Increasing Demand for Crude Oil

Soaring crude oil prices have disrupted the economic fabric of the entire world. Rapid increase in demand for crude oil is considered to be the pivotal reason for the increase in price. As the supply has not been increased by OPEC, so the price rise is inevitable. Moreover US recession which has resulted into a weak dollar is also regarded as one of the major causes of price rise.

World’s fastest and second fastest growing economies are thought to be the culprit behind the increase in demand. Demand of crude oil in China and India is increasing rapidly. Rapid urbanization and increase in the number of vehicles have ensured that crude oil remains in great demand here. TATA Motors 1 lakh rupee car, NANO, is also soon going to hit the Indian market which will further increase the consumption of oil in India.

World’s energy demand is growing at an average annual rate of 1.7 percent. Fossil fuels will be providing over 85 percent of world’s commercial energy needs as there is no alternative available at present. Oil and gas will be accounting for 60 percent of the total energy mix. If we just take into account that the demand for oil grows at an average annual rate of 1.4 percent then the demand for oil will be 118 million barrels a day by the year 2030.

Majority of the demand will be from the developing countries where the consumption is expected to reach to 58 mb/d. Half of the demand will emerge from the Asian countries like India and China. Transportation will be the major contributor in increase in demand.

OPEC Secretariat has estimated that by 2020 OPEC will have to expand its capacity by 32 mb/d to 41 mb/d to meet the global demand. To increase the capacity to such extent the member countries will have to invest around $ 230 billion to $ 500 billion.
OPEC member countries are also to invest around $ 50 billion in crude oil distillation refinery projects in order to increase the capacity by 3 mb/d by the end of 2012.

Too much dependence on OPEC does not augur well for the global economy. This is why alternative means are being evaluated to decrease the dependence of the world on crude oil. If the soaring price is not checked then it will adversely affect the global economy. Poor countries will be the major sufferers.

Biofuels are considered to be an alternative fuel but it is still in its nascent stage. It is also marred with serious controversies. Due to scarce water resources and limited land, production of Biofuels is quiet difficult. Moreover use of agricultural land for the production of Biofuels can have adverse impact on the food prices.

Although there are enough oil reserves to meet the demand for decades but still alternative means needs to be evaluated. This would not only decrease the dependence of the world on OPEC but the discovery of alternative renewable fuels will ensure cleaner and greener environment.

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