Executive viewpoint
The world is currently in a sharply divided discussion over the use of fossil fuels versus alternative green technology, all about seeking to reduce global emissions and make the earth a more environmentally healthy place. The passions of the participants in these discussions are often driven by their perceived notions, but with not much thought of the ramifications and the effort to sustain one form or the other.
This is a complex discussion that seems to be led more by ideologists than by scientific and historical facts. There are those who purport to be knowledgeable, like educators, bankers and, of course, politicians. On the other side are the industry professionals and the more astute consumers, who take a more measured view.
Factors and pricing. Over the past couple of years, the world has experienced a pandemic that has roiled the energy market and upset the global economy. Meanwhile, a wave of environmental activists is taking the opportunity to push more green energy, and to move away from fossil fuels. Oil prices dropped, then rose again. It would appear the price will stabilize in the $70-to-$80 range. Some entities have forecast $100 oil. That would seem unlikely, because the price is still significantly controlled by OPEC. A reasonable price in the $70s provides adequate revenue for the national budgets. They do not want major industry disruptions. If the price gets too high, they will simply produce more and stop the rise.
Oil companies are not moving away from fossil fuels. They will continue to get more efficient and continue to develop technology that is more environmentally friendly, while oil remains the lowest-cost source of energy. Alternative sources have a niche, and oil companies may dabble a bit in that arena, but that is not their focus. Consumers buy energy from the cheapest source. Some folks claim to be solid green in public, but privately, they invest in oil stock. It is not going away over the next 100 years for sure. People need three basic items for their livelihood: food, housing, and energy.
In so many quarters, oil gets a bad rap. Nevertheless, oil is perhaps our most valuable commodity. In a world with an insatiable appetite for energy, oil meets that need. Demand continues to increase and exceeds the world’s ability to supply. Hydrocarbons fuel the world economy. Oil has met this challenge for over 150 years and will for another 100 years.
Everyone uses oil, needs it, and wastes it. Hydrocarbons are the basic building block for an industrialized society, as an important component in the production of petrochemicals, plastics, and a host of other things. It is used to make roads, tires, computers, fertilizers, heart valves, and more. When money is scarce, we can reduce our demand in various ways, but we cannot do without oil completely. It is a necessity to maintain the standard of living that we all want.
Oil exploration and production is a risky, difficult business. Not only does it take large sums of money and require highly qualified engineers and technicians, it demands great patience and persistence. The United States has seen taxes on windfall profits, and a regular call for increased taxes on companies that produce oil. In reality, such punitive practices rarely work in a capitalist society, because the taxed party will find ways to pass those higher costs on to the consumer. Instead of more taxes, the government should enact incentives to encourage more development of oil resources.
When the discussion turns to alternative sources, there are geopolitical, environmental and economic concerns that will guide the energy practice in each location. Throwing more funds into alternative sources will not solve this energy argument. Over the next 50 years, alternative energy sources will likely contribute no more than 15% of the total energy need. Solar, wind, geothermal and nuclear all have a niche. However, oil will remain the most cost-effective option for many years to come.
Future oil trends. In the U.S., energy independence was sought, and it was achieved for a short period in the past few years. However, politics got in the way, and imports are back. Not only will the U.S. continue to import more oil, it may eventually be importing gasoline, due to a shortage in refining capacity. Other countries are expanding their drilling and production activities, while the U.S. falls behind in production because of restrictive governmental policies, even though the country is the leader in oil and gas technology.
Companies will continue to focus on finding new, giant fields, like offshore Angola and Brazil, and hopefully more from Alaska, depending on deregulation. I do not see any crisis in supply. Meanwhile, the Middle East has plenty of oil to call upon. Indeed, the world population increases and the growing economies need energy, and thus more oil is required. The smart governments depend on oil but are wise enough to have some play in alternatives. Africa wants oil badly and is doing developments. The same for China, with a quarter of the world population.
The world must deal with the energy problem as a global community. Oil sustains us, and its efficient development and production will help supply our energy needs. Green energy may have more glamour on the media and political stage, but it cannot carry the entire show. The audience can see fossil fuels as the preferred and necessary resource.
