For the past six years, the experts have tried to predict the next crisis.
They’ve gotten it wrong every time.
They’ve looked in all the wrong places.
They’re still looking in the wrong places.
A new crisis is brewing, but they can’t see it yet.
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They’ll see it one day, but by then it will be too late…
Energy is a big story in the local market.
The three big liquefied natural gas (LNG) terminals in Queensland are fast approaching completion.
It has taken a long time — more than six years to be precise — but it won’t be long before Australia begins exporting huge amounts of LNG to fast-growing foreign markets.
That will create many investment opportunities. Not just here, but overseas too. But while that may be interesting, it’s not the biggest or most important energy story.
For that, you have to look at the US.
The real energy story is in the US
If Australia gets around to exporting as much natural gas as the experts suggest, it would be set to become the world’s biggest exporter.
If Australia hits that goal, it would be a bigger exporter than Qatar and Russia.
But the biggest story is the impact of this and other developments on the US energy market.
All the talk is about how the shale oil and gas revolution could change the global energy market. As we’ve noted before, energy giant BP predicts the US will be energy independent within the next 20 years.
Many analysts say that the US shale boom will threaten Australia’s position as an emerging gas exporter. They say that’s especially true as the US natural gas price is lower than the Aussie natural gas price.
However, there’s one thing worth remembering.
The whole US shale boom (oil and gas) has only been possible due to the high oil price. It’s weird how the US energy story has turned 180 degrees over the past 10 years.
Back in the late 1990s and early 2000s, many feared that a high oil price would destroy the US economy.
Today the opposite is true. If oil prices fall, it could put the US back at the beck and call of Middle East oil interests…and in the current environment that would create a bunch of new of problems.
Saudi Arabia back in the driver’s seat
And so the US shale oil and gas producers can’t have been happy at the news overnight.
The Wall Street Journal reports:
‘U.S. oil prices dipped below $90 a barrel for the first time in over a year Thursday after Saudi Arabia signalled its comfort with current high global supplies and relatively low prices.’
The chart below shows the story of overnight trade:
Saudi Arabia and OPEC have been just another voice in the oil market in recent years.
That doesn’t mean they have been irrelevant. It just means that with the high oil price other previously unviable projects are suddenly viable.
It has led to increased exploration and production in a whole range of ‘frontier’ areas. We’re not just talking about US shale. We’re also talking about East and West Africa, offshore Southeast Asia, and even Russia’s offshore Arctic territory.
But with the oil price slipping, Saudi Arabia has found itself back in the driver’s seat.
You could say there’s nonchalance in the Saudi attitude. High prices are nice. But what does any political group really crave? That’s right, power.
In this case, it’s the power to control world energy markets as it once did. If the Saudi’s decide they’re happy with a lower oil price, you could see a repeat of the iron ore story.
A new commodities crisis looms
As the iron ore price started to fall, producers increased production to sell as much product as possible before prices fell further.
Low cost producers such as BHP Billiton [ASX:BHP] and Rio Tinto [ASX:RIO] were more than happy to increase production as they had the least to lose.
Could the same story play out with oil?
Will OPEC members and other low cost or state-run national oil companies increase production for fear of lower prices?
If so, a dip below US$90 could be just the start. It wouldn’t take much to push the oil price to US$80, US$70 or even lower.
That could be bad news for US shale energy producers. It would make the expensive shale projects less viable and force the US to rely more on imports.
It would be easy to think that’s good news for the US. But not so fast. The best thing for the US about the shale energy story was that it would give the US energy independence and create a viable energy export market.
If oil prices keep falling, both of those benefits would go. How the market turns. Commentators, analysts, and the market have looked for the next crisis without success.
If we’re right about this, the next crisis could be forming right now — an energy and money crisis all in one.
Don’t take your eye off this one.
Cheers,
Kris+
The post Is THIS the Commodity Crisis We’ve Waited for? appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
