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1)
Energy Industry Introduction.
Ever since Colonel Drake drilled the first true oil well
in the state of Pennsylvania in 1859, the ability of oil and
natural gas to power electric generation plants, transportation,
homes and industry has created both immense economic advances
and significant controversy. Many times it has been assumed
that the world would quickly run out of oil. In 1939, and
again in 1951, the U.S. Department of the Interior warned
that all of the Earth’s oil reserves totaled only enough
to fuel the world’s nations for about 13 years. In fact,
rather than becoming scarcer over time, energy has become
much more plentiful. Over much of the history of the energy
industry, prices gradually became lower and lower on an inflation-adjusted
basis, while a combination of advancing technologies, determined
entrepreneurs and alternative sources have exponentially expanded
the total amount of energy and global reserves available for
consumption.
There have long been periods of major fluctuations in prices
for oil and natural gas. Today, energy consumers of all types,
from residential consumers to transportation firms to industrial
plants, are suffering the economic effects of greatly increased
energy costs, particularly in the 2003-2005 period. Today’s
rapidly growing global demand for energy combined with political
strife in many oil exporting nations could easily lead to
a long-term period of relatively high market prices, both
for crude oil and natural gas. The price of Arabian light
crude oil rose from about $1.85 per barrel in 1972 to about
$40 in 1981 during an “energy crisis,” a vast
increase and the peak price for many years to come. Adjusted
for inflation, that $40 barrel of oil would be $80 or so in
2005 dollars.
More recently, during 1986 and again in 1998, the price of
a barrel of oil plummeted to about $10 in a short period of
time. However, costs have been rising quickly since 2003.
In mid-August 2005, the post-Hurricane Katrina price of a
barrel of crude oil peaked just shy of $70 as the extent of
the damage to production became apparent. The price of natural
gas more than doubled from June through October 2005, rising
from about $6 to about $13 per million BTUs.
Today’s higher prices for oil and gas will put a new
global emphasis on conservation, renewable energy sources,
nuclear power plant development and production from alternative
oil sources such as tar sands and oil shale. Meanwhile, offshore
exploration and production will continue to be emphasized
in many parts of the world, with sophisticated rigs drilling
ever deeper to tap massive reservoirs, using technologies
that enable the rigs to go to depths undreamed of 20 years
ago.
Consumers and business organizations alike are suffering
from higher energy costs. Many are reacting with new conservation
efforts. Toyota’s hybrid powered automobiles are selling
as fast as it can make them. Massive new solar and wind projects
are popping up around the world. Greatly enhanced building
materials and appliances that provide much greater energy
efficiency are becoming standard in developed nations. Meanwhile,
the growing middle class in many parts of the globe, particularly
India and China, are putting new strains on energy supplies
while energy emissions are creating new environmental concerns.
Estimates of the total fossil fuel remaining underground
range as high as 14 trillion barrels of oil equivalent, including
tar sands and other relatively difficult to produce structures.
Technologies will continue to be enhanced that will enable
recovery of many of these resources, as long as the market
price per barrel of oil is high enough to justify investments
in technology, exploration, development and production.
In 1892, Thomas Alva Edison established the Pearl Street Station
in New York City-the world's first central electric power station.
By the 1920s, electricity was in common use in American buildings
and homes, and millions of automobiles were clogging American streets.
Today, America is the world's greatest energy consumer. The U.S.
accounts for about 25% of the entire world's petroleum consumption,
while pumping only about 10% of its total production). The majority
of oil consumption is used as fuel for transportation, including cars,
aircraft and trucks. There is no end in sight to America's need for
power and fuel. In contrast, as much as one-third of the world's
population either has no access to, or cannot afford, a steady supply
of electricity.
Nonetheless, the U.S. has become much more energy efficient by
one measure: In 1970, America required about 1.3 barrels of oil t
o produce the equivalent of $1,000 in GDP (measured in 2004 dollars).
By 2004, the amount of oil required to create the same $1,000 in
GDP had dropped to 0.64 barrels-an indicator that energy use has
become more efficient in many ways, despite the vast numbers of
relatively low-MPG vehicles on the road. Put another way, during
about the same period America's consumption of energy of all types,
for each dollar of GDP, has dropped from about 17,000 BTUs to 9,000,
a reduction of about 50%.
Nonetheless, American consumers will spend about 6% of their income
on energy in 2006 if prices remain high, a sharp increase from previous
years. Rising costs of heating oil, gasoline and natural gas are
hurting consumers and industry alike.
The U.S. contains only about 2.5% of the world's known natural
gas reserves. Natural gas consumption has been growing rapidly, and
this demand has pushed prices to very high levels. About 20% of U.S.
electricity is generated at gas-burning plants, so the cost of natural
gas has hurt electricity consumers in many parts of the nation. At
the same time, however, the U.S. sits on immense quantities of coal,
about 25% of the world's reserves. America's 1,300 coal-fired plants
already create about one-half of the nation's electricity, and technologies
that enable coal to be burned in a cleaner manner are being adopted
rapidly in new plants across the nation. However, the price of coal
has been soaring in the U.S., along with the cost of oil and gas.
During the 1900s, once Americans developed the habit of guzzling
energy both at home and at work, citizens of other developed nations
quickly followed suit, although consumers outside the U.S. tend to use
much less energy per capita. Major cities worldwide rapidly became
electrified at the same time that the use of fuel-thirsty automobiles,
trains and airplanes caught on around the globe, following the spread
of the industrial age. That trend continues today, as booming economies
in China and India are creating immense increases in the use of oil and
gas in those nations. Energy demand is soaring worldwide, presenting
massive challenges for producers, consumers and regulators while creating
major economic and environmental challenges as well.
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