(MENAFN- Gulf Times) Analysing the political and market forces that have an impact on oil and gas prices is no easy task, but what is clear is that there is no shortage of conspiracy theories swirling around the energy sector.
Michael Bradshaw, Professor of Global Energy at Warwick Business School (WBS) when asked for his views on the political drivers affecting oil and gas prices said: "It certainly serves the interests of the United States and its allies to have a low oil price as part of the problems that Russia is facing. But whether producers would go for a self-inflicted injury in terms of driving down the price is another matter. The Russians see a conspiracy between the Americans and the Saudis to 'get at' them and Iran. That, of course, runs contradictory to the line of argument that Opec is doing this to cause pain to tight oil producers in the US. It's undoubtedly a combination of politics and economics."
Russia is paying a high price for inciting hostility over its policy on Ukraine at a time of global downward pressure on oil and gas prices. As Bradshaw noted: "Twelve months ago we were living in a different world. The Russian government liberalised the export of LNG and there were a variety of projects. Those projects have fallen foul of sanctions and the hardening attitudes of, for example, Japanese buyers, to buying LNG from Russia due to the sanctions. There are no sanctions as such on LNG but it's a reputational issue. Russia at the moment has only one functioning LNG project, Sakhalin II."
In the UK, party politics, particularly in the run-up to the General Election in May, are having an impact on companies such as Cuadrilla that are intent on finding out whether shale extraction within these shores is a viable business. Caudrilla, formed in 2007 as a privately owned exploration and production company, receives funding for its exploration phase costs from British multinational utility company Centrica plc.
Cuadrilla is now seven months into a process of applying for permission to search for shale gas in Lancashire, but following a deferral last week it now faces another 8 weeks of delay before the outcome of its application to drill up to 8 exploratory wells at two sites is known. During a debate in the House of Common's on the Infrastructure Bill last week, the Government was forced into accepting a Labour amendment to stop fracking going ahead unless a series of tough conditions are first met. Labour's amendment included establishing 13 specifications, without which no shale gas extraction could take place anywhere in the UK. The Bill will now return to the Lords for further scrutiny and it remains to be seen what the outcome on the legislation governing the industry will be. In the aftermath of this debate, the Scottish Government has placed its own moratorium on fracking while a public enquiry is held.
Bradshaw commented that while Labour's intervention was signalled some time ago, the timing might be politically motivated to appease the Green vote.
"The government maintains that many of the amendments were actually planned anyway, but things like a twelve month environmental monitoring ahead of drilling is bound to slow the progress down € we will have to wait and see if it finally becomes law."
He pointed out that all three major parties are in principle supportive of developing a shale gas industry.
"The three main parties in principle support shale gas drilling, although the greatest enthusiasm is on the part of the Conservative Party, particularly on the part of the Treasury. I think the Liberal Democrats have always been a bit more realistic about the prospects € if anyone is trying to make it an election issue it is probably the Labour Party."
Bradshaw said that it is important to remember that at this stage the viability of a shale gas industry in the UK is not yet known: "The industry in the UK is at a very, very, early stage. We need to get through a phase of exploration and appraisal drilling at the existing sites. We are also in the midst of a new licensing round and we don't know the results of that yet. During this year we may see more licences awarded through the 14th Landward Licensing Round, and we may see some progress on the licences from the 13th round that include Cuadrilla's licences."
He added: "The hope is that everyone, both regulators and industry, can learn from Cuadrilla's experience and that future attempts to get drilling approval will go better."
Looking ahead, he said that if carbon budgets tied to climate change policies are to be adhered to there will have to be a global move away from the use of fossil fuels. Such a structural change in the energy sector, he observed, may already be in its infancy particularly as it is noted that emerging economies are seeking to be more energy efficient and less reliant on oil.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.