International Energy Policies United States Crude Oil Production

Question: Critically analyse the factors affecting the content of international agreements for the oil and gas industry Critically examine the framework of the energy policies. Demonstrate the key global challenges and issues facing the world oil and gas industry and the factors affecting the long term prospects Exceptionally wide range of relevant literature evaluated and used critically to inform argument, balance discussion and/or inform problem-solving. Consistently accurate and assured use of academic conventions Answer: The burgeoning issue of the current times is the volatility in the oil and gas market. There are several issues identified that contribute to the fluctuations in the oil prices. In this context we can say that the crude oil prices have been quite high during the year 2013-14 and this rise was stabilized. The international standard of the crude oil price is Brent which generally lies between $100-155 per barrel. The stability of oil price is believed to be short lived but the Brent price of oil is regarded to be normal. The recent decline in the oil occurred in the month of June 2014 at the rate of 40%. (GLOBAL TRENDS IN OIL GAS MARKETS TO 2025, 2015) (THE MONTH IN BRIEF: Lower prices, more oil and some refineries find buyers, 2012) Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization. The objectives of the OPEC is to co-ordinate and unify the petroleum policies among its member countries in order to ensure that fair and stable price is available for the petroleum producers, to maintain regular and efficient supply of of petroleum to other importing nations and to earn a fair return on capital for the investors. (Opec.org, 2015) The decline in the oil prices is attributed to the inefficiency of the OPEC regarding the price regulation. The low oil price crisis is due to the refusal of Saudi Arabia to curtail their oil production. This resulted in a saturation of the global oil markets. The ideal initiative that the OPEC could have taken is to increase their oil production so that a situation of excess demand would come up which eventually would raise the price. Once the oil prices stabilize then the member countries of the OPEC can gradually increase their production and lower the price in accordance with suitable environment. The reason behind Saudi Arabias refusal to cut down production is due to the nervous politics and fear of losing the global position and share in the oil market. (Greiner, 2014) The chart below reveals that the Brent Crude Oil price has declined at the end of the year. (Ieconomics.com, 2015) The connection among the oil, energy and the international politics is somewhat intertwined. The main victim of the of the oil and gas market are the two weak performing nations: Iran and Russia. The pivot in the sluggishness of the oil price is the United States of America (USA). The main motive of the USA is to tarnish the images of both the nations and also influence the oil price. Taking up the case of Russia which is a fragile nation is affected by the adverse effect of the oil price decline. This decline resulted in a decrease in the foreign capital flow into the nation. Russia is now reforming its foreign policies and taking initiatives to improve its global status. (The Economist, 2014) Iran has iteratively accused Saudi Arabia for the downturn in the oil market as it refused to cut down oil production that could have helped to recover the oil market. Iran is also a frail nation which relied on the sale of oil. As the oil price decreased, the revenues earned from the oil also decreased which further dampened the already feeble position of Iran. The objective of the USA is to coerce Saudi Arabia and distort the economic condition of both the nations. In case of Iran, the intention of the USA is to leave the country with no other choices but to sign the long pending nuclear power deal. The deal would cause a loss in the nuclear capability of Iran. (Kent, 2015) The chart shows that the crude oil production in Saudi Arabia has increased in the end of the year 2014 which attempts to identify the main problem of the decline in oil price. (Tradingeconomics.com, 2015) The slumped and saturated oil market and its price may have weakened most of the nations. Even the member countries of OPEC like Libya and Venezuela could not escape the dire consequences of the low oil price which hampered their economic condition. (FOCUS: Libya starts to rebuild its oil and gas industries, 2011) When most of the nations were busy trying to recover from the bearish oil market, there were other nations would extracted the benefit from the low oil prices. It is worth mentioning that countries like India and China gained an advantageous position with respect to the low oil prices. Now China is one of the industrialized nations which initiated plans to be self sufficient and self reliant in energy by building its own shale gas. The rise of China would be destructive and damaging for the most powerful nation, the USA. In this context, the USA could not let China gain power and position, so USA with its influential power subdued the international companies who could have helped China in supporting the shale gas project. These international companies were running at a loss and withdrew investment projects like the one in China. Thus, Chinas shale gas project took a backseat. The chart below shows that the production of crude in the USA has been increasing throughout the year 2014. (Tradingeconomics.com, 2015) Below are the crude oil productions for two countries: China and India. Both the countries depict an upward trend in the production though the volume of production is low for India. (Tradingeconomics.com, 2015) (Tradingeconomics.com, 2015) Non OPEC countries such as North America, former Soviet Union and the North sea region comprises around 60% of the total oil production of the world. The operation of the oil production in the Non OPEC Countries is carried out by the International or investor owned Oil Companies (IOCs). It is assumed that the Non OPEC countries are price takers which imply their influence on the price is absent. Focusing on the thriving issue of low oil price, the Non OPEC countries have slight role to play in rectifying the oil market. The Non OPEC countries can produce oil at full capacity, considering ceteris paribus, the decline in the oil supply by the Non OPEC countries would exert an upward pressure on the price of oil. Thus, the total global supply of oil would decrease creating a situation of excess demand which would drive up the international oil prices. Thus the Non OPEC countries would be able to mitigate the low oil price issue in this way. Through this mechanism the call on OPEC would increase which would enable the OPEC and its member countries to influence the price of oil. Another measure that the Non OPEC countries can take is to disrupt the production of oil which would again reduce the global oil supply and increase the global oil price. (Eia.gov, 2015) The concern for energy policies have evolved in many member countries. The USA can capture the benefits of the low oil price and reform its energy policies by planting restriction on the fossil fuel subsidies, introduce new efficiency measures and implement policies that are advantageous to the economy as well as lure investors who would support the increase in oil production. (Theenergycollective.com, 2015) Czech Republic commenced State Energy Strategy with the intention to decrease lignite production. Germanys motive to spread awareness of the energy policies came out through its annual progress reports. Canada aimed to achieve the government goals by regulatory reform through the Responsible Resource Development Plan. Sweden is the carbon free economy and intent to introduce vehicles which are fossil fuel free by the year 2030. The USA had also taken measures to reduce the Green house Gas emission by cutting down carbon pollution, take groundwork regarding climate changes and launching international initiative to cope up with the climate change. In this regard the USA had implemented the Climate Action Plan. (Energy Policy Highlights, 2015) The energy policies need to be carefully implemented taking into consideration the Environmental Impact Assessment (EIA) and spatial planning. If the implementation is not carried out properly then challenges may arise during the start of the project. The several challenges can be mitigated by appointing an energy expertise who would efficiently frame and implement energy policies. The next problem that the energy sector faces is the interference from the national level during the framing of the policies. This might not be entertained by most of the regional and local government which can create a friction among the system eventually hampering the efficacy of the policies (Oilandgasuk.co.uk, 2015) Another popular issue that affects the energy sector is improper, inaccurate and incomplete data related to the global oil price, consumption level in the household, transportation and other trading sectors which poses a problem in the policy implementation. So executives and experts must be hired to monitor the policy making process, assemble accurate information and build coordination between EIA and spatial planning. (Eia.gov, 2015) There are basically two agreements that are used in the oil and natural gas sector: Concessions and Contractual agreements. Concessional agreements deals in equity interest and royalties which are estimated from the production value and income taxes. Contractual agreements deals in contracts related to production share, service and risk etc. The agreements are influenced by several factors but mainly depend on the nature of the agreement taken up by the resource holder. The aspect that need to be included while forming concessions agreement in the oil companies are exclusive rights of Exploration and Production, finance and taxation regulations, domestic supply of oil and gas, cash flow source and costs and benefits. (Wright and Gallun, 2008) The major issue of the world is the expanding demand for products and no sufficient supply to absorb such demand. As the population is increasing, the demand for oil is increasing. The increasing demand would be satisfied by the emerging powerhouses like China and India which would in turn affect the other oil exporting nations. This results in geopolitical strife which complicates the challenges. About 90% of the resources of oil and gas are controlled by the National Oil Companies (NOCs) and some host governments. These resources could not accessed by the International Oil Companies (IOCs). (Smead, 2015) The issue related to the cost of services in the oil industry is of concern. This industry implements services such as engineering, drilling, constructions and procurement which involve huge costs. The heavy scale industries like the oil and gas industry operates through heavy machineries and equipments which need to be executed by technically skilled professionals. The wages of these types of professionals are quite high adding up to the cost of the industry. In general, this cost is covered by the price rise but with the unpredictable stability in the oil price, it was the better option not to rely on oil price rather sale of oil should be increased in order to cover up the cost. But again the implantation of new and advanced technology would exert a negative impact on the economy. As new machines are incorporated in the oil industries, the unskilled workers or manual workers would be removed creating a situation of unemployment within the economy. (Oil Price Review, 2013) The fundamental mistake that the oil and the gas industry indulge in is the objective of their business. The objective of the oil industry is mainly focused on the cost reduction but it is too late for them to realize that such a strategy would not work when the underlying market conditions are narrow. In the current scenario it is necessary for the oil industry to concentrate on the supply chain, assess their accessibility to other markets and ensure that they are able to explore markets where their presence is absent or minimal. The industry must definitely implement cost effective ways of production of oil and also expand its Barrels of Oil Equivalencies (BOEs) and to ensure safety at the personal level the industry must incorporate change process management. Thus in this study we see that the issue of low oil prices is the result of the refusal of cutting down oil production by Saudi Arabia. But this low price does not depict that the future of the oil market is ominous as the No n OPEC countries can always disrupt its oil production to suppress the global oil supply. This would help to increase the oil price benefiting the vulnerable nations like Libya, Venezuela, Iran and Russia. For the recovery of the oil industry, it is necessary for the oil producers, OPEC as well as Non OPEC countries to adopt strategies and policies that would extract the advantage of the impending reality. (Solutions and , 2014) References Ieconomics.com, (2015).Brent Crude Oil | Crude Oil | Heating Oil - Crude Oil Production. [online] Available at: https://ieconomics.com/brent-crude-oil [Accessed 3 Apr. 2015]. Opec.org, (2015).OPEC : Brief History. [online] Available at: https://www.opec.org/opec_web/en/about_us/24.htm [Accessed 3 Apr. 2015]. Tradingeconomics.com, (2015).China Crude Oil Production | 1973-2015 | Data | Chart | Calendar | Forecast. [online] Available at: https://www.tradingeconomics.com/china/crude-oil-production [Accessed 3 Apr. 2015]. Tradingeconomics.com, (2015).India Crude Oil Production | 1994-2015 | Data | Chart | Calendar | Forecast. [online] Available at: https://www.tradingeconomics.com/india/crude-oil-production [Accessed 3 Apr. 2015]. 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