From Production to Consumption: Economic Impacts of the Oil Industry

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Table of Contents

Introduction
Positive externalities in the oil industry
Negative externalities of oil industry
Price elasticity of demand and supply
Wage inequalities, fiscal and monitory polices
Conclusion
References

Introduction

Oil is a fossil fuel which is formed from the remains of plants and animals when they are fossilized. This takes place beneath the earth’s crust due to heat and pressure exerted by the earth. Over several years, the product is found below the earth’s surface between hot and pressurized layer. This makes the oil reservoirs. The product is often covered with silt and mud. This forces the miners to spent large sums of money for its preparation to a final product.

Oil industry is the place where crude oil is refined into final consumable products. The products which come from refining crude oil are gasoline, kerosene, perfumes, insecticides and naphtha (Working in the US oil company, 1999).

Positive externalities in the oil industry

Transport: Most of the transportation is based on oil consumption. Road transport, railway transport and air transport constantly benefit from this. Though, electricity is now opted for, this will be very expensive. Gasoline is the mostly used product in this case.
Electricity generation: Many generators of electricity use oil. This is used to run machines which generate this electricity. The oil also lubricates the movable parts of the machines.
Farming: Tractors and combine harvesters all use oil to perform tier work. This so far has assisted farmers for they have to spend little time in harvesting and cultivation.
Plastics: Most of the plastics used domestically are made from electricity use.

Negative externalities of oil industry

Some oil industry operations are key pollutants to air,water and land. This is through byproducts and oil spills. When the fossil fuel burns, it emits greenhouse gases and also other air pollutants. These pollutants include sulfur dioxides, heavy metals and nitrogen oxide.

Oil can have both long term effect and short term effects on the environment. Death of fisheries, wildlife and water supply contamination are short term effects. When oil products accumulate to a high level in the sea and on the land’s surface, it causes harm to the food chain and to the ecosystem as a whole. This usually happens when oil spills from tankers while on transport, when there is leakage in the oil pipes, when there is an incident during road or railway transportation. Often, there is deliberate spilling or when the oil containers are wrongly handled. There are also some cases of seepage from the oil deposits. When this is not controlled it will cause the following effects:

Contamination of drinking water: This occurs when there is a mixture of oil spills with water. This may lead to death of human beings. Water of 150,000 gallons, can be polluted by only one quart of oil (Air and Waste Management Association, 2001).
Death off fish and wildlife poisoning: Shellfish, waterfowl and other types of marine animals are harmed by oil when it spills. Once oil has spilled, it becomes expensive in cleaning and also the spills are not pleasant in its look. Fisheries places are damaged making it a hardship to those who take fishing as their economic activity. Oil disperses quickly in water and if not removed within a short period, it will accumulate forming tar balls which sinks in water and start releasing hydrocarbons to the water. The oil is then attacked and digested by bacterias living in the water.
Food chain effect: Most of marine food chain is affected by oil spilling. Plankton are contaminated by oil floating floating on water. As small fish feed on plankton, oil is also consumes. In turn, the fish that feed on the small, human beings plus the bears who rely on small fish for food ingest the oil hence indirectly affected by the oil. Effects on the Food Chain: Each tier of the marine food chain can be affected by an oil spill.
Birds and marine animals: Birds can bear oil on their feathers or fur. When this happens, the feathers are likely to loose insulation ability. This makes it difficult for the birds to adjust their body temperature hence leading to their death. Marine plants are obstructed from their germination when the water surface is covered by oil because the germination process is inhibited due to lack of oxygen which is one of requirements for germination.

Price elasticity of demand and supply

The concept of Price elasticity imply the response by the supply and demand to various factors. It is usually a measure of relative changes. Price elasticity is obtained by finding a quotient of the percentage change in the amount demanded to price unit change. Price elasticity of demand implies percentage changes in the amount demanded following a unit change in price while price elasticity of supply implies the response of amount supplied following a unit change in price.

The oil industry is mainly a monopoly industry. This means that there are many consumers but only one supply of the product demanded. In this case, if the industry decides to increase the price of the product, it will do so without government interference. A monopoly industry usually makes unusual profits because instead of increasing the volume of their sales, they rise prices. If this is not monitored by the government the consumer will receive high and unrecordable prices.

Wage inequalities, fiscal and monitory polices

Wages are the rewards for labour. Inequalities means that there are differences in the wages paid to different labourers. In the oil industry this gap is very wide especially for the lower level class people and the top management. This makes some people live substantially well off to others. Wage inequality is measured by the use of gini coefficient.

The mean wage for U.S.A industry worker is much higher compared to other industries. Those working offshore earn more than the inland workers due to their working conditions. Professional in the U.SA oil industry are the highest paid be cause mostly these positions are filled by people with high education (Working in the US oil company, 1999).

Many governments have laws governing governing oil spillage. The U.S. Came up with a act which require tankers to be having a double hull, and this was to be enacted before 2010. Though expensive, the U.S.A believes that this containers will keep oil from leaking into the ocean. Money has also been provided for the companies with quick response to this law (Air and Waste Management Association, 2001).

Conclusion

In conclusion, the oil industry has its advantages and disadvantages. Most of the oil products, if used at the right doses have few side effects. It is through me and you that we can minimize oil pollution. We should use as little energy as possible which will allow less tanker in the sea hence less pollution. Penalties should be set to those polluting the environment and laws on price control be set.

References

The association for Air and Waste management. (2001). Oil Spill. Web.

Human settlement on the coast: Coastal urbanization: Industry:oil industry (1985). Web.

Working in the USA oil industry. (1999). Web.

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