Oil Production
Oil is an essential resource used worldwide and accounts for 95% of energy used in the transport sector (Miller & Sorell, 2013). Oil is an important resource in the New Zealand dairy industry because of the need to transport milk from dairy farms across the country to the plants that produce butter. In 2009, the dairy industry spent 7.5 billion dollars on milk purchases, in which 290 million dollars of this was spent on services such as transport (Schilling, Zuccollo & Nixon, 2010). In addition, oil is used when transporting exported butter overseas. Therefore, any change in the production and price of oil will affect the dairy industry.
Worst case: In respect to oil production, the worst-case scenario would be that in 50 years’ time there will no longer be any oil available.
Best case: The best-case scenario would be that in the next 50 years there would be alternative substitutes to oil. These substitutes would be either at the same price or even cheaper than oil.
According to Miller and Sorell (2013), the ability to maintain or grow the supply of oil has been a common concern over the past 50 years due to oil being a depleting resource. Globally, oil production is reaching its peak and this will result in a decline of oil production. This is because the oil starts to become more difficult to extract and is no longer feasible. Hence, causes a decline in production. In addition, there is a probability of oil production to decrease continuously before 2030 (Miller & Sorell, 2013). Nevertheless, there is also a great chance that this would start before the year 2020. There are different arguments in regards to the supply of oil. Some people believe that there will be alternative sources of energy to use. Others argue that there will be no alternatives found at the required time and at an appropriate cost (Miller & Sorell, 2013).
Khulman (2007) mentions that Petroleum Geologists worldwide have agreed that about 95% of oil reserves have been located. Therefore, the amount of oil available is known to mankind. Of the 95% oil reserves located, half of it has been consumed already in the past 125 years. This indicates that the oil production is reaching its peak point (khulman, 2007). Yet, this will only continue to carry on for a few more years and then it will begin to decline. The reason for this is the major issue arising in respects to the capability of extracting oil in a cost effective way. Oil reserves that are easily accessed are quickly extracted and used. As a result, the oil reserves that remain will be located in areas which are not ideal to extract. It would not be economically feasible or good quality of oil which consumers would want (Khulman, 2007).
Deffeyes (2005) also recognises that there is a limited supply of oil and it will reach a point where extracting oil reaches its maximum level. Once this point is reached, oil production will start to slowly decline and then will decline much more rapidly. In addition, Deffeyes (2005) recognises that the growth in oil production is coming to an end soon. This is because from the year 1998 to 2003 there has been a very low increase in oil production of 3%. The slow growth highlights the fact that the world is close to reaching the peak oil production, and it will start to decline from now. It is believed that the production of oil in 2019 will be down by 90% from the amount of oil that was produced at peak point. Nevertheless, Deffeyes (2005) mentions that some optimistic analysts who believe that peak level will occur in 2036. Either way it seems that in the next 50 years there will be a decline oil production.
Bowden (2011) suggests there is information out there showing that half of the oil reserves have been used up and that people are deciding to ignore this. Bowden also mentions that statistics are showing that from 2003 onwards oil production has not been moving. Therefore, this indicates that there may no longer be any growth in oil production. Oil suppliers cannot meet the demand of consumers due to the shortage of supply. As a result, the price of oil has continued to increase. Moreover, shortage of oil supply is going to continue to get worse due to the world population. Hence, the issue needs to be highlighted as well as coming up with their solutions (Bowden, 2011).
Conclusion:
To conclude, the research undertaken along with the sources used above point me towards the belief that future oil production is going to decline. All the sources that were used to back up my predictions are reliable and have inputted information from specialists within the field. It can be predicted with confidence that there is roughly a 90% chance that the most likely future scenario to occur is the decline of oil production. It is difficult to be 100% certain as there are many possibilities for events to happen in the future. However the time it will take for oil production to decline is uncertain.
This future scenario will have a large impact on the dairy industry and the amount of butter available for exportation. With a decline in the production of oil, oil will become rather scarce and the price of oil will increase. Higher prices for oil means an increase in cost of production as transportation costs will also increase. With New Zealand being distanced from the rest of the world, it will only make the issues discussed above worse. New Zealand butter will become more expensive for other countries and exports will decrease. Consequently, for the dairy industry to continue to thrive, a solution needs to be found to overcome this challenge.
By Arwa Al-Bahadly