Although oil and gas is one of the largest industries, most of the population barely knows anything about oil except for the fact that burning of fossil fuel causes global warming. Interestingly the same fossil fuel is also responsible for your skin ointment, food additives as well as heart stent. So before getting in to the explanation for the title, let us take a crash course about the industry.
The industry has long been characterized by deserts and geopolitics along with oil spills and green house gases. The industry is classified in to three phases, namely: upstream, for extraction of raw crude oil; followed by midstream, for transportation and storage; and subsequently downstream, for processing the raw crude oil into numerous chemicals products including fuels. Since all these processes occur at remote locations, we fail to understand and acknowledge the complexities of the industry.
And the problem is that we fail to visualize and appreciate the utility of these other chemical products known as petroleum derivatives. As a matter of fact, more than 50% of the oil and gas business is of derivatives, which include plastics, wax, asphalt, carbon and numerous sulfuric as well as organic compounds. Although plastic have recently come under the list of usual suspects for environmental degradation, the truth is that life is difficult without the derivatives. For instance, most breathing masks are made out of non-woven plastic compounds.
In fact the demand for these derivatives is increasing on daily basis. In developing countries such as India and China, where millions of people are moving to cities and earning more money, the demand for processed goods and products is increasing drastically. And trust me, you cannot exit a super market without picking up at least one dozen petroleum derivatives! Now imagine the asphalt needed to pave the townships sprouting to accommodate this urban sprawl.
You can power the machines with Electricity, but you still need Lubricants!
So it is undeniable that the market of derivative is increasing and companies will extract oil to keep fulfilling the market demand. However, when fuel for transportation shifts to electricity from nuclear or renewables, there should be plenty of unwanted gas that was once their primary product. Moreover, since the decreasing demand would have reduced the selling price of gas, to prevent subsequent losses companies would be offset it on the prices of derivatives.
At this point let us not bother about the increasing cost of other derivatives, as it would result in a complex phenomenon of economic self correction which would impact the entire economy. But the primary environmental concern is the dumping of by-product. Even today in developing countries, the disposal, or rather incorrect and unlawful disposal, is a notorious issue resulting in numerous ecological issues. Or as a five year old would ask:
What will we do with all that oil!
Lets explore the options: burn it, wasn’t that the whole point of this drama; bury it, expensive method for ground pollution; store it, too expensive and illogical; or sell it, perhaps the most logical option. Although this sounds crazy, once the oil prices get looped in the lower circuits many developing countries will increase their oil consumption. Trust me, millions of people who would be happy with cheap gas while corporations would be delighted to make a dime for a gallon rather than invest billions on innovative disposal technology.
From old iPhones to substandard goods, multinationals have always leveraged the market of under-developed nations. Since India, China and Brazil are deeply associated with the term developing countries, I will clear the misconception. In this context it will be African countries and small resource strapped countries in central Asia, Eastern Europe and Latin America. When was the last time that you heard any news from Chile, Bolivia, Uzbekistan, Montenegro or Mongolia? And to leave you for some food for thought:
Maybe we humans should check our consumption trends rather than chasing ghosts!
Savvy Munshi 