Oil Dependancy, Oil Shortfall Impact and Economic Development Planning

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Question 1: Dependency on Oil & Oil shortfall Impact

Question 2: Economic Development Planning

Question 1

We come across a lot of documentaries on almost daily basis, yet some of them are serious enough to draw our attention towards the disturbing state of the earth. Most importantly, all of these kinds of documentaries are also supported by comprehensive research and studies conveying the same massages indicating that we humans are in great trouble and we are going to experience a much different life than ever before. The documentary, “The Crude Awakening- (The Oil Crash 2007) signifies one of the most alarming situations that even powerful economies are facing today, i.e., how dependence on oil is impacting not just the oil prices but also the food supply. This essay aims to highlight what’s going to happen in transportation, food and energy sectors of different cities of the United States when the economy runs short of cheap oil.

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Oil is a bare necessity of the world and also for the combustion engines; it’s like a life line. According to energy information administration 2009 estimates, around 84 to 85 million barrels of oil was pumped and consumed as well, worldwide.

With equivalent consumption and production rate of oil, is it possible that we keep pumping the fossil fuels without the depletion of resources?

Obviously, you can’t fulfill the oil demands of the entire world with a single well. Though there are unlimited number of oil well, some of them are still productive while some are dried out, yet each of them follow a particular production bell curve, consisting of productivity maximization, stabilizing and then depleting to nothing with certain number of years. This curve is called Hubbert Curve and presented by Shell geologist named King Hubbert, in 1965 (Jimenez, 2009).

This curve is also applied to oil production all over the world, Usually, oil companies concentrate more on big and easy to find oil fields initially and then come to deeper and smaller ones when the large ones start depleting. They also take the help of newer technologies in this regard. In a nut shell, according to a bell curve, the production is supposed to increase, reach at peak and decline finally.

It is to be noted that point called peak oil is arise before depletion. Take an example of carafe filled with coffee, to understand the concept. Pour cup after cup without any effort until you see a stream of java. Obviously, you would surely need to severely tilt the carafe to drain the dredges. Your last flowing cup before the final fall is the peak point. Demand for oil will keep rising however; oil reserves of the planet will deplete (Avent, 2008).

What is the scenario after the peak point is raised? Indeed, an oil crash.

According to U.S. department of the interior geological survey the predictions regarding the impacts of worst oil crash involve higher gas prices, endangered globalization, increasing anarchy and irreparable exploitation of secured drilling points.

The solution of the problem might rely in decreasing our dependence on fossil fuels. Alternative resources of bio fuels and energy seem important in this scenario. Many critics have labeled oil shortfalls as something political benefit, in view of world politics. Everything is quite clear. Supply is less than the demand as ever, compelling us to explore alternative energy resources and change energy usage practices. Even if we are able to utilize the last drop of the oil through latest technology, increasing gap between supply and demand and higher prices would call a need for a change.

Current Trends of Oil consumption in United States

United States consumer very little portion of crude oil as most of the oil is refined to be used in petroleum product manufacturing like diesel fuel, jet fuel, gasoline etc. Natural gas processing generates liquid that is also used the same way. Renewable resources like biodiesel are used as an alternative for refined petroleum items. EIA also takes into account biofuels in consumption reports.

According to U.S. bureau of economic analysis of current business 6.89 billion barrels of petroleum products were consumed in United States in 2013, implying 18.89 million barrels per day, in which biofuels account for 0.32 billion.

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The Deficits in U.S Petroleum

According to U.S. bureau of economic analysis of current business Deficits in U.S. petroleum trade have been equal to a large fraction of the imbalance between U.S. imports and exports. Between 2000 and 2012, the cumulative total of U.S. trade deficits in crude oil and refined petroleum products amounted to $2.87 trillion, 40.5 percent of the cumulative deficits in all goods and services over the period. And oil's role has increased in importance over the time: in 2012, for example, the trade deficit in oil was equal to 55 percent of the overall trade deficit in goods and services.

Shortfall of Oil in United States- The Impact on Transportation

Over the last forty years, one of the most difficult transportation policy questions has been the issue of the price of oil and its associated impact on transportation systems1. Since the 1950’s the North American economy and its transportation system have become increasingly dependent on oil both in terms of its production of goods and services, and their distribution from production centers to market consumption centers (Gordon & Robert, 1975).

The prices of food, consumer goods (e.g., electronics, furniture, and clothes), and capital goods items like cars and houses are all likely to suffer from continuing oil price shocks. Fuel price increase may result in a wide range of impacts depending on just how much of the increase can be passed on to consumers.

In the global economy and both the internal and external transportation systems of the United States, significantly higher prices will influence factors like

• The global economy maintenance and growth

• Marine and inland shipping cost

• Modal share

Shortfall of Oil in United States- The Impact on food production

According to Federal Reserve Bank of San Francisco food prices have gone so high since last few years. In U.S., the food prices increased by 5 percent in 2012, while in 2011, the inflation rate recorded was the highest in last 36 years. Though USDA estimated food prices increment in between 2.5 to 3.5 percent, yet inflation is going to be even higher . The higher prices are alarming as economy is stagnant with zero interest rates.

The major reason could be the short fall of oil supply. Since gas and oil are also highly demanded in agricultural sector, a decline in oil supply will eventually raise prices of food in coming years. According to Geologist Dale Allen Pfeiffer, population is rising, therefore, there is a need to cut population growth rate by at least one third in United states and two third in the entire world (Trehan & Bharat, 1997).

Shortfall of Oil in United States- The Impact on energy production

The macroeconomic implications of a supply shock-induced energy crisis are large, because energy is the resource used to exploit all other resources. When energy markets fail, an energy shortage develops. Electricity consumers may experience intentionally engineered rolling blackouts during periods of insufficient supply or unexpected power outages, regardless of the cause.

Industrialized nations such as United States are dependent on oil, and efforts to restrict the supply of oil would have an adverse effect on the economies of oil producers (Trehan & Bharat, 1997). Consumers will have to bear increased prices of fuel and those who use electricity for cooking, water supply and heating, affects would also be felt. The current scenarios therefore indicated continuous energy crisis and are also a humanitarian crises.

References

  1. Jimenez, R. (2009). The Industrial Impact of Oil Price Shocks: Evidence from the Industries of Six OECD Countries. Documentos de Trabajo, No. 0731. 2007; N. Velazquez. “Impact of Rising Energy Costs on Small Business.” Congress of the United States. House of Representatives.
  2. Avent, R. (2008). A World Less Flat. Guardian, UK. p. 35
  3. Energy Information Administration (EIA) Survey, p. 133-145, 2012.
  4. U.S. Department of the Interior. U.S. Geological Survey, p. 205-239, 2008.
  5. U.S. Bureau of Economic Analysis of Current Business, April 2013.
  6. Gordon, B., Robert, J. (1975). Alternative Responses of Policy to External Supply Shocks. Brookings Papers on Economic Activity, (No. 1:1975), pp. 183—206.
  7. Reserve Bank of San Francisco. (2012). Oil Prices, Exchange Rates and the U.S. Economy: An Empirical Investigation. Economic Review fall 2012, pp. 25-33
  8. Trehan T., & Bharat, V. (1997). Oil Supply Shocks and The U.S. Economy. Federal Reserve Bank of San Francisco, Weekly Letter. P.198-209.
  9. Documentary: The Crude Awakening- (The Oil Crash 2007). (2007). Retrieved from YouTube.com
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Question 3

Baltimore’s Harbor Point Project

This project is considered as one of the controversial projects due to couple of reasons. One of the reasons is the environmental effects that are disturbed by the construction material used in buildings and walls. The element that is involved in the construction and effecting the environment is Chromium. This element is highly dangerous for the living beings as it is one of the causes of cancer disease. Most of the civil engineers recommend using chromium as a construction material but it is also a cause of diseases for the human beings. There could be precautionary measures adopted by the people to avoid the infection of these chemicals. Apart from the chromium effect, the other controversies that revolve around the Baltimore’s harbor point project are the location of the area.

It is believed that the geographical position of this project is not prominent because there is an extreme are air pressure striking the project’s location that could possible weaken the construction. The civil engineers have taken the constructive measures for the safety of the Baltimore’s harbor point project. The pros and cons have to be considered so that in the future time, all possible factors could be handled with great care and concentration.

Tax Increment Financing (TIF) is one of the financial terms used for collecting the taxes from the companies, organizations and ongoing projects. There was an estimate of the paying of taxes around one hundred and seven US dollars to the government which itself is a huge amount. It is also said that TIF are going to increase their rate of taxes so that maximum revenue could be generated from such projects and events (Dorsey & James, 1981).

There are some of the points on which the Tax Increment Financing and harbor point project cannot agree or cannot be on the same page. On these points, they always conflicts and contradicts and this arise to many conspiracies.

When it comes to accountability of the taxes being asked from the profitable projects like harbor point project from the government side, they always fail to prove the exact amount been required. There has to be complete transparency of the financial statements and taxes being received from such projects. The crystal clear financial statement and cash books have to be recorded regarding the taxes being collected by the Tax Increment Financing department. It is really mandatory for such institutions to make the record of tax collection for the Harbor Point Project as they are constantly growing and expects a great feedback from all (Dixon, 1992).

Harbor point project will show that it is going to create more opportunities for the people or it would saturate the amount of jobs. It is fact that more earning reasons have to be tipped out as there is going to be construction all around the places. The wages and the salaries have to be equal for all labors irrespective of their background and locality. There has to biasness in every aspect so that the society could impact a perfect gesture to others.

It is a common fact that job are given to those who belong to the same locality of company, this unbalance job opportunity has to be eradicated. All people have to be given jobs on the basis of merit and talent and the trend of injustice has to be removed (Dietrich & Skinner, 1979). There are certain entities that are involved in the Baltimore Harbor’s project, for instance the investors, employees, government employees, businessman, the people residing in the specific area and the elected people. All these people are a part of the Baltimore’s project and all the safety measures have to be taken into consideration from each and every aspect.

Proposed solution

One of the major problems is the management and deliverable of activities regarding the Baltimore construction. The problems could be resolved if there is a better management and perfect decision. All the issues would be possible resolved in the most professional way. There has to be presence of open wide spaces so that structural makeover could be built in much specific way. This problem is supposed to be corrected on time so that there could be perfection at the end of the day. There have to be hiring of professional civil engineers who know their responsibility and get the issues solved (Chesterman, 1978).

References

Chesterman, C. W. (1978). The Field Guide to North American Rocks and Minerals: The Audubon Society, New York, Alfred Knopf, Inc., p.850.

Dietrich, R.V., & Skinner, B. J. (1979). Rocks and Rock Minerals: New York, John Wiley & Sons, p.319.

Dixon, D. (1992). The Practical Geologist: New York, Simon and Schuster, p.160.

Dorsey, J., & Dilts, J. D. (1981). A Guide to Baltimore Architecture: Centreville, Md., Tidewater Publishers, p. 327.