OIL SUPPLY 225
Department of Energy some countries that previously allowed foreign investment, such as Russia and Venezuela, appear to be reasserting state control over the oil sector.
National oil companies may have additional motivations for
producing oil, other than meeting consumer demand. For instance,
some countries use some profits from national companies to support domestic socioeconomic development, rather than focusing
on continued development of oil exploration and production for
worldwide consumption. Given the amount of oil controlled by
national oil companies, these types of actions have the potential to
result in oil production that is not optimized to respond to increases
in the demand for oil.
While current high oil prices may encourage development and
adoption of alternatives to oil, if high oil prices are not sustained,
efforts to develop and adopt alternatives may fall by the wayside.
The high oil prices and fears of running out of oil in the 1970s and
early 1980s encouraged investments in alternative energy sources,
including synthetic fuels made from coal, but when oil prices
fell, investments in these alternatives became uneconomic. More
recently, private sector interest in alternative fuels has increased,
corresponding to the increase in oil prices, but uncertainty about
future oil prices can be a barrier to investment in risky alternative
fuels projects. Also, interest in fuel efficiency tends to increase as
gasoline prices rise and decrease when gasoline prices fall.
Moreover, the economic principles, which explain how a market economy works, tend to break down when applied to natural
resources such as oil. In fact, there are two ways in which the principles of market economics do not apply to crude oil: (1) the current price of oil has virtually no influence on the rate at which it is
discovered and (2) the rules of supply and demand do not always
hold and a rise in the price of crude oil does not always lead to an
increase in production.
There is still a large quantity of oil in the ground but what really
matters is not how much remains, but the turning point at which
the flow of oil hits its peak and starts to turn down. Furthermore,
the world as a whole currently uses at least 30% more oil now than
it did in 1970, and the fact that its consumption of gas has risen
many times over does not mean that there is less dependency on
oil. It does mean that the world has become more dependent on
gas. The move to alternate sources of energy is touted as the savior
of the energy-consuming countries. But, there are time lags.
Department of Energy some countries that previously allowed foreign investment, such as Russia and Venezuela, appear to be reasserting state control over the oil sector.
National oil companies may have additional motivations for
producing oil, other than meeting consumer demand. For instance,
some countries use some profits from national companies to support domestic socioeconomic development, rather than focusing
on continued development of oil exploration and production for
worldwide consumption. Given the amount of oil controlled by
national oil companies, these types of actions have the potential to
result in oil production that is not optimized to respond to increases
in the demand for oil.
While current high oil prices may encourage development and
adoption of alternatives to oil, if high oil prices are not sustained,
efforts to develop and adopt alternatives may fall by the wayside.
The high oil prices and fears of running out of oil in the 1970s and
early 1980s encouraged investments in alternative energy sources,
including synthetic fuels made from coal, but when oil prices
fell, investments in these alternatives became uneconomic. More
recently, private sector interest in alternative fuels has increased,
corresponding to the increase in oil prices, but uncertainty about
future oil prices can be a barrier to investment in risky alternative
fuels projects. Also, interest in fuel efficiency tends to increase as
gasoline prices rise and decrease when gasoline prices fall.
Moreover, the economic principles, which explain how a market economy works, tend to break down when applied to natural
resources such as oil. In fact, there are two ways in which the principles of market economics do not apply to crude oil: (1) the current price of oil has virtually no influence on the rate at which it is
discovered and (2) the rules of supply and demand do not always
hold and a rise in the price of crude oil does not always lead to an
increase in production.
There is still a large quantity of oil in the ground but what really
matters is not how much remains, but the turning point at which
the flow of oil hits its peak and starts to turn down. Furthermore,
the world as a whole currently uses at least 30% more oil now than
it did in 1970, and the fact that its consumption of gas has risen
many times over does not mean that there is less dependency on
oil. It does mean that the world has become more dependent on
gas. The move to alternate sources of energy is touted as the savior
of the energy-consuming countries. But, there are time lags.