Impact of ‘tight oil’ on the global economy

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I wonder if we recognize the importance of oil in our everyday life. We do know that we need oil to run our cars, install boilers to get through the winter, operate power plants to produce electricity and so forth. But, as most of you are aware of, most of the countries in the world including Korea, do not have the capacity to produce their own oil since they do not have any underground oil resources. Economists, companies, and financial institutions around the world are susceptive about oil prices that fluctuates up and down. We often can say that oil industry has a monopolistic structure.

Therefore, developed countries along with renowned scientists around the world started to look for and develop new alternative energy sources. Yes, we do have wind, solar, hydro power and a lot more but they are sometimes considered inefficient and costly. Now, I would like to introduce a new petroleum resources that will open up a new era in the global energy industries.

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Let us take a look at the United States first. Recently, the US announced that it is revolutionizing the oil industry with its newly developed petroleum resources called ‘tight oil’. Thanks to tight oil, the US has cut its oil imports and it is estimated that the US will become the largest oil-producing company beating Saudi Arabia in 2030. This tight oil is underground resources convertible to oil we use everyday. Due to this, the world is focusing on Russia, as tight oil is believed to be buried underneath it. The Russian government is giving significant incentives to global oil manufacturing companies like ExxonMobil to develop tight oil buried underneath.

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So, what will be the changes this new phenomenon will bring to the world? First, increase of oil resources in the world will pose a big impact in Korea’s domestic markets. It’s is obvious that oil prices will make a standardized downward movement which means that Korea’s reliance on Middle Eastern countries such as Saudi Arabia. Moreover, it would end speculative oil transactions.

Second, there is one thing Asian countries need to remember. Even though new alternative energy is developed, most of the countries in Asia do not have resources to make it, But since Russia is investing huge amount of money in developing tight oil, reliance on the Middle East should diminish in a while.

Lastly, we need to focus on the fact that this new oil can bring a new vitality in Korea’s various industries. Industries such as heavy industries, mechanics and engineering will have a new market opportunity while domestic oil companies will loose competitiveness. Moreover, there is a possibility that the development of tight oil would slow down the development of technologies based on green energy such as electric cars.

By Hyok Hee Kwon (kwonhyokhee@naver.com)

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