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Game changer in unexpected way

During the last fifty years of world oil history the nationalisation of multinational assets by OPEC in the 1980s and the current US shale revolution are two of the largest game changers.

WHILE THE EARLY predictions following the OPEC nationalisation have not materialised, energy pundits have been active in predicting the major changes that may result from the US shale revolution.

The former game-changing event has led to the phenomenal and peaceful transfer of immense wealth from oil importing countries to oil exporting countries. Such unprecedented wealth transfer has unleashed forces to change world history. Arab Spring is just one such example.

Unfulfilled prophesies…

Huge oil price increase led to oil resource nationalism. Oil price increased from $12 per barrel in early 1970s to $100/b (all in 2010 dollars) in the early 1980s.Some experts even forecasted prices to increase to $300/b by 2000! Others predicted the demise of the oil era and the dawn of renewables!

Nuclear energy was supposed to be one of the sources besides wind and solar to replace oil.Just about every prediction has turned out to be wrong. Oil prices have been volatile and fell be-low $30/b in the mid 1990s. Renewables have not been able to meet even 5 per cent of world energy demand. The oil era has stubbornly stayed put.

Oil history has showed that pundits have often gone wrong because of totally unexpected events. Technological advancement has been one cause for such wrong predictions. Will history repeat in the case of shale revolution predictions also?

In early 2000, an independent US oil producer, Mitchell Company, had succeeded in producing shale gas. No one then thought that it would start a veritable revolution in energy sector. Currently shale gas is meeting 24 per cent of the US gas demand and is forecast to meet more than 50 per cent in 2035.

Outpouring of new prophesies

Experts are now predicting that if the 20th century belonged to oil, the 21st will belong to gas.With abundant gas supplies that are expected to last for more than 200 years, gas may be used in transportation to reduce demand for gasoline and diesel. This will add one more uncertainty to the already complex decision making process of refinery investment.

For long  oil and gas prices were linked. Economist magazine predicts that in future gas price will not be based on oil price. Lower price of natural gas will lead to more LNG investments. Such investments on LNG plants will make gas an internationally traded commodity like oil leading to delinking of gas prices from oil.

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