Gas/Fuel Industry Essay

1.0            Introduction

Shell PLC is a name that comes to one’s mind when fuel and gas is mentioned. The historical background of this conglomerate goes back to 1890, when Marcus Samuel junior and his brother Sam began to show interest in petroleum and took the first step to form a company that developed an oilfield in Sumatra. Today, Shell is a major global company with interests in energy and petrochemicals.

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Fuel is used in aviation, transportation, cooking, and heating. The products are of basic necessity for the survival of mankind, and thus cannot be termed as a luxury. The price elasticity of demand cannot be termed elastic, as there are no substitutes available to replace gas or fuel. In order to understand the price elasticity of supply for fuel, one needs to know the process behind the extraction and process to derive fuel and gas. Separation of crude oil is done through a process called ‘fractional distillation’. The process involves heating the oil and collecting the constituent parts as they evaporate separately. Heating at different levels induces the evaporation of different oil constituents, be it aviation fuel, LNG, motor fuel and so on. Thus, the resources needed for extraction of such fuel and gas is limited.

The fact that almost all extracts and residuals left behind after the process, is of immense usage to mankind, is in itself a compliment to the work carried out by major oil exploration companies around the globe. Extracts from chemicals found in crude oil is used as base for a wide range of products from paint to shampoo to textiles. To obtain these chemicals, a process which involves the breaking down large molecules within the oil into smaller ones is undertaken (About Shell, Refining and Selling).

2.0            Overview

Gasification of coal is the process of converting coal to combustible gases. Once purified these gases; carbon monoxide, carbon dioxide, hydrogen, methane, and nitrogen are used widely as raw materials for chemical or fertilizer manufacture. The United States depended on fuel gas for its residential and commercial use, until the 1940s, when alternative low-cost natural gas led to its substitution. There was a change of guard again when predictions that natural gas reserves in the United States would diminish by 1980.

Coal gasification offers one of the most versatile and cleanest ways to convert coal into electricity, hydrogen, and other energy forms so important to sustain life on this planet. At the core of the US Department of Energy’s FutureGen power plant of the future will be an advanced coal gasifier.
The capability to produce electricity, hydrogen, chemicals, or various combinations while eliminating most air pollutants and potentially greenhouse gas emissions makes coal gasification one of the most promising and sought after technologies (Market Research.com, 2006).

Three distinct elements contribute to the social flow of oil and gas are (positive and negative externalities) the external impact of employment, how a project contributes broadly to creating a socially sustainable society, and the social impact of the products that arise from oil and gas field development.

Social externalities of employment have both positive and negative aspects. It is a known fact that the most positive aspect of employment is the scope for more employment opportunities that arise from direct employment. Just as more employment opportunities abut, this is sometimes offset by certain negative impacts of untimely accidents, that at times are critical and life damaging. Thus we see that the externalities that are positive and negative are uniform factors in this industry. Costs of deaths and accidents are considerably high in this high-risk industry. A lot is paid in compensation to employees or their families for accidents.

3.0    Socially Sustainable Society

To define a socially sustainable society is itself difficult to determine. However, a broad level of thinking helped produce some basic issues that could be tackled; poverty and social exclusion, equipping people with the skills to fulfil their potential, reducing the proportion of unfit housing stock, and reducing both crime and the fear of crime (Bebbington and Frame, 2003).

The Shell Foundation has been a keen partner in the campaign to make poverty history. Shell has explored ways to question how donors and large companies can most effectively catalyze pro-poor enterprise-based solutions to poverty. It states that a flourishing private sector, one in the SME sector included, could bring economic growth to the poor through employment opportunities and better salaries. This will ultimately pull the poor out of poverty and meet the headline goals of the current campaign, including the Millennium Development Goals, fairer trade and debt relief. Shell acknowledged that people must believe that there’s a door of opportunity awaiting them, and that the economic ladder out of impoverishment is available to climb by dint of honest effort. If they lose sight of this goal, they will lose interest in helping themselves. This is a way to the consumer’s heart, as the effort by Shell to improve the life of those below the poverty line will in all probability strike the consumer as a company that stands for social justice and will not cause harm to the common man (Maplecroft, p.3-4, 2005).

In South India, Shell Foundation has been involved in initiatives to publicize the market for solar home systems (SHS) among the semi-urban and rural population. The $7.6m program was supported by two of India’s largest commercial banks, apart from small donor money, which provides these poor people with small interest-rate subsidy, to consumer loan schemes for the SHS product. This program has created a wave and is a major talking point among these people. There has been a vertical growth to this initiative by Shell and growth in the SHS market is estimated to be around 80% between 2003 and end 2004 with 10,000 systems installed. Such is the impact of this social marketing technique of Shell that, the SHS consumer finance is likely to be greatly expanded by the Indian banking sector on a commercial basis, without the involvement of private donors (Maplecroft, p.4, 2005). Such novel strategies to incorporate social developments help the company gain wider acceptance and leeway.

The final category of social impact can be identified as those products produced from gas and fuel. These help in mobility (transportation), heating, and petrochemical-based for pharmaceuticals. The cost of mobility has been reflected in terms of resource use and pollution impact from combusting oil and gas. The economic condition of externalities is also considered under the value of oil and gas by reference to the price paid for crude oil.  The impact of pricing is also considered under the combination of positive and negative externalities. The positive factor relates to the difference between the crude price and the current selling price of fuel, which measures the market’s best estimate of the value people assign to mobility. The negative factor is the social costs of mobility relating primarily to the cost of congestion and road accidents (data drawn from Samson et al. 2001).  The resulting figure is a net positive amount. Transaction between a buyer and seller has a direct bearing on a third party. Invariably, a buyer and seller fix a minimum profit between them. When the product is sold to a third party, the seller fixes a profit margin. Thus the transaction between a buyer and seller affects a third party. This is a negative externality, as the price of the product is revised a second time before it reaches the consumer.

4.0    Wage Inequality

Wage inequality remains the biggest challenge for a democracy. This trend is also present in the highly profitable gas and fuel industry. For any business to survive, it requires transactions. Profits and loses are part of business, but unless there is buying and selling, what is the use of production? The same principle applies in this industry as well.

Trade is a prerequisite for the development of opportunities, and unless there is opportunity, pressure to perform could destroy opportunities as also bring about inequality in pays. The third world still pays less to women, even though they work the same time and perform the same duties of their male counterparts. When exports increase, more jobs are created to fulfill order obligations. Similarly, when there are increased imports of products, jobs reduce as there is sufficient displacement of imported goods that could have been produced by the local domestic workers itself.

The U.S. President George Bush announced that there were more jobs and higher pays on offer to the domestic workers in the country today. One does not need to analyze this statement from the economical point of view. The statement was based on the view based only on the positive effects of exports, ignoring the negative effects of imports. The impact on employment is determined by its effect on the trade balance, the difference between exports and imports. If exports were favorable, and imports were equally strong, the total effect on labor is affected. ‘Ignoring imports and counting only exports are like balancing a checkbook by counting only deposits but not withdrawals’. ‘A large and growing body of research has demonstrated that expanding trade has reduced the price of import-competing products and put downward pressure on the real wages of workers engaged in producing those goods’. Trade is expected to increase the wages of the workers producing exports, but with growing trade deficits, the number of workers hurt by imports exceeds the number who benefit through increased exports.

Globalization has also attributed to downward pressure on the wages of less-educated workers. The steady growth in U.S. trade deficits over the past two decades has eliminated millions of manufacturing jobs and job opportunities in this country. The displaced workers are made to seek alternative jobs in other industries leading to lower wages. The displaced workers have to face pay disparity. A recent survey indicated that even when displaced workers find new jobs, they faced a 13% decline in earnings over regulars, said Mishel et al. (2001). Another factor that contributes to inequality of pay is when firms threaten to close plants and move them abroad while bargaining with workers over wages and working conditions (Robert E Scott, 2007).

Price fluctuations also have an effect on jobs and wages. The simple equation of demand hikes prices is a logical conclusion in any sphere of business. When a product is readily available, the price for the product remains stable and in control; however, when there is a demand, and the product is hard to come by, the price for this automatically rises. The war in Afghanistan and Iraq saw the price of oil increase the world over. When the Organization of Petroleum Exporting Countries (OPEC) cutback on production, the demand for oil increased, sending the oil prices soaring. Political conditions can lead to price reduction, as oil exporting nations are caught in a doldrums of economic uncertainties as seen after 9/11. The Chinese economic expansion was another development that led to oil prices increase, as China began to import more and more oil to sustain its domestic needs.

5.0    Monetary and Fiscal Policies

Commodity prices play an important role in economic developments of countries. It is a fact that in the light of rising commodity prices, net oil exporting countries recorded strong growth rates while net oil-importing countries, benefiting from increases in non-oil commodity export prices, displayed lower growth. For many Western and Central African economies, inflation rates appear less affected by commodity price changes and more determined by exchange rate regimes as well as monetary and fiscal policies. Governments of oil-rich countries react prudently to windfall revenues, as they run up sizable fiscal surpluses. In countries that record lower growth, this has an adverse effect on employment opportunities. A lot of companies are forced to shift or shut down due to inflation. Where there is a demand, the price of the products goes up, and when the demand decreases, prices come down, affecting the job security for the industry workers.

6.0    Conclusion

Gas and fuel plays a vital role in the survival of us, human beings. Right from basic transportation to heating, and cooking, gas and allied products remain our prerogative to sustain life. In the backdrop of this, the paper took a look at the various factors that led to employment, inflation, wage inequalities and social responsibilities.

7.0    References

1.0       Robert E Scott, The High Price of ‘Free’ Trade, NAFTA’s failure continues to cost the United States jobs across the nation, http://www.5gigawattlizard.net/?m=200703

2.0       Jan Bebbington and Bob Frame, Moving from SD reporting to evaluation: the sustainability assessment model, www.nzbcsd.org.nz/_attachments/Sustainability_assessment_model.doc

3.0       About Shell, www.shell.com

4.0       Market Research.com, Market Analysis-Gasification of Coal and its Importance in the Power Sector, 2006, http://www.marketresearch.com/product/display.asp?productid=1285187;g=1,

5.0       Uwe Böwer, André Geis and Adalbert Winkler, Commodity Price Fluctuations and their Impact on Monetary and Fiscal Policies in Western and Central Africa, http://www.ecb.eu/pub/pdf/scpops/ecbocp60.pdf

6.0       Maplecroft, Maplecroft.NET Limited, Company Report Review, Shell Foundation, Enterprise Solutions to Poverty, www.maplecroft.com/pdf/Shell_review2005.pdf

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