Factors Influencing the Demand and Production of Oil

IB Geography I

FactorsPolitical

Social

Environmental

Economic

Political Factors

International RelationsIf your country depends

on foreign imports of oil, it is very important that you are able to maintain good relations.

This is not always possible

Political Instability Many countries that are rich in oil are politically

unstable.

Political instability can affect supplies and cause price increases.

Emissions Quotas• International

agreements on setting greenhouse gas emission quotas.

• With targets to meet, more countries are looking to invest in alternatives (renewable energy that pollutes less).

Carbon Taxes

If carbon taxes are introduced it will greatly increase the value of oil products, making alternatives relatively cheaper and more attractive.

NGO Pressure • NGOs are becoming

increasingly vocal in their fight against fossil fuels and promotion of greener alternatives.

• As more consumers listen to NGOs, governments and energy companies are likely to find alternatives

Social Factors

Human Cost of Protecting Supplies

• Many argue that the only reason the US invaded Iraq was in search of new supply of oil.

• Whatever, the reason the US has lost many of its soldiers protecting supply lines, not to mention thousands of Iraqi's who have lost their lives in the ongoing occupation.

Public Image• Because of rising prices

at the pump, the link to global warming and oil spills are all giving the oil industry a bad image.

• Because of this countries and energy companies are looking for alternatives.

Public Health

Oil used in vehicles, planes and industry all contribute to air pollution, which can have a negative effect on the health of people - especially asthma.

Exploitation of Workers and Countries

• In many countries dangerous jobs are carried out by poor unskilled workers.

• Many countries are exploited for their wealth and the temptation of oil wealth can lead to the creation of kleptocratic governments.

• The Niger Delta in Nigeria

Environmental Factors

Greenhouse Effect and Global Warming

• Fossil fuels are all major contributors to the greenhouse effect.

• To try and reduce the effects of global warming, many countries are trying to reduce their dependency on oil.

Oil Spills• When large quantities of

oil are transported by sea or pipeline, there is always the risk of accidents.

• The Exxon Valdez spill (Alaska) in 1989 is one of the most tragic examples of the short and long-term damage an oil spill can cause.

• The more recent BP oil spill in the Gulf of Mexico is a more recent example.

Damage Caused by Extraction

• The recent BP oil spill in the Gulf of Mexico is just one example of how extraction can lead to environmental damage.

• The Niger delta in Nigeria has also seen large-scale environmental damage caused by extraction.

Economic Factors

Transportation CostsBecause the cost of oil

is so high, transporting oil is also extremely expensive.

Price of Oil• The price of oil is very

vulnerable to changes in demand of oil.

• With current disruptions to supply and growing demand the price of oil is currently over $100 a barrel.

• As the price of oil increases the cost of alternatives become much more attractive.

Demand for OilAs the world's

population exceeds 7 billion people and as countries become richer, the demand for oil (and the price) will steadily increase.

Finite Supply• Oil is finite, estimates vary but many people

believe that we have nearly reached maximum production (peak oil) and over the coming decades we will see a decrease in supply.

• As supply decreases countries will be forced to look for alternatives.

Domestic SuppliesMany countries like the UK are seeing their own

supplies of oil run out.

Because of this the UK is looking for alternative sources of energy.

Increases in Extraction Costs

• As world oil supplies run out, companies are having to extract oil from deeper underground and in more inhospitable places.

• These increased extraction costs will ultimately the cost of oil is more expensive, making it less attractive.

Investment in Alternatives • As the supply of oil runs

out, energy companies and countries are investing in alternatives.

• This is becoming increasingly profitable with the price of oil, but with the knowledge that oil will run out, many want to become market leaders.