«International Energy Policy» - Great Essay Sample

Introduction

Organisation of the petroleum exporting countries (OPEC) is a union of countries exporting oil, which has indisputable influence on international oil prices by rationing the supply of oil (Smith 2005). OPEC is one factor which determines oil price together with the cost of production of available non-conventional petroleum resource, cost and accessibility of unconventional petroleum supplies and growth in the world demand.  Unconventional oils from virgin areas outside OPEC significantly grow and will encounter oil fluctuations in demand, which may lead to the entire fall on OPEC. Most of the supplies come from tight oil, oil sand and from the same source where an individual has a low rate of production that declines immediately if drilling is not sustainable. If variable costs are not covered by prices, production will reduce due to lower drilling. Mature reservoirs can deliver responses in both outside and within OPEC, where an individual well productivity has fallen should provide support to production in order to drill more. The forecasted rapid growth of unconventional oil such as tight oil, natural gas and shale oil consisted of success achieved through virgin projects, where the implementation is slowed if the price is weak.

Traditional forecast procedure used by most people disposed them to challenge due to development of forecast to estimate non-OPEC supply and demand. By assuming complete use of non-OPEC capacity, the balance is calculated as call on OPEC. OPEC and its nation are likely to lose if US continue to reduce imports of oil, which will lower the price of oil in the process. In case US expand its production will push global extra capacity to be above 8 million barrels daily. This is appoint where OPEC will not manage to control  prices and  prices of crude oil will drop, which will affect most of energy producers who depend on  high prices to balance their economy hence OPEC role of  price regulation will be influence negatively.

OPEC is a group that produces oil shrug off the conversation of its weakening effects, which sparked through production of US shale energy. The US oil price at the pump is determined by the global oil market events, but US falling oil imports will reduce political support to secure the global market. The OPEC role of price regulation in the global market is not effective.

 An explosion in a sedimentary rock or shale of a hard-to-reach energy trapped has sparked mistrust on OPEC standing in the international oil markets. The international energy agency showed that the spacing of shale leads to shock of supply and developing a new brand of energy supply, which reshapes the industry. This results in higher costs of extraction of shale energy and development of negative impact on the area of controversial methods such as hydraulic franking or fracturing. The development of a committee to examine the effect of shale in Vienna was decided by the OPEC minister and  predicted by an analyst that trading group in GFT markets will make an OPEC hit from shale.

Discussion

United Kingdom as a member of the European Union boosts the coordination in order to diversify and secure the supply of energy. Through OPEC it has been able to increase the development, through the use of renewable and other options for energy resources within the European Union. It also promoted reduction of energy consumption and demand.  The European Union has been reluctant to cede national sovereignty on energy security issues of their international policies, OPEC has set rules to govern European Union’s broader target on the use of biofuels and renewable energies.

Revolution of shale oil in America serves as an important factor to regulate global oil prices and blazing a way for US to sufficiently provide itself energy. This plays a major role in developing economic prosperity. US government should not restrict production of domestic oil and avoid pushing policies, which make the energy to be less affordable. US government should develop policies that regulate global oil prices, the need for international oil and to restore their economies. This will reduce the OPEC power to regulate foreign oil prices and its availability.

OPEC power to influence the price of oil worldwide has enabled organisations to impose political influence to trigger an oil crisis such as the Arab-Israel conflict. OPEC decisions on oil price adjustment influenced the value of USD to other currencies as shale oil is  measured in dollars. These influences change of dollars, which is the measure of other relative currencies. OPEC provides its member countries break-even prices on oil prices to enabled them to balance their budget due to downward forces on oil prices of supply from North America and softening international demand (Pratt, et al, 2000). Break-even prices occurred due to OPEC nations directing its revenues to massive investments such as infrastructure projects and expanding social programmes that were meant to stave off upheaval, which occurred due to Arab revolutions within the OPEC nations.

Spending by OPEC nations disposed them to susceptibility of reduced oil price. Increase in U.S production of shale oil promoted reduction in the price of Brent crude, which is standard for global oil prices (Pickering 2008). This has lead to a long-standing and significant relationship between the pricing environment and OPEC extra production capacity. According to the energy information administration, the U. S increase in oil production is due to spare production capacity of OPEC. OPEC stranglehold weakens over international oil markets due to the increased division of its members and OPEC should reduce production to maintain prices above break-even levels. OPEC nations produced 30% barrels of crude oil daily, which is 34% of the total amount in the world (Amuzegar 1999).

 OPEC managed to offset international oil supply gains through its ability to reduce oil production and reverse downward pressure on international oil prices by increasing US production. United Kingdom is considering the ability of significant reforms to improve liberalization of the energy market.  On the other hand OPEC has continued to maintain important national control the relationship of nations producing energy and external national energy markets.  OPEC promoted the UK to renew interest on energy security through internal and external factors. OPEC, internal increased the prices of energy markets, which contributed anxieties on UK potentiality to meet future, demand of energy.   European Union coordination driven by their consideration on energy consumption and production on global change of climate enabled U K to centre major on their economy through OPEC ensuring the global energy security is stable.

 The reduced production to support prices makes OPEC nations to be subjected to varying break-event oil prices. This led them to face challenges due to unusual effect on the North American rush, which makes combined response. According to joint economic committee, OPEC’s role is to export volume of oil and regulate its price internationally, because its revenue is produced by both price and volume (Pickering, 2008). The assumption that OPEC will not manage to fully offset significant increase in oil supply by U.S was because of downward pressure on the price. If US increased reliance on indigenous supply and reduce certainty on imports, the impact of volatility in abroad will reduce and will promote ability of strategic petroleum reserves (Adelman, 2002). This will improve market protection in cases of shipping lane is blocked; oil embargo, and other emergencies, which may influence global oil prices’ increase. According to the international energy agency, supply shock develops by a surge in producing oil in North America will be transformed into the market in the future. It has projected that OPEC production will reduce to 30% of new supplies while North America will contribute 40%.

The boom in US oil production reduces OPEC market power, making export to shrink. Together with US, the OPEC impact on the price of oil has reduced significantly due to severe boom in Norway and Russia production. The market power of OPEC will decrease due to the US revolution of shale. According to some analysts’ prediction the falling prices are due to expansion of shale in the future, which is OPEC biggest objective in direct terms. However, it is in no connection to the supply of US oil due to sluggish global economic conditions and global demand. Oil produced from OPEC nations, such as Venezuela, Angola and Nigeria, hit through shale because of selling crude oil to the US. According to Nigerian oil minister, shale gas or oil will affect the OPEC nations exporting production. The international energy agency predicted that currently OPEC is a kingpin in South Arabia and also the biggest producer of oil shale and the world’s largest producer of oil will be the USA by 2017 behind the shale energy.

OPEC has been courageous in fixing the energy-fuelled power above the west. However, currently OPEC power is truly well-framed. OPEC is grappling with the entire energy series complications, which are colluding to rush to end. OPEC in the past decades showed an increase in its net revenue on oil production, but in 2012 it decreased to 31.32 mbpd, while in early 2013 it dropped to 30.34 mbpd (Levenstein & Suslow 2006). According to the energy information administration (EIA), experts anticipate production levels will be lower than those reported in 2002 and 2011. 2013 Citigroup report on US oil production showed that in early 2012 domestic production in the US achieved 84% of its energy required that threatens existence of OPEC. In the last year, oil production in the USA increased to 790,000 barrels a day, which lead the Citigroup to report that the supply of oil to US Gulf Coast from Texas and North Dakota displaced imports from Kuwait, Saudi and Iraq. This forced the OPEC to downgrade its prospect of the economy. The American energy boom is deepening to splits within the Organization of the Petroleum Exporting Countries, threatening to drive a wedge between African and Arab members as OPEC grapples with a revolution in the global oil trade.

Revolution of shale oil  in America is un-tightening the organization of  the petroleum  exporting  countries on international markets by moderating prices of oil and propelling America  towards providing themselves sufficient energy (Lipczynski, Wilson & Goddard 2005). Production of oil in the past four years in the US soared by 30% while import of oil by OPEC members reduced by 26%. This is due to horizontal drilling and hydraulic fracturing, which enabled producers of oil to tap shale oil resources that were not early accessible. Revolution of US shale oil has increased the worry of OPEC members. These lead OPEC members held meeting, where the Persian Gulf delegate declared that they are heading to problems. According to Joint Economic Committee, OPEC will not settle fully the increase in the supply of shale oil in US due to downward pressure on the price.

In the medium term, OPEC capacity is growing and this could be less or more predictable and fixed, which leads to depletion policy, members' policies, reserves and capacity to supply liquids outside OPEC is not certain due to dependence on new technologies and projects. Similarly, medium-term demand will be influenced by the depth and length due to rates avoiding demand by new technology and of the slowdown of the economy. For instance, switching from vehicles using oil to fuel-efficient vehicles enabled one to enter two times where the call for new supplies by new suppliers is accepted outside OPEC. These supplies include natural gas, new oil, biofuels and oil that avoid transport technology, for these the regulator is price. OPEC ability to continue regulating the influence of the third world oil production without any other institution equal to the prices at short-term and long-term is based on the member’s interest, which is not identical. OPEC nations revenue requirements vary and the potential for increasing the volume of export vary and in the long-term it depends on their assumption on domestic growth and reserves (Salaheddin 2009).

The global market will go on to dominate the economy but will be challenged by the role of OPEC. The weakness of short-term demand will be balanced by OPEC regulations in case of weak prices in the production by members and responds from non-conventional oil producers with high variable cost will guide them to delay new projects and slow drilling. In medium-term, completion will be between the investment in substantial fuels and new sources of oil and the investment, which reduced the use of oil efficiently. Prediction of long-term trends cannot be based on the normal business extrapolation. Increase in US reliance on less imports and supply of indigenous can mute the influence of volatility of overseas supply.

OPEC as the source in the world’s oil with one-third, has been taken back due to US shifting its production. According to 2010 forecast, Canada and US will produce 11.8 million barrels daily in 2014. But two years later, the predicted production increases to 14.5 million barrels daily.   US production could not be forecasted for the past 5 years due to the requirement of shale oil production that oil price has not been stable, normally $70 per barrel or above.

Conclusion

In conclusion, production of oil shale in US has affected the role of OPEC negatively in that, OPEC power to influence the price of oil worldwide has been decreased hence political influence  triggering an oil crisis in the world such as the Arab-Israel conflict. The market power of OPEC reduces because of US revolution of shale. US shale oil production has made the Members of OPEC to be worried due to downward pressure on the price of oil from booming the supply by North America and softening demand by internationals. The achievement of moderate increase of price (to uplift future demand) through relaxing quotas and demand outweigh supply. Both roles are based on the presence of spare capacity. OPEC nations did not coordinate or discuss the investment plan, which could develop new capacity in order to maintain the ability to compete. The OPEC supply coordination of capacity of surplus will remain significant due to chances of latter growing in the medium term. The presences of OPEC investment plans showed an increased capacity of about mbpd in 2015 compared to off take increase of mbpd in the OPEC options. OPEC is subject to half of this as an increase in consumption and the remaining is considered as the risks due to changes faced from the world economic conditions. OPEC, internal increases global market prices of energy, which lead to anxieties on UK ability to meet future demand of energy.