_f.pdf ) Figure F – World Oil Producers Struggled To Meet Growing Demand & Experienced Shortage. ( Source: BP Statistical Review, 2010 ) Figure G – Energy Demand By Sector Figure H – Automakers of Electric Vehicles With Their Launch Dates Works Cited Becker, Thomas A., Sidhu, Ikhlaq, and Tenderich, Burghardt (2009). “Electric Vehicles in the US: A New Model With Forecasts to 2030”. Center for Entrepreneurship & Technology (CET) Technical Brief. 2009.1.v.2.0. University of California, Berkeley,August 24, 2009 Deloitte (2009). “A New Era Accelerating Toward 2020 – An Automotive Industry Transformed.” Deloitte Touche Tohmatsu. Web. Huber, Matthew T. (2009). “The Use of Gasoline: Value, Oil, and the American Way of Life”. Antipode, 41: 465–486. doi: 10.1111/j.1467-8330.2009.00683.x Li, Xiaogu, Clark, Christopher D., Jensen, Kimberly L., English, Burton C. and Yen, Steven T. (2010). “Factors Influencing Consumer Likelihood of Purchasing a Flexible-Fuel or Hybrid Automobile.” Agricultural and Applied Economics Association. Series 2010 Annual Meeting, July 25-27, 2010. Denver, Colorado. Plumer, Brad (2012). “Goldman: Oil Supplies Are Quickly Tightening.” Washington Post. January 3, 2012. Web. The Economit Online (2011). “Oil Production And Consumption: Running Dry.” Web. Tverberg, Gail E. (2011). “Oil Supply Limits And The Continuing Financial Crisis.” Energy. 37 (2012) 27-34. Elsevier Ltd. GA 30144, USA. May 31, 2011. U.S. Energy Information Administration (2011). “How Dependent Are We On Foreign Oil ?” Independent Statistics & Analysis. June 24, 2011. Read More