If you read a newspaper's financial section, you may feel uneasy. Because all papers report the same gloomy news about big economic crisis is at hand. As we know, the crisis mainly rooted in the rapid rise of the oil price.
Recently, oil has skyrocketed and it has had a harmful effect on the world's economic recovery.
Especially countries that totally depend on oil imports, (Because of the high oil dependency of their industry), are hit hand by the crisis.
According to the Korea National Oil Corporation (KNOC)'s report released on Aug. 18, Dubai oil was at $39.84 per barrel and Brent oil was at $44.69 and the WTI was at $64.08. These prices are unprecedented over the last 20 years.
Korea's economic structure is easily influenced by a change in the international oil price. For instance, if the price rises about $5 per barrel, Korea's balance of trade declines $55 billion.
It seems that the main three international oil prices are maintaining their high prices for the present. Under these circumstances, Korea's domestic prices and the cost of production are skyrocketing too. In line with this, the hiring rate, the current profit and consumption are frozen.
The economic experts gingerly predict that Korea's economy may head towards stagflation. Moreover, some are saying that the oil shock will return.
In this situation, experts insist on their own way out to cope with the unexpected jump in prices. We posed a question about the main reason and the best solution to breakthrough the crisis.
The Dongguk Post met Koo Cha-kwon, an analyst, who works at the KNOC (Global Oil Research Dept.), to analyze the reason for the ballooning oil prices.
The Reason for the Jump
"First, an increase in demand caused oil prices to jump. Because this year's world economic growth is double of last year's. China and other developing countries caused economic growth to speed up. These countries are oil guzzlers," Mr. Koo said.
He enumerated the cause of the price jump. "Until May, OPEC pushed a high price policy by reason of a bearish dollar. On June, OPEC turned their policy gone from high to low. So every member of OPEC has tried to produce more but the price still stays high. It means there is no problem of oil supply." Consequently, OPEC produces 360 million barrels per day (b/d) exceeding the fixed oil output quota (2,350 million b/d).
Because of this measure, OPEC will have to restrict the producing quota which operates in an emergency.
Mr. Koo attributes the reason for the jump to hedge funds. "Inflow of the hedge funds was the most important factor in the oil price ballooning. As they were having difficulties in the financial market, they decided to invest in the oil market."
Another factor is that. Yukos, Russia's biggest oil company, is on the verge of bankruptcy. Yukos was fined $34 million on the suspicion of tax evasion by a Russian court.
"Yukos has more than 170 million b/d productive capacity per year. If Yukos goes into bankruptcy, a serious problem will occur. A shortage in the worldwide oil supply could easily happen," Mr. Koo said.
Although Yukos case is as a factor of apprehension, there is little possibility of the oil supply hitting a snag.
"Some people insisted that Iraq is a potential factor that can stabilize the oil market. But I don't think so. Of course Iraq has more than 280~300 million b/d productive capacity per year, but they can only produce 180 million b/d at this point.
Iraq's political instability will continue until the end of this year and, in my opinion, they won't export over 200 million b/d." Mr. Koo expressed a negative opinion about Iraq's productivity effect.
How can we solve this oil crisis? Many experts offer alternative measures. One of them is Alternative Energy. So the Post met Kim Chan-ho, who works at the Center For New & Renewable Energy Development and Dissemination as a team leader (New & Renewable Energy Development Dept.), to hear the energy.
"From 1988 to 2003, we were trying to develop alternative energy. We invested $272 million in 532 projects. Consequently, the main projects such as solar energy, bio energy, photovoltaic energy were developed. We can use those energies soon. We had overtaken the advanced country's technology in some parts. But some other technologies stayed basic," Kim explained.
The government had invested $416.3 million to replenish the energy supply over for the last 16 years. As a result, we could disseminate alternative energy from 0.6% in 1988 to 1.51% in 2003.
Alternative energy holds 1.5 percent (three thousands Ton of Oil Equivalent(TOE)) of the total used energy content in 2003. This amount had the effect of replacing $763 million worth of oil and reducing 10 million tons of CO₂.
The government is preparing for the future energy war by focusing on three parts and by cultivating technologies that have little gap compared to those of advanced countries. The government also will concentrate on fostering technologies with large marketability. The three are photovoltaic energy, fuel cells and wind force.
"The government has a strong will to increase alternative energy usage to 5 percent by 2011. To achieve it, the government will invest $5.45 billion by 2011. During the same period, private investors are likely to provide approximately $9 billion. Our level (alternative energy technology) reached 50~60% compare to advanced countries. But we will raise it to 70~90% by 2011," Mr. Kim said.
Other Countries' Levels
The usage of alternative energy in OECD countries is increasing continuously. And they are putting a lot of effort into developing new technologies. The United States, for an example, invested $45 billion from 1994 to 2000, Japan is investing $13.6 billion on 'The New Sunshine Project' started in 1993 and which will continue till 2020, and EU will expand supply of alternative energy to 12% by 2010.
Some experts expect that oil prices will gradually stabilize if the problems at Yukos and in Iraq are resolved. But similar crisis will come again. We must steadily focus on developing various alternative energies and change our industrial structure so not to be depended on oil. A frugal lifestyle by consumers could help as well.
Kim Hyung-jong firstname.lastname@example.org
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