The really big issue for 2015 is the price of oil. The reason this is an issue is that the base price for extracting oil, especially from oil sands and other unconventional sources is widely agreed to be higher than $50 a barrel.
Even conventional oil costs a lot to produce and the shale oils are very expensive. The graphic below shows the (2012) production costs per barrel of the world's top 360 oil fields:
Notice that the vast majority require over $50 a barrel to break even. Oil states have been spending money like water on the back of $100 oil and now many of these states will get into deficit:
Shale and Tar Sand production are at particular risk from lower prices:
A prolonged period of low prices could cause the closure of some shale oil rigs.
It is not just shale oil that is at risk, most new North Sea oil projects are being cancelled.
Looking at these graphs it is hard to imagine that the price of oil will not increase in 2015. If it does not increase there will be a lot of failed shale oil producers and problems in oil producing states.
Although the fall in oil prices appears to be due to oversupply in the face of weak demand there is also a political aspect. The Saudi Arabians have changed OPEC policy so that OPEC no longer sets a price for oil. The Saudis realise that unconventional oil and Green policies will marginalise OPEC and so are going in for the kill whilst prices are weak. They have a window in which they can turn off alternative oil supplies and stop green policies. They can also inflict huge damage on Iran and Russia, their main enemies in the Middle East.
All of this uncertainty in the oil market had to happen sometime. Climate change makes it imperative that hydrocarbon production is decreased and "peak oil" - ie: the ever increasing cost of extracting oil - means that the cost of oil favours energy efficiency and decreased demand.
There is one small worry, if the fall in the price of oil is due to decreased demand and that decrease in demand is due economic woes rather than energy efficiency then the world economy would be in trouble because the low prices would suppress the capital investment required to produce tomorrow's energy and resources.
The instability in oil price is typical of a depleting resource. Such huge price changes may result in dangerous defaulted loans and even stock market crashes this year. Perhaps 50% chance of major global economic turmoil in 2015.
Overall, 2015 will be the BIG year, either global economic activity will pick up or we will be looking into a terrifying downward spiral caused by resource depletion. I hope that the first alternative prevails.
Politics
In the UK it is an election year and the "make or break" year for UKIP. The Establishment have brought out their big guns and will be firing every ounce of media venom they can muster at the UKIP interlopers. Can UKIP survive an onslaught from the BBC and every major newspaper? I have never seen such naked bias in the media so if UKIP wins some seats it will have done well indeed. It is possible that UKIP will become the third party in British politics, forcing a Tory-UKIP governing coalition, I would put the odds of this happening at 30%. This would trigger a referendum on EU membership.
In the Middle East I would forecast that IS will consolidate and will gather support from the people of other countries such as Tunisia, Libya etc. The "West" will provide converts with every drone strike. It is also acting as principle recruiting agent for IS in Iraq by aligning itself with the Iranians who are fighting alongside Shiite militias - Iraq fought a hugely bloody war against Iran less than a generation ago so the "West" cannot win hearts and minds by supporting the enemy.
The Middle East in general will be the scene of severe crack downs on popular unrest by the ruling elite, backed by the "West". Afghanistan will slowly fall back under Taliban control in rural areas.
The bust up with Russia is already causing fall out for the UK, such as the supply of Russian bombers to the Argentines. I would predict an ever-worsening Russian economy with increasing authoritarianism. Russia looks ever more dangerous.
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| See Business Insider |
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| See FT Oil Production Costs |
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| Oil price at which producers balance their budgets |
A prolonged period of low prices could cause the closure of some shale oil rigs.
It is not just shale oil that is at risk, most new North Sea oil projects are being cancelled.
Looking at these graphs it is hard to imagine that the price of oil will not increase in 2015. If it does not increase there will be a lot of failed shale oil producers and problems in oil producing states.
Although the fall in oil prices appears to be due to oversupply in the face of weak demand there is also a political aspect. The Saudi Arabians have changed OPEC policy so that OPEC no longer sets a price for oil. The Saudis realise that unconventional oil and Green policies will marginalise OPEC and so are going in for the kill whilst prices are weak. They have a window in which they can turn off alternative oil supplies and stop green policies. They can also inflict huge damage on Iran and Russia, their main enemies in the Middle East.
All of this uncertainty in the oil market had to happen sometime. Climate change makes it imperative that hydrocarbon production is decreased and "peak oil" - ie: the ever increasing cost of extracting oil - means that the cost of oil favours energy efficiency and decreased demand.
There is one small worry, if the fall in the price of oil is due to decreased demand and that decrease in demand is due economic woes rather than energy efficiency then the world economy would be in trouble because the low prices would suppress the capital investment required to produce tomorrow's energy and resources.
 |
| Source: IMF |
The instability in oil price is typical of a depleting resource. Such huge price changes may result in dangerous defaulted loans and even stock market crashes this year. Perhaps 50% chance of major global economic turmoil in 2015.
Overall, 2015 will be the BIG year, either global economic activity will pick up or we will be looking into a terrifying downward spiral caused by resource depletion. I hope that the first alternative prevails.
Politics
In the UK it is an election year and the "make or break" year for UKIP. The Establishment have brought out their big guns and will be firing every ounce of media venom they can muster at the UKIP interlopers. Can UKIP survive an onslaught from the BBC and every major newspaper? I have never seen such naked bias in the media so if UKIP wins some seats it will have done well indeed. It is possible that UKIP will become the third party in British politics, forcing a Tory-UKIP governing coalition, I would put the odds of this happening at 30%. This would trigger a referendum on EU membership.
In the Middle East I would forecast that IS will consolidate and will gather support from the people of other countries such as Tunisia, Libya etc. The "West" will provide converts with every drone strike. It is also acting as principle recruiting agent for IS in Iraq by aligning itself with the Iranians who are fighting alongside Shiite militias - Iraq fought a hugely bloody war against Iran less than a generation ago so the "West" cannot win hearts and minds by supporting the enemy.
The Middle East in general will be the scene of severe crack downs on popular unrest by the ruling elite, backed by the "West". Afghanistan will slowly fall back under Taliban control in rural areas.
The bust up with Russia is already causing fall out for the UK, such as the supply of Russian bombers to the Argentines. I would predict an ever-worsening Russian economy with increasing authoritarianism. Russia looks ever more dangerous.
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