Oil in Saudi Arabia - Assignment Example

Oil in Saudi Arabia Executive summary The paper looks at petroleum as a natural resource with regard to Saudi Arabia. It was found that the country accounts for almost 20% of the world’s oil demand. This resource is produced in other parts of the world, so Saudi is vulnerable. Several businesses in the country depend on crude oil either indirectly or indirectly. However, most of the corporations are either state-owned or foreign-owned. Locals have few opportunities to participate in trade but greatly benefit from jobs in the sector. This state of affairs has led to some unwanted social impacts such as low labour supply and excessive reliance on foreign employees. Oil production has also caused certain environmental effects. Oil spills, waste from related industries and seepages from tankers have damaged the Saudi Coast. Marine life is increasingly under threat. Pressure on internal populations from unwanted pollutants is also a reality. Some businesses are already aware of this problem and have taken the right steps to prevent such occurrences. They already use methods that prevent potential accidents and have an environmental policy in place. It was suggested that businesses of this nature implement rigorous environmental standards. Operational procedures on spill prevention, waste water management, and other elements of production that may endanger the environment ought to exist. Companies need to be proactive by having technologies that reduce susceptibility to these pollution problems. The assignment was critical in illuminating the relationship between businesses and their environment. Unless companies take responsibility, they will ruin their chances of existing in the future by destroying their environment. 2. Key words: Saudi Arabian oil, petroleum, oil spill, resource dependence, environmental protection. 3. Overview of the topic i) Natural resource overview The natural resource under consideration is crude oil or petroleum. The resource was discovered in Saudi Arabia in the 1930s. People began trading in it because of its three key applications: electricity generation, transportation as well as material production. In transportation, the resource is refined and then used to power cars, boats and aeroplanes either as gasoline or diesel fuel. For material production, petroleum is useful in producing kerosene for domestic purposes like cooking. Grease, tar and lubricating oil assist in machinery maintenance as well as in construction. Natural gas and petroleum are used for electricity generation, as well. Several petrochemical products like plastics, rubber and artificial fibre come from this resource. Thousands of people in Saudi Arabia are employed to drill, refine, ship and manufacture products from it (CIA, 2013). This fossil fuel began to be traded after humanity realised its value. Organic matter is buried under the earth’s surface where it is transformed into crude oil through geothermal processes. The petroleum then moves up inside rocks and stops after reaching a non porous level. Scientists then need to drill the earth in order to access this resource. They have been motivated to engage in these activities owing to the numerous applications of petroleum products. ii) How use of oil has evolved in the United Kingdom The UK relies on petroleum products in almost all sectors of the economy. However, use of the product has changed dramatically since the beginning of the 20th century. After roads and air transport were developed, it became evident that they would require some form of fuel. Most of them relied on light petroleum products as well heavy ones for these purposes. By the middle of the twentieth century, electricity generation became a key consumer of this resource. However, towards the end of the twentieth century and in contemporary times, heavier fuels have fallen in demand as more people go for light range products. Electricity is currently being generated from sustainable fuels like nuclear energy. Currently, heavy products account for 20% of petroleum demand while 40% of all petroleum products are mid range. These include diesel and heating fuel. Light products used for fuel in the UK make up 40% of the petroleum market. Most crude oil does not comply with these ratios. In fact, several oil producers have to convert their resources into lighter ones. However, because organisations have to incur certain costs, then customers will make up the difference by paying higher prices for the same. The UK tends to rely on conversion processes in the European Union. 4. Key findings iii) How resource use has shaped trade In Saudi Arabia, crude oil accounts for the largest proportion of exports in the country. 95% of these resources are made by a government parastatal called Saudi Aramco (CIA, 2013). The other percentage is carried out by other parastatals. Therefore, it may be stated that businesses in the oil industry have not flourished as expected since the state is heavily involved in oil production. Most of them have a monopoly in the industry, and have encouraged foreign investment in other areas of production. Some gas fields have been built in different parts of the country, but European and American companies have carried this out. A number of publicly owned companies have also been formed in order to deal with the trade of this resource. Chemicals, fertilisers and several polymers have been produced by organisations in Saudi Arabia. Methanol, Polethylene, Polyolefin, and Polypropylene are now produced large quantities from this nation. SABIC is the company that is responsible for these items. Few local merchants have directly participated in these industries. Most of them have found employment in the sector from government parastatals (Yizraeli, 1997). iv) Impact on the availability of the resource through time Saudi represents approximately 20% of the world’s petroleum supplies (Al-Moneef, 2006). Several other countries account for the rest of the percentage. This means that Saudi’s contribution to world oil has been irregular. In the mid 1970s, Saudi accounted for 15% of global petroleum supplies. The number increased by 1% by the end of that decade. This figure reduced dramatically to 6% in the mid 1980s, and then doubled by 1996. These declining figures arose due to dwindling demand from the West. Latin American, West African and other oil producers in the Gulf have accounted for the occurrence of the product around the country. Iraq still has several oil fields that are yet to be exploited. Furthermore, scientists have found a reservoir at the Caspian Sea. It is likely that these prospective areas are unlikely to match Saudi’s supplies, but their presence is going to hurt its competitive edge. During the 1970s, Latin America, Asia and West Europe only contributed 16% of global crude. However, these quantities increased to 33% by the end of the twentieth century. A number of western nations are trying to reduce their dependency on Middle-Eastern oil. However, the tremendous reserves and reasonable prices of Saudi oil still make it a force to be reckoned with in the near future. The resource is not in short supply within the country; however, concerns have been made about its long-term, global availability (Al-Moneef, 2006). v) Social impact of exploitation of the resource globally and locally In Saudi Arabia, several nationals have enjoyed a growing economy (Al-Moneef, 2006). Even when the rest of the world was suffering from the economic downturn, this nation was left unscathed due to its status as a major oil producer. For this reason, the nationals in the country have not felt as economically deprived as their counterparts in other parts of the region. The Arab spring stemmed from marginalisation among the youth; such sentiments were not rampant in Saudi Arabia owing to its status. The country has 24 industrial cities that are designed to provide employment and accommodation for Saudi youth. Furthermore, its government has created a scholarship program in which it sends about 130,000 natives to study abroad (CIA, 2013). Women have also been empowered from petrodollars due to investment in their education as well. Several benefits in health and social welfare have also emanated from this part of their economy. Government revenues have been used to alleviate poverty through job creation. Technology has been transferred to different parts of the economy and related industries in manufacture have grown through these spill-over effects. Regardless of the above benefits, some negative effects have also arisen. A number of foreign companies have formed partnerships with the Saudi government on production of oil. Some of them crowd out local merchants who have no chance of competing with foreign capital. Most locals only have the option of working in the public sector or in oil-related fields. Many start getting accustomed to rent-seeking and develop a sense of entitlement. Expectations for pay without equal work-input distort labour and cause rapid rural-urban migration. Foreign nationals have thus been forced to enter Saudi Arabia in order to do manual work, which many natives think is beneath them (Karl, 2007). Cultural clashes have emanated and so have anti-western sentiments. vi) Environmental impacts Saudi Arabia transports its oil internally through pipelines and externally through tankers. Lately, its export capacity has increased due to a rise in global oil demand. This implies that shipping has gotten more congested. Accidents and spills have occurred in the past and place considerable strain on the environment (United States Energy information Administration, 2000). Once these spills occur in the sea, they pose consider risk on marine life. A number of clean technologies have still not dealt with the problem completely. Marine life has also been altered by rapid development of oil fields. Red Sea Reefs along this country’s coastline are now damaged. Ships are also needed in order to transport products from crude oil. They have led to excessive pressure on the Saudi coast. Ecological problems like sedimentation and disappearance of mangrove vegetation are now a reality. Offshore oil rigs tend to spill oil onto the sea through cracks, unlawful discharge as well as seepages from these locations. Waste water from oil production is yet another challenge. Most of their debris is dumped into the Gulf, which is becoming increasingly saline. This makes it uninhabitable for marine plants and animals. Oil seepages have been unchecked in this water body and have thus led to destabilisation of the ecosystem there. Tanker discharges simply have to stop if the area is to remain environmentally sustainable. Pollution also emanates from the industries that have been built around the petroleum sector. Some of them emit sulphur, carbon monoxide and other unwanted gases into the atmosphere. They have also exerted pressured on the surrounding areas’ land and natural resources. These industries also discharged their waste onto the Gulf Sea thus compounding the problem on marine ecosystems. vii) How businesses perceive the resource Many businesses still think of crude oil as a fundamental area of operation in Saudi Arabia. However, because they have realised its negative impacts, some of them are working towards safeguarding the environment in areas affected by oil reserves. An organisation such as Saudi Aramco has been at the forefront of this by employing warning systems against potential leakages. It also has certain systems designed to identify whether pollution might occur in the near future. Since this is the largest oil-based organisation, it is interesting to note that the company has created a series of operations, policy and environmental standards that it abides by. 5. Reflective analysis and concluding remarks viii) Reflection on the assignment, business and its impact on the environment The assignment has been highly insightful in demonstrating how a seemingly profitable venture can endanger people and life surrounding it. Most organisations that rely on resources must alter them thus resulting in the production of pollutants. Unless proper waste management techniques are employed, surrounding ecological systems may be ruined. Furthermore, once the resources have been converted to other forms, they need to be transported, and it is at this point where accidents, use of more resources and pollution can occur. Businesses need to be responsible by maintaining a careful balance between their profit-making objectives and the needs of the surrounding human or non human population. xi) Recommendations for a business that needs the resources An organisation that plans on drilling, refining or using crude oil needs to have a multi-thronged approached towards the management of the resource. First, it needs to create standards and guidelines for performance within its sites. Furthermore, the company needs to do regular environmental assessments in order to detect potential harm that may have been exerted on the environment. Engineering and operational procedures must be put in place in order to ascertain that water, air and land is protected from pollutants. Oil spills have been identified as a key problem in the industry. The company ought to set up contingency plans that should be implemented when an oil spill occurs. However, in order to prevent its occurrence from the onset, it would be critical to use various technologies and production techniques to boost the transportation and production process. These organisations need to have procedures for disposing hazardous materials as this would protect marine life. References Al-Moneef, M., 2006. The contribution of the oil sector to Arab economic development. Paper presented at the OFID, 5th May Vienna, Austria. CIA, 2013. The Saudi Arabian economy. [online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html [Accessed 26 Mar 2014] Karl, T., 2007. Oil led development: Social, political and economic consequences. Stanford, CA: SUP. United States Energy Information Administration, 2000. Saudi Arabia: Environmental Issues. [online] Available at: http://www.albawaba.com/business/saudi-arabia-environmental-issues-part-one [Accessed 26 Mar 2014] Yizraeli, S., 1997. The remaking of Saudi Arabia. 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