The energy industry may be one of the most fundamental industries in the world today. The energy industry comprises all industries that deal with the production and distribution of energy in any form, including gas and oil.
The energy industry is divided into two further categories--upstream and downstream. The upstream industry, also known as the E&P industry, mainly deals with the exploration and production of natural gas and crude oil. The downstream industry deals with the refining and selling of all the products derived from petroleum, including natural gas, gasoline, fuel, petcoke, and asphalt. It includes industries that make use of refined petroleum products such as lubricants, pesticides, fertilizers and pharmaceuticals.
Energy is derived from natural resources, and many reserves are found in the Middle Eastern countries. For some countries, oil production may be the major industry that supports their economy. Energy is becoming an expensive and coveted commodity.
The energy industry is highly volatile and may be impacted by many economic factors. The energy industry has gone through some major crises in the past, resulting in highly unstable prices.
Political tensions among nations are major contributors to energy crises. The prices and terms for exporting energy are often entirely dependent on the governmental bodies of exporting states. One such crisis, known as the 1973 Oil Embargo, occurred when most of the Arab oil exporting countries refused to supply oil to the U.S. The recent political upheaval in the Middle Eastern countries, such as Libya, may once again render the energy industry unstable. Such crises can cripple the economy of oil- importing countries within days.
Market share has shifted in the oil and gas industries. Traditionally dominated by countries in the Middle East, the industry has seen Russian and the United States emerge as key players. The United States, as a result of innovative production techniques and shale gas production, may become the world’s largest oil producer by 2020. Russia is also emerging as a key player on the world’s energy stage. Its Arctic, Eastern Siberian, and Krasnoyarsk regions are rich in oil. It has an extensive array of tunnels left over from its Soviet days. It has been growing in the European oil market.
The energy industry may face major challenges, such as sustainability and geopolitical risks. The rising competitiveness of the market may require continuous improvements and effectiveness in the operations of companies. The potential of environmental risk may make it difficult to comply with the rules and regulations imposed by the governments. The industry may also require a highly skilled workforce. Oil-drilling companies are also required by law to ensure maximum protection against any accident, such as an oil spill, that can affect the health and safety of workers or harm the environment. These challenges may deter potential investors.
More industries are on the lookout for alternative sources of energy. The use of solar, geothermal, wind and hydropower energy is on a constant rise. These may pose competition to the current oil and gas industry, but these alternatives may still have a long way to go before they can replace petroleum goods.