Energy crisis

From Academic Kids

An energy crisis is any great shortfall (or price rise) in the supply of energy 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 petrol (gasoline) for cars and other vehicles rises, leading to reduced consumer confidence and spending.



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

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 in their own right.

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

Peak oil

For full article see Hubbert peak

There has been much debate recently 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 wont 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.

If 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.

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. But so far, only hydroelectricity and nuclear power have seen significant usage. See Future energy development.

At the same time, dire predictions by groups such as the Club of Rome that the world would run out of oil in the late 20th century have not come to pass, in part because technology has made oil extraction more efficient.

See also

External links

da:oliekrise de:Energiekrise he:משבר האנרגיה ja:オイルショック


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