Syrian crisis strengthens the case for shale gas

Oil prices are up to $115 a barrel for Brent crude on the basis of market fears that western governments will not be able to limit their involvement in Syria to a few missile strikes shot from warships located safely offshore and that the Sunni-Shia conflict will spread across the Middle East. The forward market is suggesting that spot prices will go even higher. Maybe. The western involvement certainly looks ill-prepared and lacking in strategic purpose. The response to what is happening in Syria from the US, in particular, reminds me of the impotent response of the dying Ottoman regime to the gradual collapse of its empire across the Middle East in the years before the first world war.

But consider an alternative view. Syria is a minor oil producer and its output has been reduced for months. Libya is underproducing and there is trouble in Nigeria. What is new?

Taking a global perspective the real risks for the oil market are still on the downside. China is experiencing a cyclical correction which could be more severe if the persistent stories of subprime-style problems at some of the country’s biggest banks prove to be true. The chances of a slowdown in the growth of China’s oil imports over the next year are very high.

India has been assumed to be the next source of growth in energy and oil demand but as the currency story of the past 10 days shows, New Delhi does not have a sustainable model of economic growth, nor the institutional structures to encourage investors to part with the billions of dollars necessary to build the infrastructure essential for a modern energy economy.

In the US, Europe and Japan oil demand is falling as efficiency gains outpace limp growth rates. In the US oil imports are falling as domestic production of tight, or shale, oil grows.

The oil market is famously susceptible to fevers. This one will pass. The greater impact of what is happening in Syria – and Egypt, Libya and less noticed in Iraq – is that the consuming world will tire of the Middle East and its endless conflicts as it demands, above all, secure energy supplies. Events in Syria add an extra premium to the development of low-cost indigenous energy supplies.

The shale gas industry could not have a better recruiting sergeant than President Bashar al-Assad.

Fonte: ft.com