Component 1.

Literature Review

1.1 Introduction

This component will contain theories and concepts that will be of assistance when trying
to answer the questions and objectives regarding the future of oil consumption and the oil
industries that are responsible in feeding the world’s demand of oil while also trying to provide
answers of how demand and supply affects the price of oil. It will also delve into how it affects
the people and communities that depends on the industry for their livelihood while looking into
alternative solutions for the future generations’ needs. These will all be detailed as to how it is
interconnected in the conceptual framework.

1.2 The future of oil and oil industries

According to the new research, the United States, Saudi Arabia, and Russia make up of
about 43% of the world’s total oil production as of 2021. (Amoros, 2022). Ever since the
industrial revolution that started in the late 1700s, oil has been used in various ways. Unlike
how it is majorly used in today’s world, oil during that time was mainly used for heating and
lighting via kerosene as it was easily produced and more feasible as compared to other means.
With increased industrial activities and the exponential population growth, it has caused
significant rise in the emission of greenhouse gasses which are ultimately responsible for
environmental and atmospheric degradation. It has been found out that, “the largest source of
SO2 emissions to the atmosphere is the combustion of fossil fuels from power plants and other
industrial structures,” (Yoro & Daramola, 2020, p. 9). Not only is this concerning but it also is
a pressure on the oil industries and the structures that use oil to look for an alternative that will
help mitigate this issue.

With the recent spike in oil prices due to the political crisis between Russia and
Ukraine, the need for a cheaper and viable source of energy has never been a higher priority.
With Russia being included in the top three countries that are the leading producers of oil, them
being embroiled in the political imbalance has ceased them to cut off their supply of oil to the
world and this reduced supply has resulted in the dramatic change of prices, which further
caused a whiplash to those who were involved in the oil business and it raised concerns as to
how much dependent we were on it. According to an article published online, the demand for
oil will hit its peak in the year 2030s with the developed countries weaning themselves off of
oil and leaning heavily towards renewable and green sources to replace oil, (“Demand for Oil
Will Peak in 2030, Says Research,” 2022). In a published article, it was mentioned that, “…by
2030 it would be producing 30 to 40 percent less oil and gas than it does now. It promised to
end exploration for hydrocarbons in ne countries and to increase tenfold its stake in “low-
carbon investment”, (Steyer & McKibben, n.d.). Whether it will be possible or not to
completely discontinue the oil usage remains to be seen but if it is indeed successful, it raises
another alarming problem.

While the above mentioned article implies that the need for oil might come to an end,
there has been contradicting evidence that might suggest otherwise. According to Al-Zayer
(2007), “oil demand is expected to rise by an average of 1.4% per year, and to make up around
36.5% of the world energy mix by 2030 or about 120 mbpd, according to the OPEC reference
scenario” which suggests that we are not close to completely move away from oil just yet.
Another report put forward by IEA (International Energy Agency) in 2021 informs that “global
demand for crude oil…is projected to increase to 96.5 million barrels per day in 2021”. It also
mentioned that the demand fell sharply in 2020 due to the economic recession brought about by
the global pandemic.
 1.3 The Affected Party

Even if some countries are able to replace oil with a cleaner source of energy, it must be
understood that there will always be a price to pay. According to a report put forward by World
Energy Outlook Division of the Directorate of Sustainability, Technology and Outlooks &
International Energy Agency (WEODDSTO & IEA) in 2022, “…oil has the largest labor force,
totaling almost 8 million,” as of 2019 (p. 11). These are real people with real lives and if their
source of employment is taken away with no alternative solution, it will affect them in terms of
their food security and access to healthcare, which is all a branch of basic human rights.

If the oil well and the industries involved are to be shut down, it is safe to assume that
unemployment will be a huge cause of concern and along with it will be a string of other
concerns including but not limited to crime, housing crisis, food, etc. The deficit of the
countries supplying oil will worsen since they have to import in oil from somewhere with not
sight of another alternative.

1.4 Alternative Solutions

The most obvious solution to combating green house gasses and the rising cost of oil is
by switching over to green and renewable sources of energy. However tempting this might
sound, it is not always feasible for everyone. Bhutan’s main source of energy is generated
through hydro power plants because the terrain and geographical location is suitable to harvest
hydro energy. Similarly to this, Iceland derives their energy from the combined effort of
hydropower and geothermal power due to their location. According to an article published
online, “as of 2016, 9% of electricity production in Norway came from renewable, with
hydropower leading the charge,” (Climate Council, 2022). However, Edwards et al. mentioned
in their report that alternative energy and “…its growth is likely to be limited by several factors
related to viability, scalability, feasibility and suitability” (2010).

Component 2. Business Problem Analysis

Data analysis in this research will be conducted based on content and problem analysis
by categorizing the issues into the demand and supply curve and the obstacles leading towards
green energy conversion. Content analysis using a deductive approach is the best option for this
research as it aims to understand the current status and trends of changing prices due to political
unrest, which seems to be the largest stressor related to oil business.

Since the future of oil seems to be unpredictable with contradicting claims, the main
issue at hand points towards the world running out of oil. It is best to remember that crude oil is
not a renewable source of energy. Despite many flora and fauna that underwent extinction since
the formation of Earth, not everything that has been fossilized has been able to turn into coal,
natural gas, or petroleum. For the fossilized life form to transform into petroleum a specific and
conducive environment is needed and this need is not met every time.

As discussed earlier, the only path way to continue our way of life if oil is ever used up
is to convert in to renewable sources. Hydro power, solar power, and wind energy may not be
feasible for every location that will require energy to keep functioning so an alternative method
that can adapt and function smoothly on any points on the Earth while also being clean and
renewable. Since this kind of energy source could be rare or even impossible, further research
will be needed to provide a concrete solution to the pressing issue of oil’s uncertain future. If
the oil does run out someday, the companies and corporations involved in the gasoline business
will have to convert into an entirely different product or find a way to continue their source of
income. Corporations like Shell can fund organizations that are dedicated to looking for
alternative, clean solution

Component 3. Simple Descriptive Analysis of Relevant Existing Data

Dataset - IEEJ Supply and Demand Analysis on Petroleum Products and Crude Oils
for Asia and the World

Introduction

The demand for petroleum has significantly increased over the past few years in the
Asia-Pacific regions with drastic advances in technology in China and India, which happens to
be the biggest nations in the world. With the demand for petroleum increasing with no end in
sight and the supply being tight, regions have been looking to squeeze out every drop of the
liquid gold that they can get their hands onto. Regulations regarding the extraction of petroleum
are being relaxed but the regulations on air pollution control are being tightened, which is
causing the lapse in the quality of petroleum being supplied. Japan depends entirely on the
import of oil to run their industries has no choice but to keep up with the current trends and
regulation if they are to maintain the steady import of oil from outside. This study focuses on
developing a system whereby Japan can formulate future policies and measures on petroleum
import depending upon the global demand and supply chain trends.

Overview of the Model

The Worldwide Oil Demand Model is made up of two unique model models called the
World Energy Demand Estimation Model and World Petroleum Refining/Trade Flow
Model with a focus on Asian countries as indicated in the table (Figure 3.1). This particular
model is apt at keeping track of each individual country’s demand and supply based on the
product needed. It also keeps track of energy flow between nations through a mathematical
model which studies an individual countries’ refining activity and feeding the model with
answers to the demand estimation program.

Figure 3.1 Area Division

Case Analysis (Petroleum Product Supply/Demand Analysis for Asia (for 2010 and
2015)

Asia is on its path to becoming the highest consumer of world oil demand accounting
for approximately 45% increase on its own during the time period of 2010 to 2015. Owing to
the robust expansion resulting from increased economic stability, East Asia’s demand for
petroleum is predicted to increase over 3.8% at an average annual rate in the next 2003 to 2010.
Not only this, there is also a forecast from 2010 to 2015, the demand for petroleum products in
East Asia, not including Japan, is set to increase at a rate of .4% annually due to sustained
consumption of petroleum with China driving up the numbers. As a result of increased Asian
petroleum consumption, the oil’s share is projected to rise till 31% in 2015 from 29% in 2003,
and gasoline’s share will increase to 16% in 2015 from 15% in 2003 as indicated in Figure 3.2.
 Table 3.2 Petroleum Consumption Product Wise (Asia)

Sources: IEA Energy Statistics 2005 for results, IEEJ estimates for forecast

If the Asian economic growth slows down after 2011 as opposed to the increasing trend
which has been observed recently, a fall in demand of petroleum and petroleum products of the
year 2015 is predicted to fall by about 900,000 b/d in Asia’s total demand and about 300,000
b/d lower in East Asia, including Japan. This situation is referred to as Low Growth Case.
 Table 3.3 Asian Petroleum Product Demand with both Reference Case and Low Growth Case
for comparison (Source: IEEJ estimates)

Refining Capacity of Asia

It has been already established that Asia will be taking the stage for increased demands
of petroleum and petroleum products, if the current trend of higher consumption continues
though out 2015, it is only necessary that they also take part in supplying the oil flow back into
the cycle. As India and China already and established plants for oil refining, the estimates were
made with that basis in mind while for the rest of the countries, it was expected that with the
increase in demand, refining capacity will increase in line. The Philippines, Singapore, and
Brunei were exempt from these expectations. Through findings from interviews that were
conducted with oil companies belonging to China and India, an increase in oil refining capacity
from about 5.6 million b/d to 7.89 million b/d by 2010 is projected in China and an increase of
about 2,255,000 b/d to 3,326,000 b/d by 2010 in India has been estimated.

Summary of Key Findings

 According to the findings, even though the oil refining capacity is expected to
increase and provide a relief to the high demand constraint of petroleum, the
supply fell short with an increased demand in Asia. The demand for petroleum
increased by about 4.4 million b/d but the refining capacity was only able to
produce 4.3 million b/d, (including Japan and its demand).
 Similarly to petroleum, petroleum products’ demands are projected to increase
and all the countries and their refining facilities are functioning at maximum
capacity to increase their output, they fall short on meeting the demands by
about 100,000 b/d, (excluding Japan and its demand).
  In case of Low Growth, the demand for petroleum products are still projected to
increase but it is much lower than the reference case, i.e. scenario if economic
expansion continues at the same rate beyond 2010.
 By 2030, 51% of the expected oil consumption globally will be accounted due to
the increased demand by Asian market, with China being the driving force
behind it.
 While the production of crude oil is expected to rise in Middle East reaching
50.3 million b/d, surpassing the combined production of Africa, South America,
and the former Soviet Union, China, Indonesia, and the USA are estimated to
have decreased production.
 AS the content of crude oil from the former Soviet Union is relatively low in
sulfur, their supply is expected to dwindle low.
 Even though the export of Russian crude oils are on the rise since 2003, Japan
and its dependency upon Middle East’s oil has significantly shot up since 2003
by about 6 percent and is calculated to reach 95 percent by 2030.
 Since the demand for petroleum products in China has been steadily rising
annually at the rate of 5.6% till 2010, and at 3.8% till 2015, China has been
looking into expansion of their oil refineries.
 Similarly to China, India has also increased its demand for petroleum product
and they too are looking into expanding the Jamnagar refinery. With the
expansion completed, Indi has met their domestic demands and currently export
100,000 b/d internationally.

Conclusion

With the demand for both petroleum and petroleum products on the rise with further
increase estimated for the years to come, unconventional oils like Orinaco tar has already been
made use of as a substitute for crude oil. The Asian market already had a lead in being the
highest consumer or petroleum and it is elucidated that the trend is going to continue in the
future too. China and India have already started to look into expansion of their already oil
refinery to not only supply to the global demand but also to meet their domestic needs. Reports
have shown that the combined import increase of China and India may overshadow Japan
reputation as a lucrative market for oil companies so it is now more than necessary for Japan to
either look for an alternative supplier or partially, if not completely transform to another source
of energy. The production of crude oil or petroleum cannot be guaranteed so it is only
appropriate to find substitutes to replace the shortage of oil which are already severe seeing
how the supply falls short of the demand by 100,000s of b/d. Companies and countries need to
reevaluate their position regarding the import of oil to keep the machineries running smoothly,
they need to lean into resources that might be already be at their disposal and optimize their
resource portfolio and kick start other developmental programs for smart energy consumption.
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