11 Şubat 2013 Pazartesi

Fossil fuels keep throne


Energy is one of the key components for human beings. It is regarded as a lifeblood of the global economy.

The mostly used energy types are fossil energy resources.

Nevertheless, today’s economic activities are primarily obliged to renewable energy types.

Yet presently renewable energy types are not enough to meet increasingly growing needs.

As known traditional energy type especially fossil ones have been extremely harmful regarding high CO2 emissions.

In order to alleviate the detrimental effects of fossil energy use, renewable energy resources are seen indispensable in the scope of greener economy.

Despite all harmful effects against environment and sustainable development, fossil fuels are keeping its pivotal role in energy supply across the world.

Ranging at the top in energy consumption, oil seemingly would maintain its monarchy in energy sector for years.

It is commented, at least, oil will remain dominant fossil energy resource of the developed and developing world for this decade.

While fossil energy basically crude oil featuring most harmful, but its cost is also high.

Fluctuations in oil prices would stay as sword of Damocles on economies from time to time.   

High oil prices would lead to bad things for the global economy, and save oil producing nations, as for low oil prices the reverse.

According to a research, its 150-year average price (1861 – 2011) of about $25 per barrel, for this reason current crude oil is not seen cheap.

Oil prices are not simply evaluated a supply and demand equation.

If it would be like that, oil would be selling for $50 or even $40 per barrel. The question is why then has the price of oil remained at such high levels? The geopolitical risk is shown as a reason.  

Ongoing civil unrest in the Middle East (Syria, Egypt) near major oil producing nations, has placed a geopolitical risk premium on the price of oil, adding $10-15 per barrel to oil’s price. In addition, supply disruptions in some oil producing countries, also U.S./E.U. sanctions imposed on oil producer Iran due to its nuclear program, as well as unstable conditions in Iraq for years.

Secondly, oil is not regarded just an energy form; it is also evaluated an alternative investment, for institutional investors such as hedge funds, investment funds and other high net worth investors.

Frustrated by the inadequate returns in the stock and bond markets, institutional investors have bid-up the price of commodities and one of their favorite commodities is oil.

Thereby, the two major reasons as geopolitical risk and alternative investment why oil prices are so high today.

As for the price in 2013, OPEC basket averaged $109.45 barrel in 2012 and $1.99 over the previous year.

Goldman Sachs and Morgan Stanley forecast global oil benchmark Brent will average $110 in 2013, while some other analysts think the price would average more than $115.

According to another guess, the oil price would average $80.

The EIA expects global consumption to rise by nearly 1 mb/d in 2013, while OPEC production rises 0.65 mb/d and non-OPEC production rises by 1,3 mb/d.

OPEC’s latest World Oil Outlook says energy demand increases by 54 percent over the period 2010 – to – 2035 and fossil fuel which currently account for 87 percent of energy demand will still make up 82 percent of the global total by 2035.  

Some other expectations for oil are that; comparatively cheap, abundant natural gas is displacing oil; meanwhile new drilling technologies would increase oil’s supply from areas previously as unfeasible for oil production.

In line with these forecasts and analyses, dazzling technological innovations could cause new energy resources to enter into force. In spite of everything, fossil fuels maintain their throne for decades.