Oil’s Deep Embedding in Global Economy: Breaking News
Oil continues to be a cornerstone of the global economy, despite increasing capacities in renewable energies and electric vehicles, according to Alessandro Valentino, product manager at Vaneck Europe. In 2023, global oil demand surpassed 100 million barrels per day for the first time. Here’s what you need to know about the current state of oil in the global economy.
Three Key Reasons for Oil’s Dominance
Valentino highlights three major reasons for oil’s deep embedding in the global economy:
- Oil drives the economy, especially in processing industries and transportation. Over 90 percent of global traffic relies on petroleum-based fuels.
- The existing energy infrastructure, including over 800 refineries and 485,000 kilometers of pipelines, makes switching to renewable alternatives both costly and time-consuming.
- Large oil and gas-producing countries have a vested interest in maintaining the status quo.
The Jevons Paradox: Efficiency and Consumption
Valentino notes that increased efficiency in oil production can paradoxically lead to higher consumption. This phenomenon, known as the Jevons paradox, occurs when technological progress or policy aimed at increasing efficiency unintentionally leads to increased resource use due to lower costs and extended access.
For instance, oil service companies can maximize the extraction of oil and gas from new and existing fields with modern techniques, leading to higher oil consumption. Economists have found that people travel more if their cars are more economical. A 20 percent increase in efficiency can lead to a 40 percent increase in trips, fueling the Jevons paradox.
The United States: A Case Study
The United States exemplifies this phenomenon. Over the past decade, fracking has triggered an oil boom, making the USA the largest oil producer in the world. Despite this, the U.S. remains the largest oil consumer, using around 20 million barrels per day and accounting for about 20 percent of global consumption.
Looking Ahead
While the global economy continues to rely heavily on oil, efforts to transition to renewable energies and electric vehicles are ongoing. Understanding the complexities and paradoxes involved in this transition is crucial for informed decision-making and sustainable development.
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