Course Project/Term Paper Each student in this course must complete a research project in which the student combines institutional knowledge, economic concepts, and possibly independent data analysis. Papers must be related to world oil economics, though the exact topic is of your own choosing. Projects must be completed individually, representing 25% of each student’s overall […]
The North American and Global oil markets have undergone significant changes in the past few years that shifted the power between suppliers and consumers. North American countries such as the United States of America got to utilize technology to enhance their production and market supply levels, robbing the Organization of the Petroleum Exporting Countries (OPEC) nations of global dominance in the oil field. New oil mining methods, such as hydraulic fracturing or fracking, improved production efficiency and boosted supplies from North American countries, which pioneered their development and implementation. As a result, global oil supplies increased over the last decade as prices dropped worldwide. The United States of America, Canada, and Mexico are all emerging to be globally competitive oil suppliers, with states such as Texas shifting to global production levels as they embrace these technological discoveries in their oil mining. The global oil supply and demand experienced significant change due to the improved supply volumes in North America, leading to lower global oil prices, improved economies in North America and less dependence on OPEC for oil supply.
The introduction of technological inventions in oil mining impacted international oil prices in the world, which rely on the supply and demand levels in the market since it increased oil production in North America and its supply in the international sector. Fossil fuels play an essential role in the worldwide economy, and oil prices intertwine with global economic structures, making it necessary to maintain reliable levels of supply to meet the worldwide demand. For example. Conflicts in the major oil production companies influence world oil prices and vice versa, such as the hike of international oil prices during the global recession in 2008 (Maniloff and Mastromonaco 68). As a result, oil production and supply need to keep growing to keep up with the increasing demand. When supply is stagnant, and demand grows, international oil prices will rise. Therefore, oil production will keep on growing as the world continues to depend on fossil fuels to meet its energy demands.
The increasing demand for oil and gas caused regions in North America to increase their production through technological advancements, which helped balance the cost of production while enhancing output. The production factors are crucial to determining the prices and profitability of oil companies, and efficient processes such as hydraulic fracking increased the incentives to mine oil in North America due to assured profitability. For instance, states saw a rise in production as companies drilled wells in shale rocks with oil reserves (Fronde and Horvath 115). Resultantly, multi-national oil producers such as BP and ExxonMobil increasingly adopted the technique in states that allowed the incorporation of the new technology in the US. The production efficiencies of the hydraulic fracking process led to increased local and international suppliers from countries that invested in the process.
States in the United States have taken individual steps to capitalize on the fracking process to improve their economic outputs and job creation rates. The United States Constitution allows the states to make their respective economic legislations to boost their commerce and industries. For example, Texas is the leading producer of fossil fuels in the United States, and its incorporation of the fracturing process has made it the leading oil producer in America (Bartik et al. 107). Texas and other states are at the frontline of accepting this technology and receiving its positive and negative impacts. Consequently, these impacts in these regions can be used to formulate and implement national guidelines that control the advancement of fracturing technology across all states in America.
The fracturing/ fracking process works through a technique that differs from conventional oil mining methods in the industry, which relies on geological formations, making it more efficient. Hydraulic fracking involves drilling wells into oil and gas reservoirs found in shale rocks by pumping sand, water, and chemicals at high pressure into the wells to force out the fossil deposits. However, the suitability of the fracturing process depends on the geological characteristics of shale rocks and affects the viability of any deposits for the oil and gas extraction process. For example, a rock mass’s thickness, depth, and development stage are crucial to assessing the suitability of a deposit’s extraction through hydraulic fracturing (Bartik et al. 107). Resultantly, the earth’s historical formation dictates the fracturing process’s compatibility with the production of gas and oil in a region. Geotechnical engineers are therefore required to gather the relevant information through ground investigations to assess the suitability.
The development of the fracking process brought along several benefits to the economy of North America, its geopolitics, and change factors in the local legislation in some states as it increased the production and supply volumes of fossil fuels. Increased production volumes considerably reduce global oil prices, making the commodity more accessible to consumers while impacting global geopolitics worldwide (Bartik et al. 105). For instance, in North America, the influence of the Organization of the Petroleum Exporting Countries (OPEC) met a substantial reduction as the imports of crude oil from them reduced with improved internal production in the United States (Bartik et al. 105). As a result, states like Texas embraced the hydraulic fracturing process in their legislation and swiftly adopted it to their oil mining. Such states and the national oil sector have experienced significant economic growth leading to the formulation of new legislation favouring fracking. In the end, the ability to access energy sources depends on the local community and their opinions regarding hydraulic fracking.
The history of the supply and production of oil in North America before the introduction of hydraulic fracking is characterized by low production volumes and a reliance on OPEC nations to meet local demands. OPEC member states from the Middle East previously dominated the international supply and demand for oil due to their massive volumes of oil production. For instance, the Ghawar oil field in Saudi Arabia got discovered in the 1950s and turned out to be the world’s largest oil field (Kilian 110). As a result, Saudi Arabia became the second-largest exporter to North America, and the oil supply from the nation became crucial to the automotive sector. Furthermore, America developed close diplomatic ties with the government to stabilize the geopolitics of the Middle East and ensure a consistent supply to the North American oil market in the future. For example, North America had several military deals with Saudi Arabia in a bid to promote peace and stability in the region (Lippman 140). As such, the review of oil production reveals a dependence on OPEC nations for oil supply in the Middle East.
The evolutionary technological technique of oil mining also stirs up a debate among environmentalists who highlighted the negative impacts of the process, causing some communities to reject the hydraulic fracking technique. Despite the massive average benefits of the process, concerned groups argue that hydraulic fracturing bears a severe negative impact on local and international communities in the long run (Lopez 80). For example, some negative incomes include the adverse effect on the local community’s health, environment, and quality of life in society (Lopez 80). Therefore, there still exists some doubts about the adoption of the fracking process despite its economic advantages. It is not as straightforward as differentiating areas with fracturing to areas lacking the same since it requires the analysis of more complex aspects in the production process and the temporal analysis of the impacts.
OPEC nations try to control the global supply and demand of oil to attain favourable commodity prices in the market. Since OPEC controls around 50% of oil production in the world, its supply to the sector allows it to become a significant player in manipulating oil prices. For instance, their strategies include cutting quotas to regulate oil production from its massive reserves (Minami 972). Since it contains around 70% of the oil reserves, modern economies can’t help but rely on their fossil reserves to drive their industrial and transportation industries. OPEC nations still dominate international oil supply in the last centuries and continue to be the most significant influence on oil prices. As such, the stability of countries producing oil is crucial to the international oil market.
In North America, petroleum production first developed in 1895 after the discovery of oil in Pennsylvania and grew to be a leading economic sector with new unconventional methods such as fracturing, transforming the supply in the industry. The economy of the United States then grew to rely heavily on fossil fuels to power their transportation and industrial sectors (Minami 963). In 2018, the USA imported nearly 9.94 million barrels of oil every day of fossil fuel from about ninety countries (Frondel and Horvath 118). Thus, the oil demand continues to grow, leading the sector’s suppliers to turn to unconventional mining processes such as fracking to meet the local market for fossil fuel. Companies like ExxonMobil integrated hydraulic fracturing into their production processes fifty years ago, allowing them to reduce production costs while improving their volumes of supply. As such, hydraulic fracking offered a solution to the growing demand for fossil fuels in North America to boost the local supply and meet the increasing demand. Market demand growth calls for using innovative and transformational processes in mining with improved efficiencies.
Furthermore, the near future will drive a higher dependence on oil since alternative energy forms have not been developed to commercial levels capable of sustaining the population and urban growth. As a result, hydraulic fracking offers a real-time solution to increase the oil supply to match its global demand. For instance, companies such as BP transformed their operation procedures in their oil fields to utilize hydraulic fracturing, enabling them to meet the projected future demands (Bartik et al. 125). Since fracking opens up previously inaccessible areas with conventional drilling processes, the unconventional process boosted their supply from previously undeveloped oil fields in North America. Thus, fracturing is poised to play a big role in oil producers attaining significant measures to meet projected demands.
However, the reliance on oil imports dropped to its lowest point in more than fifty years in North America as Hydraulic fracking improved the local production capacity. Therefore, the nation’s reliance on OPEC nations is lowering, as new fracturing offers a way to economically develop a new oil field. The USA is currently the largest oil producer in the world, and only 11% of the fossil fuels used locally came from oil imports in 2018 (Frondel and Horvath 116). Hydraulic fracturing enabled Mexico and Canada to access large deposits of oil over the past 60 years, allowing it to grow its supply to the market significantly, and as a result, oil importations from OPEC to North America started to drop.
As North America experienced increased oil supply and production, the economy gained significantly from the development allowing employment levels to grow due to the human resource required in the expanding oil sector. The fracking process was able to impact the employment sector directly and indirectly. For instance, as the technology turned several available lots of land into fracturing wells, statistics show that the technology contributed to up to 550,000 jobs (Maniloff and Mastromonaco 62). Furthermore, these impacts came mainly to regions dealing with oil extraction, local demand for fossil fuels, and service sectors in the oil industry. Therefore, local communities benefited greatly in terms of employment creation in the industry. Consequently, some states welcomed the technique wholly while sidelining the perceived negative impact of the same.
Increased revenues in the oil companies are essential to the advancement of the hydraulic fracking process in North America as the companies increase their supplies to the local and global markets. The process is more efficient and economically viable than the conventional extraction processes in North America. For instance, it emerged that states with hydraulic fracking generated an additional $400milion in gas and oil sales three years after the emergence of the technique in the American industry (Bartik et al. 125). Furthermore, these positive financial impacts enable massive multi-national incorporation of the method into the crude oil extraction process. Collectively, the states experienced an average of 4.4 to 6.9 percent increase in total revenue from oil production (Bartik et al. 126). Resultantly, multi-national oil producers such as BP and ExxonMobil increasingly adopted the technique in states that allowed the incorporation of the new technology in the US.
Advancements in oil mining technologies such as hydraulic fracking affect the profit points for industries in oil production as cheaper mining methods increase the incentives for additional oil supplies leading to lower oil prices. Typically, the supply and demand relationship plays a significant role in determining the costs of fossil fuels in the global market. For instance, the Brent oil price is the assumed benchmark of the industries’ pricing depending on the oil qualities (Frondel and Horvath 124). Therefore, oil prices diverge from this benchmark depending on their respective desirable attributes. As such, fossil fuels, which are light and contain lower Sulphur levels, fetch higher market processes. Fracking allows the production of lower levels of Sulphur in crude oil depending on the mining locations, thus increasing the value of the oil. Hence, the introduction of hydraulic fracking boosts the profitability of fossil fuel wells.
The significant direct impact of fracking on the industry has been the increase in the rate at which oil and gas mined from wells can lead to increased supplies to the oil market and lower oil prices. In the United States, this development of fracking helped decrease oil prices due to the local production that grew to challenge OPEC’s dominance of the sector (Kilian 120). As Saudi Arabia entered a deal with Russia to reduce oil production, production from non-OPEC nations continued to increase to challenge the market dominance of the traditional powerhouses. Furthermore, as the petroleum production process became internalized in the United States, the additional cost of importation decreased the oil prices further.
In the long run, fracturing contributes to the quicker depletion of oil reserves, ultimately increasing oil prices as the commodity becomes scarce. Fossil fuels are finite minerals that continue to decrease as extraction and consumption rates climb due to improved mining techniques and rising populations, respectively. The scarcity of resources in global markets automatically causes prices to rise as their supply drops (Frondel and Horvath 124). However, the development of alternative energy sources will probably step in to fill the gap left by depleted oil reserves. While the volume of oil sources is still massive enough to meet the global need, the use of fractions increases the extraction rates making the risk of depletion more significant.
Unregulated increases in oil supply to the oil market lead to uneconomic production as oil prices drop, so companies cannot recover their production costs. Fracking reduces the probability of uneconomic output occurring since production costs are relatively lower than conventional drilling practices. For example, the resources required for fracking do not require deep drilling to reach the deposits of the fossil fuels but instead operate by pumping water, sand, and chemical at high pressures to the shale rocks (Frondel and Horvath 12). Thus, the decrease in production costs shields the suppliers from fluctuations in global oil prices due to increased supplies. Oil supply and demand regulation can further shield suppliers from uneconomic production.
Additionally, fracking affects the economics of supply and demand variables in the oil sector that control oil prices, leading to increased production volumes and market supply. The number of oil wells in North America has risen significantly since 1960, when the oil industry adopted fracturing to extract oil deposits found in shale rocks, which were otherwise uneconomic to mine. For instance, the State of Texas is the world’s third-largest oil producer after implementing the fracturing process in its Permian oil basin to extract natural gas and crude oil (Minami 968). As a result of the increased production, local and global oil prices dropped, decreasing the profitability of other industry players. Hence, wells with costly extraction processes that do not operate at large volumes run into uneconomic production due to the oversupply of oil in the global market.
In 2014, the impact of fracking on the international oil market had reduced prices to record lows necessitating OPEC nations to come up with a strategy to return the profitability of the sector. Contrary to the market situation, the oil powerhouses found themselves in a new position as the western fracking process had added the United States ‘contribution to the International oil market. For instance, fracked oil now constitutes 5% of the global total oil market (Kilian 140). Due to the fracking process’s profitability, North America had picked up its integration into in-land and off-shore oil mining. As such, the OPEC states had to choose whether to reduce their output and regain the higher prices as they had done before. Resultantly, the introduction of fracking proved to have a significant effect on international oil prices.
The response of the OPEC nations to the situation was to maintain the production levels in fear that the non-OPEC countries would step up their production if they chose to reduce their levels. Therefore, the oil prices fell even further as the international supply increased. For instance, the prices hit lows of $30 per barrel in 2016, which later rebounded to about $45 in the current market (Frondel and Horvath 117). Despite the low-profit margins in the market, the companies in the United States that operated fracking wells continued to do business. The average breakeven point of the industry had fallen to around 60% of the original values helping them remain in business during that time. As such, the United States fracking companies managed to continue supplying oil to the global market and increase their share of the oil economy.
The dynamic nature of the oil market necessitates that shale companies innovate new ways to harness the advantages of hydraulic fracturing further and reduce operational costs. As a result, researchers work closely with oil companies to research and develop new strategies in oil extraction. For instance, research shows that altering the compositions of the sand, water, and chemical components affects the effectiveness of hydraulic cracking. Furthermore, each well might require a specific mixture of elements to maximize its oil output. Resultantly, the research, coupled with technological advancements in the industry, drove down the production cost to offer higher profit margins.
However, the resilience of the Fracking process in America came under test in the period between the 2014 OPEC meeting in Vienna and the current market conditions, which saw several companies leave the market. The price fluctuation harmed newly formed companies that entered the market when operations were much more profitable but were hit with the receding prices of oil soon afterwards. For instance, more than 100 North American oil and gas companies have filed for bankruptcy since 2015, leading to a decrease in the global oil market share by fracked oil producers (Minami 962). Thus, the fracking oil industry still suffered losses as it struggled to keep up with the struggling oil market. Newer companies are safer since they have not established their businesses well.
The development of fracking processes in North American production had a rebound effect on the economy of the nations as more wells got drilled, refineries built, and new creation of employment. Additionally, the oil sector’s advancement to fracturing methods proves that a direct relationship existed between national economic growth and the prosperity of the oil industry. For example, employment skyrocketed in 2004 following the hydraulic fracturing boom in North America and continued until the recession of 2008 (Maniloff and Mastromonaco 67). Consequently, North America’s recent progress in the advancement of technological inventions in oil mining brought improvements to the nation’s economy and drove employment to low levels in periods when fractured wells operated profitably.
DrillingInfo is an energy industry information service that provides relevant data for investigating the impact of hydraulic fracking on the economies of the oil industry through job creation. Information collected includes oil and gas data, employment and wages, and geographic data, which aided in understanding the role of the fracturing process in creating jobs for the economy (Maniloff and Mastromonaco 67). For instance, Geographic Information Software (GIS) was used to calculate to assess the possibility that mountainous regions might have different employment growth predictions (Maniloff and Mastromonaco 67). Similarly, the employment and wages records were cross-checked against the oil and gas data to derive the correlation between wage rates and the oil fracturing processes. As a result, the GIS data analysis, along with the employment and fossil fuel records, got used to derive the implications of oil mining to job creation in North America.
Additionally, the statistics from the combined data models formed part of the empirical strategy to analyze and interpret the relationship between the economy, employment records, and fossil fuel production. In the research, 3018 non-urban counties provided full employment information for analysis (Maniloff and Mastromonaco 70). For example, the employment record revealed that the county had lower employment in 2011 than in 2005 due to the considerable recession (Maniloff and Mastromonaco 68). However, there was still an increase in the number of oil and gas wells. There were approximately 49,500 wells in 2011 compared to 28,000 wells in 2005 in the United States. Overall employment enjoyed robust growth in the 1990s and slowed in the 2001 recession before growing again until the 2008 economic slowdown (Maniloff and Mastromonaco 67). As a result, the employment records and the oil industry relate to each other due to the sector’s interdependence. Therefore, this implies that limiting oil production from fracking will negatively impact employment rates.
Hydraulic fracking transformed the oil production process in the United States to drive it to a global leader in terms of production and a leading exporter. Furthermore, the technological advancements in oil miming influenced the creation of better profit margins in the industry by lowering operational costs and break-even points. As such, fracking relied on research and development to drive its efficiency, thus impacting its profitability and acceptance in the oil production and supply sector. Additionally, the increased oil supply in North America led to regions such as Texas dominating the global market in the production and supply of natural gas and oil products. As a result, Texas benefited directly from the fracking wells as it was one of the first states to implement the new technology. Thus, technological advancements such as fracking hold a huge potential to drive the oil supply higher by lowering the operational costs and break-even points of investments in the sector.
North America’s dependence on OPEC for oil changed due to the development of fracking wells, which improved the oil production levels in their local sector. Resultantly, the geopolitical influence of countries such as Saudi Arabia reduced significantly in the wake of the incorporation of the technological methods of oil extraction into the American industry. Furthermore, the imports of fossil fuels to North America dropped to an all-time low following the growth of the products from fractured wells to 5% of the global composition. Even though OPEC remains the most significant influence in the global oil market, fracking in the American oil market can potentially decrease the power of these OPEC nations by increasing international supply and lowering oil prices.
In terms of employment in North America, the natural fossil fuel extraction in shale rocks boosted energy production locally, leading to increased employment opportunities in the sector. These developments created an economic stimulus in the labour market that grew in states that accepted the incorporation of these techniques in the mining of fossil fuels (Maniloff and Mastromonaco 78). For instance, Mexico, Canada, and the United States saw a rise in their employment numbers as oil and gas production increased to create more significant economic gains. Local communities are still warned to remain conscious of the long-term effects of the resource’s boom-bust cycles that rely on finite fossil fuels (Maniloff and Mastromonaco 78). Thus, the positive impacts on the economy are bound to decrease over time, leaving the communities worse off than they started.
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Published On: 01-01-1970