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Abstract

The main purpose of this dissertation is to research on economic reality of living with a dwindling supply of oil. In order to do so, the first chapter will discuss the background of the problem like dwindling supply of oil, rationale of the research, the objective of the dissertation and scope of the research. On the other hand, theoretical framework of finite resources influence, wealth allocation of finite resources, integrated world economy with oil resources, alternatives of oil and conservation of oil resources, possible alternatives towards oil resources and how the alternatives can conservative oil resources are the main focusing issues of literature review. However, methodology chapter mainly concentrates on the research design, secondary data sources as the dissertation will follow qualitative research approach to formulate the paper. Discussion chapter will analyze global energy policy, USA & G-8 energy policy, OPEC energy policy, Energy alternatives and macroeconomic reality, UN energy outlook towards alternatives, innovation and growth alternatives, policy of developing countries, and the position of oil resource in Saudi Arabia. This dissertation will recommend and conclude considering the discussion of previous chapters those are based on the reports of the National Energy Policy Development Group, Organization of the Petroleum Exporting Countries (OPEC), Asian Development Bank (ADB), United Nations Industrial Development Organization (UNIDO), and WWF International (WWF).

Problem Statement

Introduction

This dissertation has engaged to analyze the economic reality of the dwindling supply of oil and its underpinning perceptions and opinions to assessing the impact through indicator of economic growth and competitiveness in the post-financial crisis era. The topic also discuss with empirical evidence affecting the economy of oil producing countries and the dominating global powers focusing on alternative energy sources. The present dissertation mainly deals with five major chapters and concerns sub chapters such as-

• Problem Statement: This chapter will identify the prolonged dilemmas in the area of the dissertational topic. In addition, it provides the fundamental principle as well as theoretical framework for the research while it also raises the research questions and explains the limitations and scopes of the study;
• Literature Review:  The second chapter of this dissertation starts with the chronological overview of finite resource management, dwindling supply of oil, its influence on the global economic growth and competitiveness with theoretical explanation and then describes with more up-to-date literature arguing with modern theories and implementation of success factors of alternative energy sources for sustainable economic growth. This section also explains what the present research would add to the configuration of knowledge in the field of finite resource management and dwindling oil study in context of alternative energy sources by answering the raised research questions;
• Research Methodology: This part of the dissertation would present the rationalisation on how the current research has been conducted, what would be the data gathering process, their analysis as well as treatment by explaining the course of action and states limitations and scope of the research;
• Discussion and Findings: This part would engage its efforts to analyze topic in accordance with suggested the methodological framework and apply the relevant research to strengthen the results discussing with the practical perception that support research questions; denotes unanticipated results as well as look for solid findings with business features;
• Conclusions: This is the final chapter of the dissertation that summarise the findings to construct the key recommendations and generate opinions both on practical and hypothetical application for the information lift up from this study as well as offers suggestion calibration for the research by advocating conclusions as well as allusions of this study.

Background of the Problem

The present world economy has been evidencing hardest impact of global financial crisis of 2008 while the raising oil price panicked all over the world and drawn attention of the policymakers to think with the finite resource of oil and alternative energy sources. In this era, the modern society cannot move a single step forward without oil, but the dominating global powers has overlapped the necessity of finite resources like oil and the importance of alternative energy sources for modern economy. However, there are many research those pointed out that the importance of renewable energy like hydropower, geothermal, solar power, ocean energy conversion, nuclear power, but there is no substitute alternative resource yet for petrochemicals other than oil resources.

Leigh (2008) mentioned that civilisation has been quick improving for inexpensive oil as an energy resource, but in the present era with alarming evidence of diminishing oil resources, King Hubbert has presented the Peak Oil theory in extensive knock with historical data that severely interrupt the civilisation towards devastating scenario. It has projected that the economic improvement of both developed and developing countries have significantly exposed their deep linkage with inexpensive oil and the prospect of oil reduction possibly will demonstrate substantial obstacles to put a stopple to the globalisation as well as market economy.

Duncan (2001) explained that the Olduvai theory¹ has been introduce to inform the oil producers and consumers about the diminishing finite resource of oil that concerned with the ratio of global oil production in relation to the population and the presumption affirmed that lifecycle of the Industrial society is not more than a century accounted from 1930 to 2030. The oil production evidenced huge growth for more than a century, but the real production reached its highest stage for per capita production in 1979 and from the succeeding years, it is declining. Thus, the theory denotes 1997 as a peak and arguing that oil production per capita possibly would back at the stage 1930 within 2030 while the Industrial society will touch its lifecycle of a century.

Campbell (2001) pointed out that the basic driving force of economic growth of twentieth century has been rooted with huge supply of inexpensive oil marketed by the USA while it has withdrawn the border barrier for flourishing forceful capitalism and scientific abilities while the per capita production of US oil peaked in 1930. Next to US oil peaked, the Middle East oil resources take the responsibility to meet the corresponding demand of oil worldwide but the huge oil resources of this region has trapped by the Multinationals and these nations lost their control over their finite resources of oil. During the Arab-Israel conflict in 1973, the Arabs regained control over their oil resources and used oil as a weapon against Israel that seriously shocked the global economy.

Rationale of the research

Al-Alamy (2008) argued that it is not reasonable to keep oil price such lower when oil price reached at record peak on US$140 per barrel at the starting of global financial crisis in 2008 by contrasting with other commodities of finite resources. He added that the oil price is 52000 times lower than equal volume of platinum and 2350 times lesser than equal volume of gold though all of these are commodities are from finite resources. Most surprisingly at this stage, oil price is five times lower than any soft drinks. Brown and Ulgiati (2010) pointed out that the G-20 Summit Toronto- 2010 has concluded with forty-eight resolutions where the issue of global economic growth has addressed for sixty-seven times and sustainability issues have addressed for forty-three times, even different resources has mentioned for seventeen times, but oil or energy resources has mentioned for not a single time.

Above-mentioned two facts of lower price and negligence towards oil resources by the G-20 may raise the question, do the global leaders dream for sustainable economic growth without oil resources. Positively not, but why the G-20 leaders are reluctant to put emphasis on this finite resource? The GAAT² has recognised oil as a commodity, but violating Article- XI and XXI of the General Agreement on Tariffs and Trade, WTO³ kept oil apart from commodity list and placed in the category of precious goods like gold, platinum and uranium and does not facilitated any trade liberalisation or uniform import duty. Consequently, there is a burdensome discrimination among the national governments to import duty of oil while the USA impose 27% duty on oil import, member countries of European Union is imposing 60% to 67% tax on imported oil that seriously hamper the essence of free market economy and globalisation and ultimately impose huge burden to the end users (Al-Alamy 2008).

Hirsch et al (2005) expressed his concern on reducing oil resources and expanding demand to emphasise on alternative liquid fuels like IOR⁴ and EOR⁵, which are increasing oil-producing method from the existing oil fields, inferior quality oils from oil sands, coal liquefaction, and superior graded fuel by natural gas, but all these alternatives are also concerned with finite resources. Rosentrater and Al-Kalaani (2006) engaged their effort to address the gaps of renewable energy alternatives in context of escalating demand for dwindling supply of oil, which is conventionally from hydrocarbons. Due to the growing environmental awareness and found in decreasing fossil fuels, the issue of alternatives of oil resources has been getting greater than ever attention from the academia and business world. This drive of searching alternative towards finite oil resources pointed to the hydroelectric power, bio fuel, waste combustion, alcohol, nuclear, solar, windmill have started to contributing to the global energy needs though the aggregate supply from the alternative resources is not more than ten percent (Rosentrater and Al-Kalaani 2006).

Jaffe and Soligo (2008) mentioned that the Group of Eight of the leading industrialised countries presented their widespread strategies to congregate geopolitical and financial risks in context of their energy securities combining with climate changing issues to facing the high volatility scenarios of the upcoming global energy markets, but there are no indications regarding conservation of oil resources and alternatives. Although it has been identified that the global oil resources are in crisis with a number of influencing factors with the geopolitical risks presently in front of global oil markets have involved with energy securities, pricing instability, and supply postponements, transportation crisis and investment for the production while the existing global financial system is another influential factor. The outcomes of such risks collapsed the general trade norms and the industrialised countries under US leadership has generated another new dimension of threats of militarization of global oil resources that posed serious risks in depth towards policy frameworks under concurrent market arrangement without ensuring any flexibly to conservation of oil resources and it would be accelerating in near future.

There is enough research with the finite resources of oil and there are also huge studies for the alternative to the energy resources, but there is no initiative to research on conserving or preserving the finite resources like oil and no clear understanding in this regards. This dissertation would involve to gathering a theoretical framework on the conceptual development of conservation of finite resources of oil that would assist the oil producing countries, oil consumers, and scholars for further research with alternative energy sources.

ESCWA (2009, p.4) compared the demand and supply of oil and pointed out that the impact of decreasing supply of oil in the world financial market. He further added that global financial downturn has adversely affected oil prices by two ways; for instance, demand of oil dwindled while the overall financial system entered into stagnation and oil prices are expected to reduce by almost 64.0% in 2009. Many scholars have tried to find out the connection of global financial crisis with the supply and demand, and showed the impact of oil industry in the economy, but most of them did not concentrate on the dwindling supply of oil and alternative energy sources, as it is a finite resource.

From last era, most of the contemporary researchers have concentrate on increasing demand of oil and substitute product line, but no overarching research agenda has yet been proposed in this regards. Dutzik, Ridlington, & Sargent (2005) stated that limited production capacity, limited supplies, price manipulation, Hubbert method of evaluating the annual rates of oil discovery, the technological development, peak oil, growing consumption, availability of oil reserves, and environmental challenges. However, the oil resource is limited, but consumption has escalated, so the producers and users should measure the political and economical risks due to avoid collapse of global economic structure. As a result, this dissertation will assist the multinational oil companies, academia, regulators, and investors with better understanding about the consequence of living in a dwindling supply of oil to analyze alternatives resources those can mitigate the crisis and contribute to conservation of Oil resources.

Research Question and Objectives

This dissertation aimed to investigate with the economic reality of living with a dwindling supply of oil study as a finite resource with the aim to understand how the oil supply shock could shape the world economically by focusing on alternative energy sources. To structure the aim, the dissertation has designed to respond to the following research questions, the answer to this question would enable the researcher and policymakers to organise the policy and towards a greater motivation for conserving the finite resources of oil, to classify the objective, our research questions are listed below:

• How the theoretical framework of finite resources can impact on the oil resource management;
• To what extent oil resources have close linkage with the global economy;
• How does war for oil destabilise the political economy of the countries with oil resources?
• What are the alternatives that can mitigate the crisis and contribute to conservation of the Oil resources for sustainable economic growth?

Limitations of the study

At the time of organizing the study, the researcher had suffered some problems like 

• Primary research gives the opportunity to know the opinion of scholars, experts, and bureaucrats on the relevant research area. However, there is no scope to collect primary data for quantitative research;
• There is some limitation in terms of identification of research gaps in the proposal segment, which limits the researcher to deal with only one research objective;
• The duration of time for planning and conducting research was not sufficient to co-ordinate the paper;
• As this dissertation would be based on the secondary data sources, it is necessary to use a number of journal articles, books, and magazines. However, many journal articles also available in the internet, which are easy to access and most of sites ask high price for journal articles, thus, budget becomes one of the most important factors to conduct research only rely on secondary data;

Scopes of the study

Besides limitations, this dissertation has scopes in following areas 

• The researcher of this dissertation has scope to broadly focus on how the oil supply shock could shape the world economically particularly Saudi economy;
• However, this dissertation has opportunity to assess positive and negative impact of oil price in the global economy;
• The world limit of this project is sufficient to depict the current situation by using secondary data sources;
• The entire study will assist to provide fruitful, realistic, and applicable suggestions and recommendations to minimize the risk of dwindling supply of oil.
• On the other hand, there were a number of journal articles upon the impact of dwindling supply of oil in the economy, which apparently seem important to researcher when reader check the executive summary, and most of the articles are applicable in this research.

Relevant Literature Review

Overview of the Topic

This literature review has integrated with the writings, researches, and scholarly opinion concerning the practice and evaluation of economic theories of finite resources in context of decreasing supply of oil, its aggression to the economic growth and competitiveness including its influence on the global financial crisis and concerned recessionary shock. The design and motivations for this literature are associated to creating value and confidence for the investors, produces, and consumers and to overcoming the threats of serious fuel crisis may rise due to aggressive dependency on oil for major source of energy resources. Another motivation of this researcher is to guide the regulators to bring healthy atmosphere in the oil market by introducing cost effective alternative resources. It provides the background for desirable evaluation of finite oil resources management with conscious drive of oil market to developing healthy atmosphere for the investors, factors are most significantly persuade the concerned to the oil resources.

The scrutiny and illumination of contemporary researchers concerning finite oil resources and its motivation towards the future energy strategy, acceptance, and effectiveness of oil resource management to preventing further energy crisis are also discussed simultaneously. The chronological theories as well as modern approaches of alternatives are also addressed form an unyielding foundation from which it will enrich this research study bringing the changes in practice.

However, this section will focus on theoretical framework of finite resources, scope and limitation of this review, fundamental looks towards oil reserves, linkage between oil and non- oil sector, Linkage between oil and stock market and so on.

Scope and Limitations of this Review

This research work replicates the authors and researchers paying full attention in the description, dimension, and evaluation of e economic reality of living with a dwindling supply of oil as well as strategy implication within the concerned counties to conservation of oil resources and its resultant effects on the global economy. The report highlights on studies those converses on the implications of decreasing supply of oil and oil producing practice, to the regularity authoritys service development, knowledge utilisation, and skills in future energy resources. The extraordinary emphasis has been adopted upon the regulation and the management excellence while both the remarkable and contemporary writings are reviewed with added concentration provided to those authors theories.

With massive width of literature concerning finiteness oil resource, this evaluation has been limited to the mainly sustained theories as well as established principles while it has just a prototype of the mass of dwindling supply of oil literature. Similarly, the extensive assortment of beneficial writings related to success of corporate governance where regulations are effectively necessitated, this review has taken out from principally mainstream works of time-honoured authors. The underlying assumptions for applying these limiting selections are that the energy professionals are implicated in unique, singular thoughts on dwindling supply of oil and oil producers motivation in this regards.

Theoretical framework of finite resources influence

Krautkraemer (2005) argued that the literature of economic growth is deeply concerned with the finite natural resources while the economists are long been in questioned with the scarcity of such resources and urged for management and redistribution on the existing resource consumption with the aim to conservation for future. Bleischwitz and Bringezu (2007) added that the management of finite resources is a conflicting area while globalisation has eased the entrance to natural finite resources, raised awareness of environmental hazards, and blessed the prospect of economic growth for the less developed countries. To administer the finite resources they suggested to raising national fund for finite resource conservation, ensuring transparency, setting national standard and certification for resource utilisation, plan for future conservation, increasing effectiveness, and productivity for the resources, and limiting the consumption through quota allocation. At the same time, in international arena it is essential to standardise sustainable resource management linking with the national policies to administering the finite resources the adopting quota system.

FAO (2003) pointed out that, 33% of finite resources of this planet from the forest to the ocean have already consumed or utilised by 1970 to 1999, the population of the globe possibly will increase more 50% than the existing within next fifty years, how terrible would be the scenario with finite resources at that stage. The possible risk with the dwindling finite resources has threatened the whole civilisation of the earth and the ultimate solution to safeguard the upcoming finite resources crisis could be resolute through appropriate resource management. The suggested policy of FAO (2003) has emphasised to administering the finite resources through strong community based finite resource management with local peoples participation. Agudo et al (2009) added another dimension to finite resource management where it is entrusting a compulsory access regulation and quota for utilising the finite resources.

Wealth allocation of finite resources

In general, finite resource can be defined as that form of energy, which is not reusable forever. Thus, various kinds of resources fall under this category regarding oil, coal and natural gas etc. that are being subject of huge demand but limited reserve (Community Science Action Guides, 2011). As-

A number of factors can be identified for which global demand for such resources is increasing at an escalating rate, such as-

• The first reason can be identified as the global per capita energy utilisation or the volume of energy per person consumption has been increasing (Community Science Action Guides, 2011). This can be shown as-

• The second reason is that the enhanced demand is exponential development of global population due to the huge industrialisation of developing countries, the demand for more energy in the less developed countries are also rising (Community Science Action Guides, 2011).

So, finite resources are allocated among the various parts of the world and some specific regions those possess oil resources are enriching their economy while the others are not. For, example, Saudi Arabia, and middle- east countries are well- recognised for the reserve of crude oil but America is in the dwindling stage (Anny, Blackman, and Baumol, 2008).

Economics of natural resources

Pianegonda et al (2003) introduced very straightforward model natural resource redistribution to clarifying the operation of finite resources with coordination of agents, while every agent generates spontaneous contribution to the accessible resources with exceptionally dynamics that prolong to the truth that the poorest agents may get scope to revolutionise their economic growth. The economics of natural resources typically deal with the demand, supply, and distribution of the natural resources of the world. Here, the basic purpose is to realize the task of those resources in economy for initiating standard sustainable means of management for promising their availability to further cohorts. While the traditional approach considers forestry, fisheries, and extraction of minerals models, the modern approach also considers all sorts of environmental assets for constructing a sound economic policy (Anny, Blackman, and Baumol, 2008). The overall aspect is being discussed below-

• The economics of formal natural resource concentrates on various factors, like- managing pollution, mining and exhaustibility of resources and non- market assessment and sustainability and management of environment. Furthermore, it is also associated with energy in terms of supply and social utilisation along with entropy, fact and information (Anny, Blackman and Baumol, 2008).

• According to the expert opinion, there are 5 phases of mounting mineral resource (Anny, Blackman and Baumol, 2008). Those are-

  • Production rate is sustained by the reserve resource that has already been used up;
  • The exclusive growth leverages are maintained by the description between the enhanced funding needs and faster revenue generation,
  • The extended growth margin with extraction although it was not economic before,
  • Adoption of continues effort to discover new resources by searching with uncertain per unit cost.
  • Implementation of advance technology for dealing with finite resources has incorporated at the 1^st of 4 steps.
• The concept of the resource crisis could be initiated for shaping case through the introduction of substitutes (Anny, Blackman, and Baumol, 2008). As 

  • Availability from local or foreign partners;
  • Ownership of chemical features, functions, and strength;
  • Ownership of striking alloys;
  • Capability of further dealing and fabrication with existing technology;
• Replacement can also be occurred by synthesis or recycling from junk or wastage. Abundant resource is another option, which has limited utilisation of elements before mending from seawater (Krautkraemer, 2005).

• Electric steel would use for scare coal, for instance- magnesium metal and utilisation from seawater, sulphur from pyrites, copper, nickel, and zinc from Phosphoric generation and bauxite from clay and Anorthosite. One form of carbon as synthetic graphite is produced from precursors of carbon. Currently, poly- metallic sulphide reserves and black mud have been explored from black smokers. Robot mining technology is cost- effective while perpetual resources can be changed for generating pale- resource and Pennsylvania anthracite (Krautkraemer, 2005).

Fundamental looks towards oil reserves

BP (2003) defines the reserves of oil at three categories as ultimately recoverable proved probable while there is enough gap among the others and regarding the measures of oil reserves by the official data of OPEC⁶. Reservation of oil resources pointed to the explored or going to be explored that can also be called recovered as well as still existing. The sum of oil reserves regarding non- producible and producible is termed as oil in place (OIP). Because of a number of limitations, only a few portion of such reserve could be carried on surface, and this portion is viewed as reserves. Recovery factor is the ratio between producible oil and total oil in a specific field, which normally depends on field condition, technology, and investment. There are 4 types of oil reserves (BP, 2010). Such as-

• Exposed through one to more wells
• Exposed through technology
• Commercially feasible
• Existing in soil

Proven reserves pose a logical assurance of being recoverable under specific political, economic, and technological circumstances, which could be categorised as PUD and PD. The pattern of engineering data is similar for unproven reserves like proven although the contractual, mechanical, and regulative issues are different with 50% CL (Confidence Level). The U.S.A Energy Information Administration estimates that there exists merely 4.1 billion barrels of oil as global reserves while government maintains 1.4 billion excluding a countrys reserves (BP, 2010).

In 2007, SPE, AAPG, WPC, and SPEE had revised 1997 reserves explanations by joining contingent and prospective ones and later two extra termed were also added involving economically and technically recoverable assets. There are three common techniques for estimating reserves (BP, 2010). As-

• Volumetric: It is calculated by multiplying RF and OIP.
• Materials balance: It involves exclusive pressure- volume- temperature assessment.
• Production decline curve: In incorporates using of production information for further extraction.

Total global oil reservation for 2010 could be shown as-