The Future Importance of Energy in Different Parts of the World - Term Paper Example

Oil industry in Russia in 2050 Executive Summary One of the most important observable facts in the modern days is the increased dependence by the human race on energy, particularly petroleum and gas. Energy is very significant in different regions of the world since it supports and enhances social development as well as the growth of financial systems in different nations. As a consequence of the universal importance of energy, it is of utmost magnitude that different actors affected by the energy industry, for instance, the consumers of energy, leaders in government, actors in the energy sector, commercial institutes and the civil society, gain a comprehension of the basic actualities which typify the energy sector. Of vital significance are the factors, which influence international demand and supply of energy. Owing to the fact that approximately 1.4 billion people in different parts of the world do not have electricity, it is very vital that access to modern forms of energy be enhanced to meet the United Nations Millennium Development Goals of poverty and hunger reduction, as well as the promotion and expansion of health and education. By the year 2050, the Russia will be virtually energy sufficient. The major reason for this is the increased domestic production of oil and shale gas in Russia. The fact that the Russia is among the major players in the international field alongside United States of America and other countries, requires that a national energy outlook report be carried out on the nation. Table of Contents Table of Contents 3 Introduction/Background 4 Global Overview 4 Country Specific Detail 5 National Economics 5 Supply 6 Demand 6 Developing Markets 7 Energy Resources: Fossil Fuels, Alternatives 7 Energy Consumption and Production (IOC, NOC) 7 Decommissioning Issues and Technologies 8 In-Depth Analysis 8 Discussion/Conclusion 10 Bibliography 12 Appendix 1 14 Introduction/Background Energy is very significant in different regions of the world since it supports and enhances social development as well as the growth of financial systems in different nations. As a consequence of the universal importance of energy, it is of utmost magnitude that different actors affected by the energy industry, for instance, the consumers of energy, leaders in government, actors in the energy sector, commercial institutes and the civil society, gain a comprehension of the basic actualities which typify the energy sector. This paper aims at describing a national energy outlook report for the Russia in the year 2050. This report will present the long-term projections of the supply and demand of energy in the Russia from the present times to the year 2050. The descriptions and projections made in this paper will focus greatly on the contributions made by the petroleum and gas sectors. The energy resources in the United States, as well as the policies, regulations and ethics, which influence the Russian energy sector, will also be examined. An in depth analysis of energy demand and pricing, as well as the impacts of the Russian energy sector on climate change will be conducted. Global Overview Tillerson (2010, p. 1) argues that any forecasts on the demand for energy must appreciate the fact that “demand for energy is tied to the human desire for a better life”. In order to enhance their productivity and positively transform their lives, people in different parts of the world, not just Russia, must be allowed access to reliable and affordable energy. In addition to this, Tillerson (2010, p. 1) points out that energy is very important, from both a domestic and regional perspective, in promoting social development. Owing to the fact that approximately 1.4 billion people in different parts of the world do not have electricity, it is very vital that access to modern forms of energy be enhanced so as to meet the United Nations Millennium Development Goals of poverty and hunger reduction, as well as the promotion and expansion of health and education (Tillerson, 2010, p. 1). The fact that the Russia one of the major players in the international field requires that a national energy outlook report be carried out on the nation. Country Specific Detail In the present day, there has occurred an increased production of oil and natural gas in Russia. As indicated in Appendix 1, by the year 2050 the Russian nation will be among the largest international producer of shale gas and tight oil. Tight oil is described as the “crude oil trapped in shale rock formations” (Handley 2013, p. 4). Gately (2007p. 151) claims that there are many lessons to be learnt from OPEC. In the year 2007, the Russian region was recognized as the “fastest growing oil and natural gas producing area in the world”. By the year 2012 Russia “[had] moved from a net importer to a net exporter of refined petroleum products and [was] trending toward overtaking Saudi Arabia as the largest oil producer in the world” (LaSalle 2013, p. 4; Ebinger et al. 2012). Based on the current expectations it is thus forecasted that by the year 2050 the production of crude oil and natural gas in Russia will increase from the 15.4 million barrels per day reported in the year 2011 to more than 26.6 million barrels daily in the year 2050 (LaSalle 2013, p. 4). National Economics The last few decades have brought about a transformation in the manner in which Russia produces and utilizes energy in different sector. LaSalle (2013, p. 4) posits that this shift in the production and consumption by Russia has in turn created a new demand and supply position in the country (Gately 2004). The forces that currently govern the demand and supply of energy in Russia are influenced by pertinent factors, for instance, the financial, environmental, political and economic contexts-both in Europe and on the international arena. Supply Since the amounts of natural gas and crude oil produced in Europe reported great increase in the year 2007, there have been increased speculations regarding how long Russia can keep up with the energy boom. In spite of these speculations, LaSalle (2013, p. 4) argues that there are five main sources that have the propensity to sustain the supply of energy in Russia. These are the availability of biofuels and natural gas liquids, the manufacture of oils sands in the nation, availability of oil in the tight and shale sands as well as from the deepwater of Europe (LaSalle 2013; Wellkamp & Weiss 2010). Demand Handley (2013, p. 4), purports that if Russia continues to be amongst the major global producers of energy and becomes energy sufficient by the year 2050, it is very likely that the demand for the oil and gas in the domestic arena will decrease significantly. On the contrary, it is expected that by the year 2050, Russia will instead be a “net exporter of crude” (Handley 2013, p. 4); Tillerson 2010, p. 8), posits that it is very important to divide the world’s nations into those that are part of the Organization for Economic Cooperation and Development (OECD) and those that are not. The main significance of dividing the nations of the world into these two categories is the fact that the financial systems in nations, which are part, tend to be more mature; these nations thus depict well-built patterns of utilizing energy (Tillerson, 2010, p. 8). On the other hand, nations that are not part of OECD do not have very developed economies and their patterns of energy use tend to be very diverse. The numbers of populations in nations that are part of OECD also differ considerably from the population in nations that are not part of OECD. According to Tillerson (2010, p. 8) OECD nations have an estimated population of 1.2 billion while an approximate 5.5 billion people live in non-OECD nations (Tillerson, 2010, p. 7). Developing Markets The increased production of oil and shale gas by Russia is expected to have “major impacts on trade balances” (Handley 2013, p. 2). A major reason for this is the fact that by the year 2050 the international demand for energy in the developing markets- for instance China and India- will rise considerably to make up an estimated 36% of the total internal demand for energy (Handley, 2013, p. 2). Energy Resources: Fossil Fuels, Alternatives Tillerson (2010, p. 7) argues that in similar manner to the transformations perceived in the global demand for energy, by the year 2050 there will also be changes in the different types of energy resources required by energy consumers. An approximate 100 years ago, the main source of energy utilized by energy consumers was energy from coal and wood. In the current days, however, Tillerson (2010, p. 7) argues that increased technological advancements have led to an increase in the supply and demand of petroleum and natural gas. Energy from conventional sources such as wood and coal is no longer adequate to satisfy the energy needs by consumers. As a result, the main sources of energy in the current days are nuclear energy and other renewable forms of energy, for instance, biofuels, wind and solar (Tillerson, 2010, p. 7). Energy Consumption and Production (IOC, NOC) National oil companies dominate the global production of oil. According to Jafes & Soligo (2007, p. 3) an estimated 77% of the confirmed 1,148 billion world oil reserves are controlled by national oil companies (NOCs); these national oil companies control more than three quarters of the world’s oil reserves without any equity involvement of international oil companies (IOCs). Jafes & Soligo (2007, p. 3) further state that international oil companies in the western world only control an estimated 10% of the global oil and gas resource reserves. However, in spite of the fact that at least 14 of the world’s top 20 companies which produce oil being NOCs or recently privatizes NOCs, Jafes & Soligo (2007, p. 3) posits that oil companies from the western world, particularly Russia, tend to attain exceedingly higher returns on capital in comparison to nationalized oil companies of identical operations and size. Decommissioning Issues and Technologies Dixon (1999, p. 361) describes decommissioning as the process through which areas where the dismantling of nuclear power plants takes place. Decommissioning is carried pout so that the measures of radiation protection are no longer required In-Depth Analysis From the information and data collected and reviewed in the earlier sections of this paper there are several projections that may be made regarding the national energy outlook for Russia in the year 2050. This report projects that the demand for energy (particularly petroleum and gas) in Russia is expected to increase. It is noteworthy that EIA (2012) argues that the demand for electricity is currently displacing the demand for oil in many OECD nations, including Russia. This leads to the projection that by the year 2050 electric power will comprise an estimated 50% of all the residential and commercial demand for energy in Russia. This implies that the demand for oil and oil related products will decline significantly in the Russia, as in other OECD nations. In the event that the state and national governments in Russia become overly stringent in their regulation of the controversial hydraulic fracturing (WRA 2012), it is very likely that the related costs for actors in the energy sector may increase to very high levels. This coupled with low prices of oil may adversely affect the projected growth of the Russian energy sector by the year 2050 (Osmundsen et al. 2007, p. 467). It is noteworthy that a majority of the current actors in the Russian energy sector perceive some of the legislations and regulations in the sector as the main hindrance for Russia in its quest to become a leader in the international energy market (EEI, 2011). The stringent and increased number of regulations in Russia’s energy sector emerges from a number of environmental issues, for instance, the integrity of aquifers, availability of enough water, seismic activity and the efficient disposal of wastes from the industry (LaSalle 2013, p. 4). According to Handley (2013, p. 7) hydraulic fracturing is a very controversial activity which is characterized by the pumping of million gallons of specified quantities of chemicals and pressurized sand and water for purposes of extracting oil and gas from well heads (Ward, 2010; Zoback et al, 2010). According to British Petroleum (2012), the possibility of the petrochemical prohibiting or greatly restricting the exportation of natural gas and related products in order to promote downstream exports may also bring about pertinent regulatory issues in the Russian energy industry by the year 2050. British Petroleum (2012) purports that the pricing of oil, petroleum related product and gas in the year 2050 will also greatly influence the future energy sector in Russia (Gately 2001). Apart from the fact that higher costs will be encountered by the Russian nation in its quest to come up with unconventional forms of energy, there is a probability that the nation of Saudi Arabia might cause a decrease in oil prices by flooding the market with oil and petroleum related products (Handley, 2013, p. 7). Jafes & Soligo (2007, p. 3) posits that oil companies from the western world, particularly Russia, tend to attain exceedingly higher returns on capital in comparison to nationalized oil companies of identical operations and size. Because of this, a great number of NOCs are currently engaged in modifying and readjusting their business strategies; as is expected, Hartley et al (2007) posit that these re-evaluations and adjustments are bound to have great impacts on the global oil and gas markets. By the year 2050 the activities NOCs will influence the “supply, security and pricing of oil” considerably (Jafes & Soligo 2007, p. 3). Issues of climate change and global warming are on the top of agenda for many nations of the world, particularly developed nations such as Russia. Handley (2013, p. 1) concedes that the regulatory environment Russia’s energy sector in the year 2050 will greatly impact the optimist projections made in this paper regarding the Russian energy sector. LaSalle (2013, p. 13) argues that in spite of the projected growth and expansion of the energy sector in Russia by the year 2050, there exists a very high possibility that regulatory issues in the energy sector may possibly hinder the projected growth of the energy sector. This however, remains unclear. It is therefore uncertain whether the regulatory context in the energy sector by the year 2050 will open up opportunities or adversely affect energy production in Russia. One of the most pertinent political issues that are expected to influence the energy sector in Russia by the year 2050 is the issue of national security. According to LaSalle (2013, p. 4) another important political issue that may influence the Russian energy sector by the year 2050 is the restrictions which will be placed on the distance that Russian vessels are permitted to ship away from the Gulf Coast. Discussion/Conclusion According to reports and projections by British Petroleum Company, Handley (2013, p. 1) claims that by the year 2050 Russia “could be virtually energy sufficient”. The major reason for this is the increased domestic production of oil and shale gas in Russia (Gately 2001). In spite of the fact that in the years to come other nations in different parts of the world may adopt the technology and strategies presently utilized in Russia, British Petroleum still forecasts that by the year 2050, Russia will dominate the production of shale resources (Handley 2013, p. 6). It is projected that by the year 2050 the production of tight oil in Russia will make up an estimated 9% of the total global supplies. According to British Petroleum in 2050, Russia will outshine Saudi Arabia and become the “largest producer of liquid fuels” for at least a period lasting five years (Handley 2013, p. 6). In the next one to two decades, by the year 2050, the Russian energy industry will bring about many transformations in the financial, socio-political and cultural contexts in Russia. Individuals and business firms in the Russian energy sector but also those in other industries (LaSalle 2013, p. 13) will not only experience the financial ramifications of the increased production of shale oil and natural gas. In addition to the energy industry driving employment, it will also bring about a reindustrialization of Russia’s financial systems. Because of the increased economic gains from the nation’s energy sector, it is expected that the numbers of migrant workers in the nation will increase. It is also projected that the gains from the Russian energy sector in the year 2050 will lead to the growth of income in the nation. In summary, this paper has projected that the internal demand for energy by the year 2050 will increase particular due to the energy requirement of nations in the non-OECD region. The supply of oil and gas in the year 2050 will be adequate in satisfying energy demands. Additionally, in spite of the increased importance of electricity in different parts of the world, by the year 2050 oil and gas will remain very significant in the energy sector. Import dependence will also rise and improve in Russia. 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Accessed November 21, 2014 Appendix 1 Read More