The End Of Cheap Oil Essay, Research Paper
The End of Cheap Oil What are the probable or likely macroeconomic results or consequences within the United States of such an oil shortage? All consequences of an oil shortage center on an increase in fuel prices. As oil production peaks in the next 20 years, most experts speculate that production will begin to taper off. Unless huge new reserves are discovered (most experts agree that this prospect is unlikely), only lower grade oil deposits or alternative fuels are available to forestall an increase in energy costs to the consumer. As fuel prices increase, several economic factors come into play. Oil powers virtually all road, rail, water and air transport, consuming as much as 65% of the world’s oil . With an increase in fuel prices, the cost of all form of transportation will increase, with the increase costs passed on to the consumer. As consumer prices for transport increase, demand will decrease, and consumers will either exhibit avoidance or seek out lower-cost substitutes. One distillate of crude oil production is home heating oil. As the supply of cheap oil decreases, the price of home heating oil will increase, creating hardships on consumers used to cheap energy to heat the family home. Similarly, businesses and factories dependent on heating oil for temperature regulation will face increased energy costs, which will be passed on to the consumer in the form of higher consumer product prices. Petroleum is the prime fuel used in agriculture for fertilizers (especially nitrogen) and pesticides1. With an increase in petroleum prices comes an increase in the cost of producing and supplying the distillates necessary for fertilizer and pesticide production, and a resultant increase in the price of both fertilizers and pesticides. As these costs are borne by the agricultural producer (usually the rural farmer), the viability of farming comes into question, and we may see an increase in the failure rate of family farms. As these higher costs are passed on to consumers, we will see an increase in food prices. These increases will put an economic strain on the family budget, and may cause the consumer to refrain from buying more exotic foodstuffs in lieu of staples. An increase in transportation and production costs caused by an increase in energy prices may cause a slowing in globalization of American firms abroad. As energy costs become a larger factor, many firms may not have the flexibility or resources to reach out beyond our borders. This slowing of the global economy may have far-reaching impacts on developing countries hungry for our products and services. What would be the likely effects or impact of such a shortage upon personal economic well being? Few Americans appreciate the extent that petroleum plays in their everyday lives. There are the obvious distillates of oil such as gasoline, heating oil, lubricating oil, and kerosene. Maybe just as obvious are the residual products of oil refinery such as asphalt and heavy fuel oils. However, oil and its byproducts are components in a multitude of products and product processes, such as cosmetics, plastics, waxes, secondary fuels (butane, propane), and a host of heavy and light oils. With an increase in oil prices comes an increase in the price of many consumer products. With an increase in consumer product prices comes a decrease in purchasing power and a lowered standard of living. As purchasing power decreases, demand falls and some products may be in oversupply. With low demand and high supply comes recessionary pressures, and the economy is impacted by contracting to reach a new, albeit lower, equilibrium. As spending power decreases, a larger portion of disposable income goes into purchasing goods and services to sustain daily requirements, and less is available for savings and investment. As savings decline or degrade, future spending alternatives are reduced, as savings resources are no longer available. Personal net worth over time is reduced as the standard of living gradually declines. What would be the likely effects or impact of such a shortage upon Boeing’s well being? A gradual reduction in the availability of cheap oil would have a profound impact on Boeing for two reasons: cost of production and cost of transportation. The fabrication of commercial airliners is extremely energy dependent and consumes a great deal of energy, usually provided by oil or oil-generated sources. This energy is required initially for the machining and fabrication aspects (power for the machinery, energy for heat treating solutions, et al). Airliners are fabricated from primarily aluminum and other exotic alloys, which consume large amounts of energy to convert from raw materials into usable raw material. A great deal of machining, forming and treating is required to shape, mill and harden the structure into a viable flying machine. And all this work requires a great deal of energy.
Secondly, airliner production requires a great deal of free space that need to be heated or cooled, and this climate conditioning requires massive amounts of energy, once again usually supplied by oil or oil-generated sources. More so than many industries, the free span and open space requirements to house airliner production requires huge amounts of treated air to allow workers to conduct the fabrication task in relative comfort. The increased cost of production would raise the cost of producing an airliner, and the increased cost would either be passed on to airlines or result in lower profits for Boeing. The raising of energy prices would severely impact Boeing’s customers’ ability to operate Boeing airliners cost-effectively. As the price of aviation fuels rose, ticket prices for travel would rise in response to the increase. The increased cost of travel by airliner would cause consumers to either curtail travel or seek substitutes such as automobile, rail, or bus (who may also be affected by increased fuel prices). While not a direct impact on Boeing, airlines may not be able to justify the investment in new airliners, and would continue to operate their aging fleets. What steps could be taken to mitigate or counteract the most potentially egregious effects or aspects of such a shortage by me personally, acting in my own self-interest? As a consumer, there is little that can be done to counteract the effects of a shortage of cheap oil and the downstream effects that this shortage will have on prices. However, there are several strategies that one can take to mitigate the resultant effects.First, one must make a commitment to conservation of energy, both in the home and in the workplace. Americans are terrible wasters of energy, water, and other consumable resources, and we clearly need to be on a path of personal conservation. Conservation measures include reducing the size of the energy drain (reducing light bulb wattage, for example), more efficient use of energy (doing laundry at night when rates and usage are lower, for example), and recycling of renewable resources (such as glass, newsprint, and some plastics). These conservation measures, while seemingly small, can and will add up to substantial energy savings.Consumers must also make a commitment to more energy-efficient appliances and automobiles. Once again, Americans are terrible wasters of gasoline (by their choice of automobiles) and the way they drive them. Driving at 55 mph consumes 45% less gasoline than driving at 75 mph . Americans also waste a considerable amount of energy on oversized and energy-inefficient appliances. America could learn some valuable lessons from Japan, where energy is much more costly and there is a culturally-induced ethic to reducing energy consumption. What steps could be taken to mitigate or counteract the most potentially egregious effects or aspects of such a shortage by Boeing, acting in its own self-interest? Boeing must continue to invest in producing more energy-efficient aircraft, both to bolster the razor-thin profits of airlines, and to continue to reduce the consumption of petroleum fuels. Airliners consume a considerable amount of fuel (second naturally to automobiles, due to the sheer numbers alone), and research and development must continue to investigate more energy-efficient engines, reduced drag on skin surfaces (which translates into a considerable fuel savings) and weight reduction (which also translates into a considerable fuel savings). From a production standpoint, Boeing must reduce the process flows of airliner production, which translates into less plant occupation for each unit produced. More efficient production techniques translate into reduced energy consumption.As the nation’s leading exporter, Boeing must lobby the federal government for energy research into alternative fuels and other energy sources. By building the next generation of energy infrastructure now, before cheap oil runs out or at least is reduced, the country will better transition to other sources of energy. As many experts have pointed out, cheap oil is still available, but will not be with us forever. We must be ready for the changes.