International Business 13th Edition by Donald Ball,Michael Geringer,Michael Minor ,Jeanne McNett

Exercise 13

How Immediate Is the Fossil Fuel Crisis?
How do we know when our oil reserves have reached their midpoint and are starting to decline? The answer to that important question is a critical point of contention, a bit like figuring out when we've fished the next-to-the-last fish from the ocean. You don't know for sure until it has happened. Specialists are divided and of many, even contradictory, judgments and predictions. Gold­man Sachs analysts and OPEC officials themselves have said that the price of oil could hit $200 a barrel within two years. One school of analysts argues that oil production has already reached its peak and is on the decline. The peak oil theory, developed by Marion Hubbert, a geolo­gist for Shell, holds that oil's decline will follow a bell curve. This terminal decline, fringe analysts warn, would bring us out of our cars and our economy to a standstill. Chaos would ensue. The time has come to stash in survival guides and freeze-dried food, to get ready for the economic collapse.
Increasingly this evidence is reaching people beyond the eccentric fringe so that regular citizens are becom­ing concerned about their carbon footprint. The largest proven oil reserves are in Saudi Arabia, and we know little of what is actually happening there. Satellite recon­naissance might suggest that the Saudis are having to push harder to get more out of the world's largest field, Ghawar. After all, Ghawar has been a major source of energy for our fossil-fuel economy for 75 years. Mat­thew Simmons, author of Desert: The Coming Saudi Oil Shock and the World Economy, has reviewed outputs of the world's oilfields, noting that 20 percent of the world's oil consumption is sourced from old fields, and no new fields in their league have been discovered in almost 30 years. In addition, many of the producers face political unrest and nationalism in countries with siz­able reserves: Nigeria, Russia, Iran, Iraq, and Venezuela among them.
There is a brighter point of view. Cambridge Energy Research Associates suggests that no decline in ability to produce oil would occur before 2030. Guy Caruso, head of the U.S. government's Energy Information Administration, has faith in the market to drive consumer behavior, gov­ernment policy, and innovation. He thinks that the primary risk is not reserves, but above-the-ground political issues.
Developed world consumption, especially in the United States, will face challenges as India and China draw from the same supplies to build their economies. People realize that the price of oil is destined to rise and that they have to adjust to these realities. To many in the United States, conservation and the development of renewable resources look like a rea­sonable path, much more so than five years ago. Conservation and a call for renewable energy sources is becoming mainstream. Colleges have green dorms, where residents recycle and reduce their energy consumption. Recycling has become commonplace in most areas. Towns are erecting wind power and solar farms to meet their municipal needs. And SUV gas guzzlers, one of the valued American indul­gences, are becoming burdensome beyond their value.
Increased gas efficiency in our vehicles; improved domestic oil supply, including untapped reserves; deep sea drilling; the application of new technologies to coal; and the increase of ethanol production are ways to address the oil scarcity/unavailability issue in the United States. True, increased production of ethanol reduces food production at a time when there are worldwide food shortages and food prices are rising dramatically. 19
Does a developed country have a moral duty to produce food over fuel crops when hunger is a global issue?