Wednesday, March 16, 2011

Implications of World Events On Energy Markets

That's a mighty lofty title for a post that admittedly will trade more in questions rather than answers.  Like many others, I watch the world news these days with one hand on my lower jaw to keep it from scraping the floor.  What's going on in the world right now is truly unbelievable, from the popular unrest in the Middle East to the earthquake and tsunami in Japan.  What is interesting about all of these events is their direct - although confusing - impact on the world energy markets.

I read this morning that Shell is diverting the first of many LNG cargoes to Japan to help the nation with its sudden energy crisis.  With so much power generation capacity down, Japanese utilities initiated rolling blackouts for the first time in 60 years.  Shell claims it will not take advantage of the "short term pricing implications" and I take them at their word since no company wants to be seen grave dancing in the aftermath of one of the world's greatest natural/man-made disasters.

Oil prices are dropping as analysts see Japanese consumption decreasing in the near term, but what's going to happen to natural gas prices, specifically those on the LNG market?  There certainly is excess capacity out there, but logistics might not be in favor of Japan.  How long will a big chunk of Japan's nuclear infrastructure be down?  Shell thinks the mid-term implications is for LNG to stay pegged to oil prices, especially in Asia.  The implications are unknown in Europe.  The situation is unlikely to impact North American gas prices.

Moving west, I can't even start to figure out the implications of the unrest in the Middle East.  I'm blown away at the speed of change and the impact of technology, especially social media.  Gadhafi seems to be gaining ground on the rebels in Libya, but even if he does prevail, his hold on power will always be tenuous.  What about the smaller conflicts closer to the Arabian Peninsula?  Will we see unrest in Saudi Arabia?  While the energy implications are more on oil, there is a lot of gas produced in the region.

Hopefully the unrest in the Middle East will accelerate the drive in the U.S. for greater energy independence, but I'm sure there are those among us who see an opportunity to exercise greater control over the oil producing world.

All of the goings on in the Middle East bring back the disparity between the autocratic rulers of the desert kingdoms who strive to enrich themselves at the cost of their people versus the cautious and democratic approach to managing mineral wealth exhibited in Norway.  The "resource curse" takes many forms.  In this case will it lead to some form of democratic reform (or perhaps anarchy)?  Who knows, but the story unfolds before our eyes every day.

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