Oil And Gas Industry

ent">showing an increase since last two months is
Petroleum in one form or another has alwaysexpected to reach at the pinnacle of its monthly
been the most useful natural resource worldwide.average price in August. The RAC of crude oil in
More than four thousand years ago, Herodotus, a2007 is estimated at the rate of 64.86 per barrel
Greek historian of 5th century B.C.E and Diodrusas compared to $ 60.23 per barrel in 2006 and in
Siculus, a historian of Agyrim Sicily in C A 90 B2008 is expected to be 68.75 per barrel. This
C— C A 30 B C discovered that Babylonincrease is due to the tight world oil supply and
were using Asphalt black substance found indemand balance.
Petroleum during the construction of the walls and2007 can witness the increase in the total gas
towers of Babylon. In 1410 AD, native Americansconsumption by 4 percent and the LNG imports
were harvesting the oil for medicinal purposes. Itcan go up to 850 bcf, which would be a record in
was in 1859, in the quite farm country of Northupper scale. This is clear from the fact that
Western Pennsylvania that the drilling of the firstdespite of the increase in the demand of bio-fuels
most important crucial oil well took place. This welland other non-hydroelectric renewable energy
began to be known as the Drake Well after thesources and subsequently the construction of new
name of "Colonel" Edwin Drake, the man whonuclear power plants, the Oil and Gas Industry is
gave the idea of drilling the well for commercialexpected to supply same 86-percent share of
use. This was the first phase of the history of Oilthe total U.S. primary energy in 2030, which they
Industry, which gave new lease to our lives. (Thewere giving in 2005
Paleontological Research Institution, The History ofYear after year, there has been very less growth
Oil)in retail sales to just 3.2% year in April whereas
Today, the Oil and Gas Industry has touchedthere has been increase in the gas stations.
every sphere of our lives. It is the most depletedBecause of the growth of wholesale energy
and yet the most used natural resource by theprices to 3.4 per cent, the Producer Price Index
economies all around the world. With the increase(PPI) increased to 0.7% in April. Due to the
in new explorations and technologicalincrease in oil prices and stable demand, there
developments, the natural oil and gas production iswas a trade deficit by $6 billion. (Pod cast
increasing at the rate of two billion cubic feet aDirectory, 2007).
day, and currently Devon Energy is one of theAccording to Chicago Fed’s annual
largest and independent oil and gas producers inAutomotive Outlook Symposium, the economic
the United States. Based in Oklahoma City, it isgrowth in 2007 is seen to be slower than in 2006,
supplying three percent of the gas consumed inwith inflation and the unemployment rate
North America and producing 600,000 barrels ofincreased. The prices of the Energy also increased
oil a day. The company is also drilling more thanin the middle months of 2006, but after that they
2000 oil wells every year in North America in anfell, at an average of $60 per barrel in the fourth
area stretching from the Gulf of Mexico to thequarter. This led to the increase in inflation by 1.9
northernmost reaches of Canada. (O & Gper cent as measured by the Consumer Price
Next Generation Oil and Gas, 2007)Index (CPI), which is less than 3.7 per cent than
There are many unpredictable reasons, like overprevious year. (Strauss & Engel, 2007)
all economic growth, continuous development inThis phrase “Oil flows the Nation grows” is
technology, change in energy prices, change inevidently true when it comes to Oil and Gas. The
weather patterns and public policy decisions whichincrease in the price of Oil also increases the over
led to the changes in the levels of production andall Consumer Price Index, especially in September
in demand and supply. According to Energy2005, which was 1.2 per cent, highest in 25 years.
Information Administration projections from 2007The increase in imports of energy increases the
to 2030, the total production of domestic liquidtrade deficit, on the average the increase in oil
embracing crude oil, natural gas plant liquids,prices to 10 per cent leads to 150,000 Americans
refinery processing gains and other refineryto lose their jobs, and over and above we had to
inputs, is expected to see a tremendous increase.lose between $80 billion and $160 billion in
The reason behind the increase is the growth ineconomic growth. In September 2005, it was
refinery processing and other refinery inputs. It isestimated that 40 percent increase in gas prices
projected that this growth will compensate anyreduced the total domestic consumption by 0.4
predicted reduction in crude oil production afterpercent and the GDP fell to an estimated 0.9
2017. This increase in the production owes topercent. In fact even the Consumer spending was
some extent to the high tech oil recoveryreduced. But there is an increase in the profits
methods, the increase in the production in theamong the major players in Oil and Industry. Only
deep waters in Gulf of Mexico, higher resourcein the beginning of 2005, the five largest oil
assumptions for the Bakken Shale formation incompanies were making profits of $52.2 billion,
the Williston Basin. (Energy Informationwhich was less in 2004, only $39.5 billion.
Administration, 2007)(Democrats Policy Committee, 2005).
As per the AEO2007 reference case, the totalThe study on the impact of Oil Price by An
domestic natural gas production including theInternational Energy Agency in 2004 revealed that
supply of supplement natural gas reflects anthe repercussions of the high prices on economy
increase from 18.3 trillion cubic feet in 2005 to 21.1will be minimum and this proves to be as High oil
trillion cubic feet in 2022. (Energy Informationprices became most important macro economic
Administration, 2007) This clearly shows thatvariable. It is apparently quite clear that with the
in-spite of the factors that have led to thenew technologies are in the offing, the Oil and gas
increase in the energy prices since 2000, theIndustry will strike more. The earnings from the
growing influence of developing countries onIndustry are being invested in new technology,
world-wide energy requirements, enactment ofnew production, and environmental and product
legislation and regulations in the United States, thequality improvements to meet the requirements
rising need for the alternative source of energyof Generation next. According the Oil & Gas
and the need for the energy technologies did notJournal estimates, the Industry spends $85.7 billion
hamper the growth of Oil and Gas Industry.in 2005, whereas in 2004 it spend just $80.7 billion
United States of America is one of the largestin 2004 and in 2003 $75.5 billion. (Cavaney, 2006).
economies in the world with the per capita GrossThe threat to the Oil Industry is from the
Domestic Product to be $43,500. (The Centralalternative sources of energy like bio fuels and
Intelligence Agency, 2007). The economy ofother non-hydroelectric renewable energy sources
America depends on the crude oil for fuels to beand subsequently the construction of new nuclear
used in the transportation purpose. Seeing thepower plants, yet the Oil and Gas Industry is
current economic scenario and increase in theexpected to supply same 86-percent share of
demand for the fuel, the demand for the light oilthe total U.S. primary energy in 2030, which they
production all over the world is expected towere giving in 2005.
increase and will reach to the point where supply(Energy Information Administration, 2007). As the
of the oil will be going to be far less than thestudy above reveals that though the production
demand. This will result in the imbalance in theof oil and gas is on the increase but it is not able
supply and increase in the price of oil and fuelto meet the demand and to maintain a balance
especially for military and strategic purposes. Morebetween the demand and supply, The
than 60 per cent of the fuel requirements ofGovernment and Energy department is taking
United States of America is met by imports andinitiative to increase in the Shale Oils for liquid fuels.
at this current state of affairs, United States ofWork Cited
America have to bear the cost at price level ofCavaney R. (2006) API Updates Congress on Oil
$55/Bbl could be increased twice, from 9.9 MM Bbl& Natural Gas Industry Efforts. Retrieved on
d to nearly 20 MM Bbls/dby2025. (Online Edition)August 12, 2007 from W.W.W:
As the imports will increase, there is everyDemocratic Policy Committee (2005) UPDATE:
possibility that America could face price shocks,The Impact of Skyrocketing Energy Prices on
supply disruptions, and fuels shortages. AccordingAmerican Families and Businesses. Retrieved on
to the EIA/AEO estimates, the average importAugust 12, 2007 from W.W.W:
price of oil from 2005 to 2020 could make UnitedEnergy Information Administration (2007)
State Gross Domestic product to be reduced byShort-Term Energy Outlook. Retrieved on August
more than $ 1.1 trillion. (Online Edition) The12, 2007 from W.W.W:
department of Energy and the honorableEnergy Information Administration (2007) Annual
President of America suggested that the need ofEnergy Outlook 2007 with Projections to 2030.
the hour is to rely on the domestic sources forRetrieved on August 12, 2007 from W.W.W:
the increase in the liquid supplies. (Online Edition)Online Edition. America's Oil Shale Can Increase
And the best source is the production of ShaleFuels Supply, Support National Security, and
Oils; converted into liquid fuels, provide fuel for theCreate U.S. Jobs and Economic Growth. Retrieved
transportation of military and civilian purposes.on August 12, 2007 from W.W.W:
Currently the Oil shale resources can be found inO & G Next Generation Oil and Gas. (2007)
Colorado, Wyoming and Utah and hope is on theState of Independence. Retrieved on August 12,
anvil that with the efforts of the Government,2007 from W.W.W:
industry and other stakeholders, the oil shalePod Cast (2007) Weekly Economic Update: Week
production can reach 2 MM Bbl/D by 2020. (Onlineof May 14, 2007 Episode. Retrieved on August 12,
Edition)2007 from W.W.
The prices of the Crude Oil which have been