Posted on 10/26/2015 9:33:04 AM PDT by thackney
The 50 per cent fall in oil prices over the last year is beginning to have a serious impact across the world. Rig rates are down in the US and production of tight oil produced through fracking is beginning to fall. Corporate profits and share prices are down. The private sector generally, however, is remarkably resilient. Costs can be cut, new projects postponed and if things get worse dividends can be reduced. By contrast many of the countries that have come to depend on high prices have little room for adjustment. A few, like Saudi Arabia, still hold vast cash reserves and can tolerate the loss of revenue for several years. Others are trapped and particularly vulnerable because the lack of income compounds all the other problems they face. One of the most vulnerable is Algeria.
Algeria should be a success story. The country holds more than 12bn barrels of oil reserves and around 160tn cubic feet of natural gas. It is Europe’s third largest supplier of gas imports after Russia and Norway. The country has avoided most of the excesses of Islamic fundamentalism. The energy industry is well established with secure long-term investors. Operating costs are relatively low. But all is not well.
The problems that were set out during a seminar held in Brussels last week result from the failure of successive Algerian governments to diversify the economy or to create an effective process of governance. Instead, the country continues to be run by what Professor George Joffe in an excellent summary paper for the Instituto Affari Internationalali describes as “the deep state”. This is the network of senior military and security officers for whom the ailing President Abdelaziz Bouteflika is a convenient figurehead.
The price fall has given Algeria an uncomfortable reminder of its dependence on oil and gas which account for 98 per cent of exports and almost 60 per cent of government revenue.
The failure to diversify the economy is one problem, but the energy sector faces its own difficulties. Production is falling quite unnecessarily given the scale of the reserve base because of uncompetitive tax rates. The state company Sonatrach seems unable to break free from a series of corruption scandals. Local consumption of oil and gas is rising — up 75 per cent over the last decade — and the government is too nervous of public unrest to remove the extensive subsidies. The economic consequence is obvious. Falling production, rising local demand and a crash in prices add up to a dramatic decline in revenue. Hopes of a shale gas revolution look fanciful. Algeria certainly has huge shale resources — among the largest of any country in the world. But fracking needs water, which is in very short supply. Any attempt to divert water from local agriculture would be met by fierce resistance, and has already provoked riots in the some of the areas potentially affected.
The danger is that economic problems, combined with uncertainty over the succession to Mr Bouteflika, open the door to radicalisation and the spread of violence and terrorism from failed states in the region such as Libya. The attack on the In Amenas gas facility in January 2013 demonstrated how hard it is to maintain the integrity of a country with thousands of miles of open borders. Algerian’s resources and exports revenues might be tempting to organised terrorist groups who, as the FT’s recent investigation in Iraq demonstrated, have learnt the value of plundering oil and gas revenue.
The European Union’s answer to these problems and to the risk that the situation might deteriorate to the point where we are facing another migration crisis has been to open a dialogue around the development of Algerian gas to reduce the current dependence on Russian imports. That sounds good but ignores three big obstacles. Russia is absolutely intent on maintaining its share of the European market and is busy planning new pipeline links to take gas through Germany into Central Europe. If necessary, Russian gas prices will be cut to force out competitors. Second, to reach the main gas market Algerian gas would have to flow through Spain and then into France. That would damage too many vested interests in France to be a credible strategy. Third, gas demand in Europe is falling. Last year saw a drop of more than 11 per cent as gas lost out to renewables and coal.
In the last few years Algeria, has generally avoided the instability provoked by the Arab Spring and by the radical extremism of the Islamic militant groups Isis and al-Qaeda. But the risks remain and could soon be exposed if oil prices remain low for any length of time. More radical economic and political reform is necessary — opening the country to international investment in areas well beyond oil and gas. Europe can and should help but no solution can be imposed from outside. Real change can only come from within Algeria itself. Until that starts to happen, the situation looks likely to deteriorate.
Gird your loins, France, because if Algeria falls into chaos, they are coming for you.
More manipulation to create unrest around the world...
Keeps our eyes off who is steering all this, Que No?
Perhaps this price instability all over the world shall in turn cause the collapse of aggressive plans by some of the money people supporting political instability all over the world.
Or perhaps the entire house of cards is in imminent danger of collapse.
Correct,which way serves the folks at the top best?
What manipulation do you claim is happening?
This is the reality of lower oil prices and governments that depended upon them. In my opinion, the break won't come from a place like Saudi. It will come from Nigeria, Angola, Algeria, Venezuela or the like. They will crack first. And that crack could easily be a war.
Take a look around the world at all of the different things going on...
There are some common threads and issues that I monitor as indicators...
If Algeria and many others based their Economies on Oil Prices what is driving demand down?
And is the glut in supply doing so?
I ask to learn not cadge, I love perspective and broad reach when researching, not first hint and go with it...
Thanks
Demand is not down. Global oil demand continues to rise.
And is the glut in supply doing so?
The growth rate in supply has slowed for a while, and now are seeing reductions in supply in some, but not all areas. Saudi and Iraq are producing more. It is anticipated to fall more in the near future.
SHORT-TERM ENERGY AND WINTER FUELS OUTLOOK
http://www.eia.gov/forecasts/steo/report/global_oil.cfm
Excellent...
Now put on the hat of a Commodities broker as well as supplier info..
Supply and demand, it seems there should be stasis of the 2 but volatility remains....
Hmmmmm
Maybe the petroleum industry should take a cue from the utilities, and jack up rates by citing reduced demand vs. fixed costs.
As long as OPEC can produce a barrel cheaper than us, we'll be behind the eight-ball.
Why do you think that? History shows it never happens very long.
Part of the problem is the lag between price changes and real production change. When the price drops significantly, new contracts for drilling rigs drops, but we won't see the drop in active drilling rigs finally drop until months after the price drop.
It has always been a volatile market. So a short price drop is ignored, business as usual. It takes an extended drop before the industry really reacts. In that time, more supply has come on line.
Once the well is brought into production, most of the cost is already spent. The cost to keep in in production is far, far less than the cost to get started. So if your well is one month old and prices fall, you have to keep it running anyways to pay off the accumulated bills.
False, oil consumption is up, not down.
[snip] Algeria and Libya will finally have pissed off everyone else on the continent and have ceased to exist. [/snip]
The year 2034, your predictions?
http://www.freerepublic.com/focus/chat/3188319/posts?page=62#62
The danger is that economic problems, combined with uncertainty over the succession to Mr Bouteflika, open the door to radicalisation and the spread of violence and terrorism from failed states in the region such as Libya... The European Union's answer to these problems and to the risk that the situation might deteriorate to the point where we are facing another migration crisis has been to open a dialogue around the development of Algerian gas to reduce the current dependence on Russian imports. That sounds good but ignores three big obstacles. Russia is absolutely intent on maintaining its share of the European market and is busy planning new pipeline links to take gas through Germany into Central Europe. If necessary, Russian gas prices will be cut to force out competitors. Second, to reach the main gas market Algerian gas would have to flow through Spain and then into France. That would damage too many vested interests in France to be a credible strategy. Third, gas demand in Europe is falling. Last year saw a drop of more than 11 per cent as gas lost out to renewables and coal.
The consumtion numbers only go back 10 years or less. The excess supply numbers are going up though. That means, along with the current plunge in fuel prices, that demand is down.
I work for a railroad, we buy fuel, and haul oil and chemicals from the petroleum industry. Across the board, crude, chemicals, and finished products are all down, including our fuel prices. We still haven’t come back up to fuel usage levels that we saw before the recession, and railroads burn through a shitload of diesel.
What? Supply going up does not mean demand is going down. Oil demand is not down.
Oil demand is 95 million barrels a day. When do you think it was higher?
https://www.iea.org/oilmarketreport/omrpublic/
Railroads as a small part of the US consumption of fuels. And the US is just a fraction of the world's consumption of fuels. Oil demand is global, not just US railroads as an indication of the whole.
Here is a link to the Oil Market Report going back to 1990.
https://www.iea.org/oilmarketreport/reports/
Show me a year where oil demand was greater than now.
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