Oil and Gas is a very risky business , there is so much risk involved starting from the exploration to the distribution in this business. There are basically five steps come across in the business. Starts with Exploration (finding out of new oil and gas wells), production (laying down all facilities required to produce natural resources from the wells), transportation (through oil and gas tankers and pipelines transfering the resources from one to another), refinery (converting natural resources to usable form), ditribution (distribute to the customers). In this five stages there are so many political, geographical, environment, economical an international factors involved in this business which makes this business very volatile and very risky.
Oil and Gas sector tackles with lots of complexities, and at the same time it is one among the needs required by human race to survive, which deem the necessity to critically evaluate the factors on which crude oil business depends. Globalisation, emerging technologies , world demand and supply countries economic situations, olitical relations among the countries, international policies, terrorism, outsourcing, new artnership, government regulation, depletion of resources, transitional pipelines, geographical chokepoints, environmental concern etc,are some of the factors which have an impact on the oil and gas business and which make this business highly unpredictable.
OBJECTIVE
The objectives of dissertation:
To bring out some contemporary factors on which crude oil business depends.
Their impact on the crude business.
Before starting up with the oil and gas business, we have to aware about the Organization of the Petroleum Exporting Countries. It is an intergovernmental organization of twelve oil producing countries which contributes are Algeria, Angola, Ecuador, Iran, Iraq, Libya, Kuwait, Saudi Arabia, Nigeria, United Arab emirates and Venezuela.
The First Major Oil- Shock:
In the 1970s, OPEC countries achieved control over more than 55% of the oil supply. OPEC started to fix production quotas and established co-operation between producers in order to avoid competition that would bring the price of oil down. This was feasible in the context of a growing market demand and the dependency on only a few oil. Between 1970 and 1973, the price of oil barrel passed from1.80 dollars to 3.01 dollars.
The Kippur war of 1973 was fought between Israel and Egypt. OPEC intervened by nationalizing production facilities, reducing production by 25% and imposing export quotas. OPEC imposed quotas on countries supporting Israel. The price of oil consequently reached 11.65 dollars per barrel at the end of same year. High oil demand, limited capacity of developed countries to supply oil and no readily energetic substitutes gave OPEC a strategic advantage of oil trading in global market.
OPEC gained the ability to control the price of the oil with a market controlled by oil producers. This caused the first oil shock.
The Second Oil-Shock:
In the 1970s and early1980s the price of oil remained high but stabilized over 1970s to around 20 dollars per barrel. Developed countries started to worry the exhaustion of oil reserves and unreliable supply sources. This however was followed by instability in two major oil producers, Iran and Iraq. The Iranian revolution took place in 1979, Iran-Iraq war was fought in 1979-80, because Iran was trying to export Islamic revolution to Iraq, which effected 8% removal of the world oil supply resulting in second oil shock where the price of oil went above 35 dollars per barrel. The second oil-shock was however countervailed by resorting to the following strategies:
1. Drastic but somewhat temporary, measures to lower oil consumption.
2. Relocation of energy consuming industries;
3. Consuming energy in a more efficiently manner;
4. Relying on national energy sources (petroleum, coal, natural gas, hydroelectricity, nuclear; and
5. Substituting petroleum for other energy sources when possible.
Oil Counter Shock:
In the end of 1980s and beginning of 1990s, OPEC countries lost their price fixing power. Internal problems such as economic and geopolitical conflict between its members vitiated the leadership status of OPEC conglomerate. New members such as Russia, Mexico, Norway, England and Columbia combined to form alternate and new conclave which was not constrained by OPEC policies and were free to fix their own prices. Mexico surpassed Saudi Arabia in 1997 to become the second largest oil exporter to the United States after Venezuela. Latin American countries like Columbia and Brazil also tried to boost their oil production to compete with OPEC nations to break the monopoly. Vietnam is offering off shore oil fields, as other Southeast Asian countries hoping that there would be major oil reserves under South China Sea.
Since 1982, divergences occurred within OPEC members to fix quotas and prices as competition increased. The share of OPEC dropped from 55%of all the petroleum exported in the 1970s to 41% in 1992 with all time low of 30% in 1985.That year Saudi Arabia lowered the price of its oil to increase the market share. Oil counter shock that lowered the price of the barrel under 20 dollars, even reaching a record of 15 dollars in 1988 was continued unabated. The oil market was again a market controlled by the demand. During the Gulf War that followed, respecting production quotas became a major issue among OPEC members. Countries such as Kuwait started producing well above quota. This event was a motivation for the invasion of Kuwait by Iraq in 1990, which saw the price of petroleum jump to 41$. 7.8% of the world's oil production was removed (Iraq and Kuwait). Other petroleum exporting countries were quick to expand their production to replace Iraq's and Kuwait's shortfalls. The increase in oil price was however short-lived.
U.S., Russian Oil Production Threatens OPEC Dominance
U.S. politicians have long been fixated on the sway the Organization of the Petroleum Exporting Countries has on oil markets, and this year's presidential election has been no exception. But an oil boom in America, coupled with a boost in Russian production, is undermining the cartel's influence, making it likely the group will cut crude production to support prices.
Both President Barack Obama and challenger Mitt Romney claimed during the campaign that their approach would help America make do with less oil from OPEC. Yet change is already afoot in the U.S. oil market and this time it looks as if OPEC has more to worry about than do American motorists.
After three decades of decline-with easy-to-drill fields becoming depleted-oil production in the U.S. is rebounding. That is because higher crude prices and technological advances have enabled extraction from tight rock formations such as so-called shale reservoirs.
According to the U.S. Energy Information Administration, U.S. output-including other petroleum such as liquid natural gas-is expected rise to about 11.7 million barrels a day by the end of 2013, up 8.5% from the third quarter of this year. That would be close to the 12 million barrels a day of crude Saudi Arabia has the capacity to produce and above the Gulf state's current output of about 10 million barrels a day.
Already, oil production from North Dakota alone-at just above 700,000 barrels a day-has surpassed Ecuador's 500,000 barrels a day and is about to overtake Qatar's output of 750,000 barrels a day. Ecuador and Qatar are OPEC members.
As a result, imports are expected to account for less than 40% of U.S. oil consumption next year for the first time since 1991, according to the EIA, an authoritative source on global oil markets.
Some experts say OPEC crude is likely to be first to feel the squeeze. "This flood of U.S. crude is likely to put oil prices and OPEC output under downward pressure next year," Leo Drollas, chief economist of the U.K.-based Centre for Global Energy Studies, or CGES, wrote in a note last month.
As an example, the U.S. is the largest oil-export destination for OPEC member Nigeria, accounting for one-third of its foreign sales, according to the EIA.
The EIA sees a small drop of 490,000 barrels a day in OPEC supply next year, as it cuts output to support prices, while the CGES estimates that the resurgence in U.S. output will reduce global demand for OPEC's crude next year by about 670,000 barrels a day-about 2% of its current crude production of about 31 million barrels a day.
A drop in U.S. imports could also spark an effort to woo new buyers, putting pressure on prices.
Brent crude prices are currently at about $111 a barrel, while light, sweet crude on the New York Mercantile Exchange has been trading below $90 a barrel.
Moreover, it isn't just waning U.S. appetite for foreign oil that OPEC has to fear. Russia's production is also rising to levels not seen since the 1980s' Soviet era, thanks to an intensive drilling program supported by the Kremlin. Last month, production reached 10.46 million barrels a day, up 2% from last year's average and half a million barrels a day more than Saudi Arabia.
While Russia has pledged closer ties with OPEC, it would be unlikely to coordinate production cuts with the group to support prices.
"For us to join in production cuts, OPEC would have to offer us something very attractive that would compensate all the risks. I haven't seen any such offers," Igor Sechin, chief executive of OAO Rosneft-Russia's largest oil producer by volume-told The Wall Street Journal last month.
Some Middle Eastern experts say OPEC can partly mitigate the lost market share by taking advantage of an increase in its production flexibility. Unlike the U.S. and Russia, which produce every barrel they can, OPEC members intentionally leave some capacity idle, which they can use to try to influence prices.
"The importance of Arab oil-producing countries does not lie in its massive reserves alone but also in the spare productive capacity," wrote consultant Walid Khadduri in Saudi-owned newspaper al-Hayat Sunday.
Environmental Aspects
Here there are different types of impacts which effects the environment
Human, socio-economic and cultural impacts
Atmospheric
Aquatic
Terrestrial
War and politics
Political instability in the Middle East has caused great concern about access to oil given that this region accounts for a large amount of the worlds oil supply. In July of 2008 oil prices reached over $136 a barrel due to global concerns about the wars in both Iraq and Afghanistan. One of the main reasons that oil prices rose so precipitously during this time period was due to the fact that suppliers were unable to convince buyers that they would be able to properly deliver oil.
When oil prices rise to these levels the American consumer then cuts back on driving in order to save money. This in turn decreases demand, which begins to drive the price of oil down. These are the basic laws of supply and demand that dictate the price of oil and illustrate the complex relationship between consumers and producers.
How the recession effects the oil prices
In a recession there are a number of factors that can decrease demand for oil which causes the price of oil to drop. First, as consumers cut-back on their expenses driving is oftentimes one of the first expenses that will be cut. Many employers, understanding the financial strain their employees are under during a recession will oftentimes allow employees to work from home one or two days a week. This reduction in driving as a means to save money decreases oil demand and thus reduces oil prices.
Another factor that affects oil prices in a recession is decreased demand for products. As consumers decrease spending, demand for oil also decreases as fewer products are shipped from manufacturers to consumer countries. Stores like Best Buy see less people buying televisions, stereos, etc. and in-turn reduce their forecasts with suppliers. This creates less demand for the shipment of goods which reduces demand for oil.
Hurricane Katrina and oil prices
Wars, recessions, and devastating weather are the main external factors that can affect oil prices. In 2005 Hurricane Katrina halted oil production along the Southern Gulf Coast of the United States. As supply was precipitously cut, and demand remained the same, oil prices increased to over $70 a barrel in a short period of time. As prices at the pump peaked, President Bush released 30 million barrels from the Strategic Petroleum Reserve (SPR) bringing the price of oil back down.
