ECONOMICS AND ENERGY – I

Hands down, Earth is the most sustainable planet with a colossal amount of natural resources.
During the 20th century, mankind relied only on biomass as an energy source until a gradual
shift to high energy content sources such as fossil fuels was seen in the late 20th century.
At the moment, growing economies are inclined towards banking on an energy system less
dependent on fossil fuels and more on ones not generating emissions. This, leading to
investments in new technologies to tap the same from mountains, oceans, wind.

In energy-importing countries with large urbanising populations like China and India,
government policies offer incentives for compact-city development and large businesses help
plan, finance, and execute major projects like becoming a 100% Electric Vehicle nation by
2030. And, being a country where the problem of Energy Poverty still remains a problem, the
above scenario seems far - fetched. Due to the latter, the energy demand in Asia continues to
increase. High energy density of crude oil and coal make these economies to predominantly
rely on them.

But, in the recent years, there has been a great deal of oil price fluctuations in the global market.
A boom in prices disappoints a common man and a downward push of the same saves him
from going the extra mile. On a light note, this scenario can be metaphorically related to
econothermodynamics; more like conservation of money where if one loses then there is
someone who gains and vice versa.
It is evident that a downward push in prices occurs due to over production of oil, this being an
irony as oil is inexhaustible. Over production of oil doesn’t signify the success or increase in
profits of oil rigging companies. On a realistic note, this over-production has led to mounting
debt accumulated by struggling, cash-strapped oil companies who had to take on more debt to
keep operations going, Most of the debts come from large amount of cash invested in drilling
or extraction of oil through unconventional methods creating a downward spiral for both banks
that lend the funds and the companies that borrow. This was the case from 2008-2016. Tables
turned since 2008 before which from 1990-2008 the oil prices had raised. This was not because
of limited resources available but, as existing production was running at capacity then, the
industry had to wait to get new facilities and technologies to increase supply. As this process
of technological development does not happen overnight, globally there was stagnation in
production until new extraction was set up.
This momentous transition from stagnating supply to over- supply of oil is blamed on the
American economic model of a free liberal market based approach in running the national
economy. The US, not being influenced by any international law or organisation, revitalised
mineral rights to private individuals and corporations along with the government. So, public
and political acceptance of fracking of shale oil and natural gas in the US nearly doubled their
domestic production, pushing out oil imports mainly coming from the OPEC countries that
then needed to find another home. The oil of the OPEC countries that were once sold to the
United States are now suddenly competing for Asian markets for which the producers are
forced to drop prices. Unified petroleum policies between the member countries of OPEC and
the latter’s system of national sovereignty over natural resources of its member nations had
always ensured the required amount of oil production and hence the stabilisation of global oil
market.
Presently, as the demand for liquid fuels is tempered along with moderate oil prices, natural
gas prices have also begun to converge globally at lower levels as a result of low-cost resources
such as shale gas, emerging worldwide.
These moderate energy prices lead to high-cost resources like oil shale being left in the ground,
which puts pressure on some resource holders like the Middle East nations which are wholly
dependent on energy revenues. Now, so as to lessen the nation’s dependency on energy
revenues, for instance Saudi Aramco, Saudi Arabia’s national petroleum and gas company
which is valued at 3000 billion US dollars; ahead of Microsoft and Apple by a huge margin
plans on selling 5 percent of its stakes in order to reach its vision to reduce the country’s
dependence on oil revenues.

The future of coal as an energy source is less favorable and bleak because of the harmful
emissions involved. Burning coal delivers energy to about 50 percent of the Asian Pacific
population. This dependence has reduced since the past half a century.
All these tend to indicate that the era of fossil fuels dominance mainly crude oil and coal is will
converge giving way to tap other lucrative energy sources.

Coming to natural gas, the natural gas production has increased globally, especially in the US.
Now, faces competition from China who may have more shale gas and wells are being drilled
to investigate the potential. The noose is further tightened when shale gas production does not
meet initial expectations, with relatively limited success outside the US – partly because of
patchy and varying policy support and partly because of geological and technological
disappointments.

Ocean energy is another promising reliable energy source globally. But the problem lies in the
increasing complexity and proliferation of international transactions which becomes difficult
to manage and co-ordinate. So, rather than having a multilateral approach from nations as done
for the previous energy sources, a mini lateral approach may have a large possible impact. This
approach and energy reliance is more feasible in economies where fiscal and monetary policies
are flexible along with social models which can be reconciled with increasing levels of
globalisation in the ocean energy world. The Scandinavian nations already exemplify this.
Another defining feature of oceans is that it helps developing countries of macroeconomic
stability overcome the middle income trap (MIT) by helping them emerge as high income
economies which require levels of investment in new technologies. This is the scenario in
countries with favourable demographics like India and China which move into empowering
their inclusive economic system.
Having covered all the plausible primary energy sources of the past, present and future, one
can conclude that there is always uncertainty in the addition of new energy sources as this
makes the panorama more complex in terms of prime energy source of a country, economic
and financial stability, international policies entrenched along with investment in new
technologies. Nevertheless, it is assumed that dependence on fossil fuels will only reduce by
4% in 2035 and hence will still remain dominant. With this being known, the Middle East must
now take a back seat and cut back their oil production to sell at higher prices.