Since 2003, one of the main events in world history would be the astronomical surge of the oil prices. In 1999, the oil price was at $20 and the forecast for the next ten years was that it would hit $10. But everything changed from 2001 when the Bush administration allowed a trillion dollar tax cut that favored the upper income groups so as to increase spending and another trillion dollars to wage two never ending wars. This depressed the dollar causing the investors to buy oil futures as an asset play and as a surrogate currency to protect against a weakening dollar. The oil prices surged to $147 in 2008 before plunging again in 2009. It did increase for following four years as the American economy began recovering and the Chinese economy grew at a rapid pace. During this time, there was a marked increase in conflicts across the world, creating economic boom and opportunities for many countries with higher costs of oil production like Iran, Canada, and Russia etc. With a strong dollar and slowed growth in China it has decreased significantly this year causing economic stagnation in many places that enjoyed the fruits of the boom earlier.
Welcome to the hydrocarbon economy. As the name suggests, organically hydrocarbon is comprised of hydrogen and carbon with a majority off them naturally occurring in crude oil. They are the primary energy source for the 21st century mankind, contributing to most of our human progress since the late 18th century. One of the earliest mentions about hydrocarbons were in the usage of asphalt during the construction of the wall of Babylon (as per Herodotus) and during the time of Moses’ birth, where he was placed in a papyrus basket coated with tar and pitch. There have been documented uses of oil at various times since then across the world in Persia, China, Burma and in places that constitute the current Middle East. Since 1847 when James Young first discovered the process to distill kerosene, hydrocarbons have changed the course of human progress for the better by their uses in lighting (kerosene), lubrication (heavy ends that remained from distilling kerosene) during the early stages to wars (most of the conflicts since Second World War) and modern transportation (till date 90% of the transportation needs are met by hydrocarbons). Between 80-90 million barrels of oil are being produced daily (this figure was in 2014, in January 2015 it stood at 94 million barrels) and the consumption rate slightly north of 90 million barrels. The margin between consumption and production is around 5-10 million barrels and the main consumers were US (19%) followed by China (12%). Technological, political and economic developments in these countries play a major factor in determining oil prices, till such a day when the Indian economy should take off.
The greatest uses of hydrocarbons are as fuel of combustion, particularly in motor fuel and heating application. When hydrocarbons are burned, they release carbon di-oxide which is a greenhouse gas that causes ocean acidification and increase in world temperatures by one degree Celsius contributing to global warming and climate change. As explained in an earlier post, many of the commodities, which are created to feed the urge to consume, are derived from an increased use of hydrocarbons. If materialism can be a cause for climate change, the effects from an increased consumption of hydrocarbons cannot be denied.
Conundrum in its simple definition by Merriam Webster means a confusing or difficult problem. A majority of the hydrocarbons being consumed today are being used to feed the world’s surging population because the whole concept of Green Revolution has been built on the availability of cheap oil. One startling estimate by world renowned Michael Pollan puts its as follows:- 10 calories of fossil fuel energy is needed to produce one calorie of food energy. The major consumers in this wasteful equation are the industrial practices on which the food system is built- inefficient growing practices, food processing & storage and the food transportation system that stretches for kilometers between the producer and consumer. 40% of the energy used in the food system goes towards the production of artificial fertilizers and pesticides, 23% percent is being used in processing and packaging and another 32% is used in home refrigeration and cooking.
Juan Pablo Perez Alfonzo once said, “Oil is the Devil’s excrement”. Most of the conflicts in today’s world can be traced to petroleum politics a fact highlighted by movies like Syriana including others. Much as today’s evangelists on climate change and global warming doesn’t want to confess, hydrocarbon economy remains a conundrum till date. Whether you like it or not, the course of modern human history will continue to be determined by hydrocarbons.
Image Courtesy: BP Statistical Review of World Energy June 2014