Demand world demand for oil gas and coal in the 21 st

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Unformatted text preview: “reserves growth” can be attributed to faulty reporting practices. • Demand World demand for oil, gas and coal in the 21 st century will depend on two contrary forces. Firstly, there is the possible reduction in demand by the countries in the Organisation for Economic Co-operation and Development (OECD) caused by structural changes, saturated markets, ageing populations and increasing efficiency. Such efficiency gains are driven by competition, concerns for energy security and environmental measures. Action to meet Kyoto targets, set in a summit on global warming in Kyoto, Japan in December 1997, will put a cost on carbon emissions – either by taxation or by trading. Coal and oil will face fierce competition in power generation. As indicated above, oil majors are relying increasingly on gas (The Economist, 1996). Skeikh Ahmed Zaki Yamani believes that new hybrid engines could cut petrol consumption by almost 30%, while fuel-cell cars, which he predicts will be widely used by 2010, will cut demand for petrol by 100%. In a recent article in Energy Day he said: “Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end not because we had a lack of stones and the oil age will come to an end not because we have a lack of oil.” (Energy Day, 3rd July 2000 p7) His claims are substantiated by a study from U.S. based Allied Business Intelligence (ABI), which forecasts millions of fuel-cell vehicles by 2010. ABI business analyst Atakan Ozbek is also quoted in the same Energy Day article: “By the second decade of this century mass production of automotive fuel cells will result in first a glut in the world oil supply and then in a total reduction of oil as a vehicle fuel.” (Energy Day, 3rd July 2000 p7) 45 Secondly, there is the potential demand in developing countries. How it is fulfilled depends on future economic growth. The oil companies, however, are optimistic with Shell suggesting that energy consumption will be between sixty and eighty percent higher by 2020, with developing countries consuming over half of the available energy (Moody-Stuart, 1999). • Restructuring International oil prices are notoriously volatile (figure 3.5). However, when, in the winter of 1998-1999, oil prices dropped to their lowest levels in real terms for twentyfive years, the profit margins of even the largest companies were squeezed and all companies were forced to reduce costs. This proved difficult and with the need to improve their return on capital employed, which has historically been lower than the cost of that capital, the boards of some of the largest companies perceived the only way to make further savings was through big mergers, followed by ruthless restructuring (The Economist, 1998). 35 30 25 $/Barrel20 15 10 5 0 1983 1985 1987 1989 1991 1993 1995 1997 1999 2000 Figure 3.5: Actual spot Brent oil price over time (source: BP Statistical Review of World Energy, 2000) In 1998 BP agreed to buy Amoco for $48 billion, Exxon and Mobil, America’s biggest oil firms, announced a $77 billion merger that has made Exxon Mobil the 46...
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