Energy crisis

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An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil, electricity or other natural resources. The crisis often has effects on the rest of the economy, many recessions are precipitated by an energy crisis of some form. In particular, the production costs of electricity rise, which raises manufacturing costs. From a consumer side, the price of gasoline (petrol) for cars and other vehicles rises, leading to reduced consumer confidence and spending.

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Economy

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The price in a market economy of energy (oil, gas, electricity) is driven by the fundamental principles of supply and demand which can cause sudden changes in the price of energy if either supply or demand changes. However in some cases an energy crisis is brought on by a failure of the market to adjust prices in response to shortages. In other cases, the crisis might be caused by a lack of a free market. Some economists have argued that the 1973 energy crisis was exacerbated by price controls

Oil supply is largely controlled by the national oil companies of nations with significant reserves of cheap oil, including the UAE, Saudi Arabia, Venezuela, Norway and Kuwait. Many of these countries have formed a cartel known as OPEC (Organization of Petroleum Exporting Countries). As OPEC controls a very large proportion of the total global oil output, they have a strong leverage on the global oil prices. If OPEC decides to reduce the output quotas of its member countries, this will tend to drive up the price of oil as the supply diminishes. Likewise, OPEC can step-up oil production to increase supplies and drive down the price. The politics that lead OPEC to perform such actions deserve an article of their own.

There are however limits on the actions of OPEC. If OPEC raises the price of oil too high, demand decreases and production of oil from less productive fields or unconventional sources such as tar sands become profitable. In addition, the economies of oil exporting nations are dependent on oil and efforts to restrict the supply of oil would have an adverse effect on the economies of oil producers.

Oil demand

As a proportion of the total, by far the greatest demand for oil and other petroleum products comes from the commercial sector which uses oil for heating and transportation. Oil demand is also seasonably variable as the countries of the Northern hemisphere, who dominate global oil consumption, consume more oil in the winter for home heating. In fact, the United States alone represents nearly 60% of global oil demands and a particularly cold winter in North America can strongly affect global prices.

Historical crises

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Peak oil

For full article see Hubbert peak

There has been much debate about "peak oil", i.e. the point at which half of the worlds oil reserves have been used, and world oil production peaks and then goes into irreversible decline. Proponents of this point out that oil is being used much faster than it is being found, and that as current oil fields go into decline there won't be enough new ones to replace them. Many experts claim that this point will occur within the next decade, whilst others argue that it will not happen for several decades.

When the oil peak does occur then oil supply will no longer be able to keep up with demand, leading to dramatic price rises and probably severe economic recession and geopolitical ramifications, and will probably lead to large scale efforts to develop alternative forms of energy, and energy conservation.

Generally, the continental United States is used as a good example of this. Earlier in the 20th century, the US was a major oil producer, but oil production peaked around 1970. The decline since has appeared irreversible. Despite newer technology, more deepwater drilling, and other anticipated explorations, it is not believed that the US will ever again produce as much oil as it did in the 1970s. The US was the site of the first real drilling for oil, and was explored relatively quickly and completely, as it was also a major consumer of oil. It is reasoned by analogy that as other sectors of the world enter full production, they too will follow the path of the US, and their oil will eventually peak, and then settle into irreversible decline. It is hypothesized that peak oil will occur "real soon now", but the exact date remains somewhat uncertain, with different sources giving dates that are either in the past, present, or up to 50 years in the future.

Future and alternative sources of energy

Many scholars argue that the world is heading towards a global energy crisis mostly from running out of cheap oil and recommend decreasing dependency on fossil fuel. This has caused many to invest in alternate power/fuel research such as fuel cell technology, hydrogen fuel, methanol, biofuels, solar energy, tidal energy and wind energy. To date, however, only hydroelectricity and nuclear power have seen significant usage. See Future energy development. Hydrogen is currently produced (at a net energy loss) from natural gas, which itself is also in decline in North America and elsewhere, and already in high demand for heating and cooking and industry. If not produced from natural gas, it still needs another source of energy to create it - similarly at a loss during the process. So hydrogen is effectively a 'carrier' of energy, not a 'source'.

There have been alarming predictions by groups such as the Club of Rome that the world would run out of oil in the late 20th century. Although technology has made oil extraction more efficient, the world is having to struggle to provide oil - by using increasingly costly and less productive methods such as deep sea drilling, and exploiting environmentally sensitive areas such as the American National Wildelife Reserve. The world's population continues to grow at a quarter million people per day, increasing consumption. Also the consumption of energy per capita is increasing as China and India and other developing nations rapidly adopt middle class lifestyles. In 2005 still only small part of world population consumes most resources. China with 1.2 billion population still consumes less oil that United States (see also that United States import lot of energy in goods from China, so in fact it also consumes part of China's oil).

Efficiency mechanisms such as Negawatt power can provide significant increased supply. It is a term coined for for trading of increased efficiency, using consumption efficiency to increase available market supply rather than by increasing plant generation capacity.


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