Energy crisis

An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil and additionally to electricity or other natural resources.

The crisis often has effects on the rest of the economy, with many recessions being caused by an energy crisis in some form. In particular, the production costs of electricity rise, which raises manufacturing costs.

For the consumer, the price of gasoline (petrol) and diesel for cars and other vehicles rises, leading to reduced consumer confidence and spending, higher transportation costs and general price rising.

Economy

In a market economy, the price of energy supplies such as oil, gas or electricity is driven by the principle of supply and demand which can cause sudden changes in the price of energy if either supply or demand changes. However in some cases an energy crisis is brought on by a failure of the market to adjust prices in response to shortages. In other cases, the crisis might be influenced by the lack of a free market. Some economists have argued that the 1973 energy crisis was worsened by price controls.

Oil supply is largely controlled by the national oil companies of nations with significant reserves of cheap oil, including the UAE, Saudi Arabia, Venezuela, Norway and Kuwait. Many of these countries have formed a cartel known as OPEC (Organization of Petroleum Exporting Countries). Since OPEC controls a large proportion of oil output, it exerts a strong influence on the global price of oil. When OPEC decides to reduce the output quotas of its member countries, this will tend to drive up the price of oil as the supply diminishes. Similarly, OPEC can boost oil production in order to increase supplies and drive down the price.

There are, however, limits on the actions of OPEC. If OPEC raises the price of oil too high, demand decreases and production of oil from less productive fields or unconventional sources such as tar sands becomes profitable. In addition, the economies of oil exporting nations are dependent on oil and efforts to restrict the supply of oil would have an adverse effect on the economies of oil producers.

Oil demand

Transportation represents the greatest demand for crude oil, followed by heating and power generation. In addition, the plastics, pharmaceuticals and synthetic fibre industries rely on crude oil to manufacture feedstocks for their production. The demand for heating oil during the northern hemisphere winter produces seasonal fluctuations in demand, typically building in the lead up to winter. The United States has by far the largest demand for oil, guzzling around 25% of the world's total oil production and 40% of the world's gasoline production-- with only about 5% of the total world population.

Historical crises

1973 oil crisis - Cause: an OPEC oil export embargo by many of the major Arab oil-producing states, in response to western support of Israel during the Yom Kippur War
1979 energy crisis - Cause: the Iranian revolution
1990 spike in the price of oil - Cause: the Gulf War
California electricity crisis - Cause: failed deregulation, and business corruption.
UK fuel protest (of 2000) - Cause: Raise in the price of crude oil combined with already high taxation on road fuel in the UK.
Oil price increases of 2004-2006 - Cause: Near-stagnant world oil production in the face of increasing demand in the U.S., China and India.

Peak oil

For full article see Hubbert peak There has been much debate about "peak oil", which is defined as the point at which half of the world's oil reserves have been used, at which point world oil production peaks and then goes into irreversible decline. Proponents of this theory argue that oil is being used much faster than it is being found, and that as current oil fields go into decline there will not be enough new ones to replace them. Some experts claim that this point will occur within the next decade, while others argue that it will not happen for many decades. ^* Should the oil peak occur, oil supply would no longer be able to keep up with demand, leading to price rises and economic recession along with geopolitical implications, and would lead to increased efforts to develop alternative forms of energy, along with finding more efficient ways in which to use energy.

The history of oil production in the United States is often used to illustrate the theory of the oil peak, since it appears to verify Hubbert's theory. During the early part of the 20th century, the US was a major oil producer, but annual oil production peaked around 1970. The decline since has appeared irreversible despite the introduction of newer technology allowing more deepwater drilling and increased fields of exploration. In spite of these advances many experts doubt that the US will ever again produce as much oil as it did in the 1970s. The US was the site of the first sustained drilling for oil, and was explored relatively quickly and completely, since it was also a major consumer of oil. Experts argue that as countries in other parts of the world enter full production, they too will follow the path of the US, and their oil will eventually peak and then settle into irreversible decline. It has been claimed that peak oil will occur soon, but the exact date remains uncertain, with different sources giving dates that are either in the past, present, or 50-100 years in the future.

Future and alternative sources of energy

Some experts argue that the world is heading towards a global energy crisis due to a decline in the availability of cheap oil and recommend a decreasing dependency on fossil fuel. This has led to increasing interest in alternate power/fuel research such as fuel cell technology, hydrogen fuel, biomethanol, biodiesel, Karrick process, solar energy, tidal energy and wind energy. To date, only hydroelectricity and nuclear power have been significant alternatives to fossil fuel (see Future energy development), with big ecological problems (residues and water spending). Hydrogen gas is currently produced at a net energy loss from natural gas, which is also experiencing declining production in North America and elsewhere. When not produced from natural gas, hydrogen still needs another source of energy to create it, also at a loss during the process. This has led to hydrogen being regarded as a 'carrier' of energy rather than a 'source'.

There have been alarming predictions by groups such as the Club of Rome that the world would run out of oil in the late 20th century. Although technology has made oil extraction more efficient, the world is having to struggle to provide oil by using increasingly costly and less productive methods such as deep sea drilling, and developing environmentally sensitive areas such as the Arctic National Wildlife Refuge. The world's population continues to grow at a quarter of a million people per day, increasing the consumption of energy. The per capita energy consumption of China, India and other developing nations continues to increase as the people living in these countries adopt western lifestyles. At present a small part of the world's population consumes a large part of its resources, with the United States and its population of 296 million people consuming far more oil than China with its population of 1.3 billion people.

Efficiency mechanisms such as Negawatt power can provide significantly increased supply. It is a term used to describe the trading of increased efficiency, using consumption efficiency to increase available market supply rather than by increasing plant generation capacity. Lowering speed limits to 55 MPH maximum would save billions of gallons of fuel each year. ^*

External links

Energy crises | Peak oil