I will be looking at whether resource prices are rising or falling. I will conduct a deep research into the root of this problem around the world. Through this research it will be easy to establish the solutions to this problem which is not healthy to the economy (Neumayer 68). The research will be conducted through; closed questionnaires, data analysis and use of internet research which includes the use of World Bank and IMF data.
Just to take a preview of the essay topic, the history of this problem is from the recent drop in global oil prices that has seen prices of oil per barrel drop to an all-time low price. The global drop in the prices has been attributed to the changes in demand for oil which does not explain the sudden drop since the economic model suggest that the oil countries cartel form an oligopoly. The essay will conduct an elaborate coverage of this issue to come up with a desirable solution that will assist every person.
The essay research topic is important as it seeks to find a solution to a problem that could have serious economic impacts on countries around the world. Regardless of the natural resource, when the problem persists, there will be unemployment which will result to economic instability. The research will involve data collection which will be comprehensive through both secondary and primary sources. Collected data will be analyzed and a final report on the research will appear on the project paper. The research is thus important to everyone since in one way or another, natural resources are consumed by every person in the world.
Renewable sources of energy are sources on the basis of existing or constantly recurring in the environment of energy flows. Renewable energy is present in the environment in the form of energy that is not a result of deliberate human activity. Renewable energy resources include energy of: the Sun; the oceans in the form of tidal energy, wave energy; river, wind, sea currents; seaweed; generated from biomass; gutters; municipal solid waste; geothermal sources. There are nine basic energy sources: solar radiation; movement and rotation of the Sun, the Earth and the Moon; thermal energy of the Earth's core, as well as chemical reactions and radioactive decay in its interior; mechanical energy of water flow; mechanical energy of air movement; biological energy; thermal energy of natural fuels (oil, gas, coal, wood, peat, shale, dry vegetation); chemical reaction of various substances; nuclear reactions. The disadvantage of renewable energies is the low degree of concentration. But this was largely offset by the widespread, relatively high frequency of environmental and practically inexhaustible. Such sources are the most efficient use of the vicinity of the consumer without energy transmission over distances. Given the depletion of energy resources, the role of renewable energy is increasing in many countries every year. (Kronenberg, T. 2007).
Non-renewable energy sources are natural stocks substances and materials which can be used for energy production man. Non-renewable energy resources include: coal, which reserves in the world are estimated at 10-12 trillion. tones; oil, stocks of which are very unevenly distributed in the world: the Middle East – 67%; Africa - 12.5%, South-East Asia and the Far East – 3% North America – 9%, Central and South America - 5.5%, West Europe - 3 %. In terms of oil production Russia occupies third place in the world, second only to Saudi Arabia and the United States. In 2009, it produced 500 millions of tons. The bulk of the oil consumed in North America, and especially in the US, in the industrialized countries of Western Europe and Japan. The natural gas reserves in the world are concentrated in Russia (32 %), Iran (15.7%), Qatar (6%). Large gas fields are also in Kazakhstan, Turkmenistan, Iraq, Saudi Arabia, United Arab Emirates, Egypt, Algeria, Libya. At the beginning of 2000s, oil and gas fields were discovered in more than 90 countries around the world. (Carollo, S. 2012).Proven gas reserves in the world are 146.6 trillion m3; there are 138, 6 billion tons of oil in the world. Gas share in the fuel and energy complex of the world now stands at 22%, in Russia it is more than 50% of total share. Energy resources are usually characterized by the number of years during which the resource will be enough to produce energy at the present level of quality. From the report of the Commission of the World Energy Council at the present level of consumption of coal reserves will be enough for 250 years, gas - for 60 years, oil - for 40 years. At the same time according to International Institute of Systems Analysis, the global demand for energy will increase from 9.2 billion tons of oil equivalent (the end of the 1990s.) to 14,2 - 24,8 billion tons in 2050. (Kronenberg, T. 2007).
The natural resources include land and mineral resources, flora and fauna, forest and water resources, air basin, and climate. Natural resources are unevenly distributed. As a result, different regions, countries, regions and even whole continents have different resourcing, i.e. the ratio between the value of natural resources and the size of their use. This figure is for each type of resource can be expressed in any number of years, which should be enough for this resource, or its reserves per capita. Great influence on the involvement of the natural resources in the production process has scientific and technical progress. On the one hand, it promotes the rational use of natural resources: identification of cheaper mining and easily transportable fuel resources (natural gas pipeline); the introduction of more complete extraction and refining (currently the rate of return on average layers for the fuel resources is around 45%, including for open-pit mining of coal - 80-90% of mine production - 35-80%, for oil - 35% , natural gas - 80%); increase utilization have produced fuels and raw materials (the world average useful primary useful energy is about 1/3, including the burning of coal - 20%, oil - 24%, natural gas - 48%); introduction of non-waste technologies (recycled water, etc.). (Carollo, 2012). In general, agriculture implemented; more intensive methods of farming and animal husbandry in the industry - the transition to energy-saving and material-technology, a policy of saving resources. In most countries with a developed market economy natural resources (especially minerals) are consumed very actively. Resources are imported mainly from developing countries. Due to this huge commodity flows moving in the three main centers of their processing: North America, Western Europe, Eastern and South-East Asia. This situation gives rise to two problems: the dependence of developed countries on the supply of raw materials and raw material orientation of exports of many developing countries. Uneven provide countries with natural resources, as well as their consumption makes a number of patterns in the economic development of different countries. The first is connected with the need to find ways to make more efficient use of natural resources in terms of their lack. A particularly acute this problem is for developed countries. In fact, their version of the industrial development in the past decade (saving resources) is resource saving way of economic development. (Neumayer, 2013)
A sharp drop in oil prices has been one of the major world events of the recent years. There are some serious reasons behind it.
1. Reduction in world demand. Reducing the cost of black gold contributed to the slowdown in the economies of China (from 10% to 7.5%) and the European Union, which led to a decrease in world oil consumption.
2. The Shale Revolution. Shale projects in the United States are rapidly evolving and currently they account for almost 10% of world production. In 2005, the country produced about 7.5 million barrels of oil, and by December 2014, daily production in the country has exceeded 9 million barrels. While, as of May 2014 in the world's output just over 90 million barrels of oil. This fantastic growth could not but affect the price of black gold.
3. Military conflicts in the Arab world. The civil war in Libya, which began after the fall of the Gaddafi regime, and the proclamation of the "Islamic state" in Iraq and Syria also have contributed to the fall in prices. Oil wells in these countries are constantly moving from hand to hand to various groups who need the money to buy arms and military detention. In the summer of 2014 the British press reported that the group sells LIH Iran and Turkey to the oil fields controlled by the price of $ 25 per barrel. The market price of black gold in that period was in the region of $ 75 per barrel.
5. The disappointment of investors in oil futures. At the moment, a huge role in the formation of prices plays exchange trading of oil futures of three main reference brands. For example, the London Stock Exchange at the moment on a daily basis is 150 thousand futures contracts on the New York Mercantile Exchange - 70 thousand contracts per day. (Ochola, 2010) Physical delivery of fuel is carried out only one percent of such transactions, but any difference in pricing is not allowed. In conditions of high oil prices, investors actively invest in futures, further inflating the bubble in prices. But as soon as international prices began to fall, the players on the stock exchanges began to rapidly withdraw money from futures contracts and invest them in other assets. This greatly accelerated the drop in oil prices. The price reduction will be reflected in the various countries in different ways. Winners and losers will face drastically different situations. Reducing the cost of black gold has become a painful blow to the economies of most oil-producing countries with a budget been drawn up on the basis of this fuel. In order to achieve a balanced budget, Iran needs the price of 136 dollars, Venezuela and Nigeria - $ 120, Russia - $ 94. (Neumayer, 2013).
Most experts agree that oil is currently strongly undervalued and will continue to grow in the coming years, but the price of $ 100 per barrel is not worth waiting. According to Edward Morse, head of Citigroup analysis of world commodity markets, until 2020 the world oil prices will fluctuate in the range of 70-90 dollars per barrel. Such a conclusion he makes based on the fact that the slowdown of the Chinese economy is not an accident, and the long-term trend. This will undoubtedly lead to a reduction in demand for the black gold. (Kronenberg, 2007). The expert also believes that the amount of shale oil produced in the United States, will continue to grow, that will continuously improve the proposal in the oil market. Investment bank Morgan Stanley Experts predicts that in 2016 the average market price of a barrel will be $ 40 and rise to $ 55 in 2016. This assessment is made on the basis of the refusal of the OPEC production decline and the rapid development of shale projects in the US. International rating agency Fitch has made a more optimistic outlook. According to its representatives, in 2015, a barrel of oil will cost $ 83, in 2016 - $ 90. They attribute this to the decline in the growth rate of developing economies (from 4.7% to 4%) and an increase in supply on the market of black gold. However, most influential rating agencies agree that in the long term the cost of black gold will grow continuously and will exceed $ 100 per barrel. This is due to the inevitable increase in demand due to the constant increase in the number of cars in the world and the gradual depletion of oil fields with low profitability. (Neumayer, 2013).
"The question of how much oil is left, not geological. It is economic. After all, oil is much more than we can technically get it now ", - said Doug Duncan, the head of the US Geological Survey (USGS). Every day the mankind consumes about 91.4 million barrels of oil. That's about 2 liters of oil to each of the people living on Earth every day. (Verdière, 2009) Since 1980, people have used the order of 1.5 × 1 014 liters of oil. Moreover, since 1980 the oil reserves that have been discovered but have not yet been used doubled. 35 years ago, the proven oil reserves amounted to 683 billion barrels, and now is about 1.7 trillion barrels. The main problem lies in the fact that actively introduce breakthrough technologies, oil companies begin only when oil prices rise. So it was, for example, soared to $ 150 in 2008, when the price of a barrel of oil. And before oil pools have been forced to explore oil and gas in the search for the so-called traps i.e. parts of the natural reservoir capable of restraining the accumulation of the desired hydrocarbons. Now the technology has changed and the oil can be extracted directly from the parent rock - sedimentary rock containing significant amounts of organic matter, which is a result of geological processes turned into natural gas and crude oil. (Ochola, 2010) Thus, by the conventional methods of oil production add new ones. And it began to produce a completely new field - tar sands of Canada, it is extracted under a layer of water in Brazil. This leads to the fact that production rates are far ahead of the existing demand. "For many years we thought that we are on a downward curve: oil and gas will only continue to rise in price. New technologies have changed this equation. No one knows what will happen next, "- said Doug Duncan.
One of the most pressing issues discussed at the Russian panels, is the resource curse (or Oil needle, or the Dutch disease). The essence of these terms is to ensure that resource wealth leads to their countries lagging behind in economic development. To own these natural resources means to have a curse, it is their dominance in the national economy. Resource Curse is in fact the final negative economic result for countries with a large amount of natural resources and aim to ensure the inflow of petrodollars in the economies of the countries through the export of raw materials. For countries subject to the resource curse, is characterized by a large share of revenues from the sale of raw materials in GDP, a large share of raw materials in the exporting country, the low diversification of the economy. One of the major economic problems of the state, has significant reserves of natural resources, is the growth of the economy, while maintaining a positive effect on the availability of resources, to create the mechanisms for the development of innovative and processing parts of the economy. At the same time it should be noted that the strategic resources of the earth come to an end. According to the annual report of the World Energy Council "Global energy 2013" explored oil reserves will last mankind 56 years, gas - at 55 years, coal - a little more than 100 years. (Kachel, 2008). At the same time, according to an independent audit of its hydrocarbon reserves as of 31.12.2013 security of Russia's largest vertically integrated oil company OJSC "NK" Rosneft "proved reserves was 24 years old, including oil - 20 years for gas - 50 years. Oil and gas sector invest now in the growth of traditional resources (investments or acquisition of mining, processing companies or shares of companies, the acquisition of licenses for geological study, exploration and production of hydrocarbons in the license areas on the shelf). However, given the limited oil and gas resources, with interest each year to the renewable energy sources will increasingly grow.
Work Cited;
Neumayer, E. (2013). Weak versus Strong Sustainability. Edward Elgar Publishing.
Kronenberg, T. (2007). Reconciling Environmental Conservation with Economic Prosperity: The Feasibility of Double Dividends in the Short and Long Run. Jülich: Forschungszentrum, Zentralbibliothe.
Carollo, S. (2012). Understanding oil prices: A guide to what drives the price of oil in today's markets. Chichester, West Sussex : Wiley, a John Wiley & Sons, Ltd
Kachel, M. J. (2008). Particularly sensitive sea areas: The IMO's role in protecting vulnerable marine resources. Berlin: Springer.
Ochola, W. O., Sanginga, P. C., Bekalo, I., & International Development Research Centre (Nairobi), (2010). Managing natural resources for development in Africa: A resource book. Nairobi: The University of Nairobi Press.
Verdière, M. C., Perret, C., Weber, R., Brito, J., Sahel and West Africa Club., & Organisation for Economic Co-operation and Development. (2009). West African perspectives: Resources for development. Paris: OECD.
