Despite plenty of turmoil in several oil-producing areas of the world, crude oil prices have dropped. Russia at war in Ukraine, Ebola striking fear into N Africa, ISIS wreaking havoc in the Mid East, Libya once again in civil war, terrorists in Nigeria on the loose.  Yet oil is dropping, from 110/bbl a yr ago to 90/bbl today

There are several reasons for this strange phenomenon. One is the global economy is slowing down, Europe in brink of recession, China slowing noticeably.  Another is the large advances automakers have made in getting better mileage in new vehicles with even more to come. (100 MPG or better cars are coming soon!!).  But the biggest reason is the advance of horizontal drilling and hydraulic fracturing getting huge increases in oil production in the US.

  US citizens and the entire world should be very happy that HVHF has saved them from drastic jumps in energy prices and prices of nearly everything else because energy is a key component to just about every product made and shipped. Food is especially affected by energy prices so keeping people fed at reasonable prices is critical.

But while we should rejoice that HVHF and those evil oil companies have insulated us from the affects of global crisis, it does have a downside for landowner/mineral rights owners.  If oil prices are actually dropping if the face of multiple foreign disruptions, what does that mean for future drilling and royalties? Will companies continue to invest hundreds of millions of dollars going after new resources or will they cut back because of fears that oil will continue to drop? If oil drops under these circumstances, will it drop even further if and when things calm down? How rapidly will other countries use the new technologies to develop their own fields? Will prices fall enough that it is no longer feasible to keep leasing, keep drilling, keep building out infrastructure? 

Areas that are marginal will certainly be affected. Even some of the best areas may see a slow down in activity. And people that are already getting royalties will see a drop in their checks.

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Yea but when it's only the big dogs left watch the bonus money and royalty% go way down.The more money they have the greedier they get.


Interesting article from India

http://www.thehindubusinessline.com/opinion/no-room-for-complacency...

No room for complacency on oil front

Shale gas has kept oil prices down, but exploring alternatives such as ethanol remains as important as ever

Since 2008, Brent crude oil prices have been fluctuating, touching a high of $147 and low of $35 per barrel. What explains these wild swings, which at times change the directions of world economy?

You may or may not find a can of Pepsi or Coke in some countries. But there is no country in the world which has not been penetrated by petroleum products. Out of the 196 countries in the world, only 20 have surplus crude oil to export. To such exporters, a decline in oil price is bad news and to the rest of the world, which is home to more than 75 per cent of the global population, it’s good news. For India, there cannot be a better Diwali gift!

OPEC’s reduced clout

The price of any product is normally determined by what it costs to produce and transport to consumers plus a margin that is determined by the market.

And if it’s an essential product, its price spikes when consumers fear that it may not be available (as we saw in the case of the price of milk in Vizag post Hudhud). It is this constant fear factor, at times real and many times artificial and speculative, which has been swinging the oil prices in such a broad range.

When oil prices move up north, you can expect experts to say that prices are shooting up as “the US economy is recovering” or “the Chinese demand for oil is rising” or “Japan is set to import more oil” or “There is disruption to oil production in Syria” (which incidentally, at 385,000 barrels of oil production per day in 2010, contributes to only 0.4 per cent of world oil production).

And when oil prices plunge south, the arguments are conveniently reversed.

Make no mistake; it seems that this time, the reduction in price is real. It’s primarily driven by the fundamental surplus in oil supplies, powered by the North American Shale Revolution. The fact is the US, the world’s largest importer of crude oil, has increased its oil production by 50 per cent and reduced its import from the Organisation of Petroleum Exporting Countries (OPEC) by more than 30 per cent since 2008.

Unlike in other products, cost plays a limited role in determining oil prices. It is driven primarily by “expected shortage or surplus” and “its strategic impact to importers”.

The markets for any commodity are determined by its top sellers and buyers. The top five exporters of crude oil today are Saudi Arabia, Russia, the UAE, Kuwait and Iraq and top five importers are the US, China, Japan, India and South Korea.

Movers and shakers

The world needs around 90 million barrels per day (mbd) to keep its engines moving. The global oil market generally ignores the signals if volume of oil barrels added to or withdrawn from market, at any point in time, is less than a million barrels per day.

And the US today imports 5 million barrels less than what it used to in 2008.

The six countries that really matter today to the global oil market are Saudi Arabia, US and Russia from supply side and China, India and Japan from the demand side. The only thing that can stimulate a spike in oil price again is when more than a million barrels of production are cut or disrupted, and the market fears further disruptions and shortage in supplies in the near future.

Saudi Arabia can cut production and influence such a cut by its fellow members in OPEC. Whether OPEC will decide to cut its production or not, when it meets next month, will be debated widely. Even if OPEC decides to cut its production, as it did during the 1980s to prop up the oil price, whether the oil market will react the same way as earlier, is a big question mark.

Over four decades, oil market dynamics have changed. While global oil demand moved up to about 90 mbd from 55 mbd in 1973, OPEC continued to maintain its production at a steady rate of 30 mbd for the last 40 years. Its sole purpose is to hold oil prices from falling. OPEC continues to hold the largest share of global oil reserves and has the lowest per barrel production costs in the world.

But what it could not hold is its market share. OPEC’s share in global oil supply has fallen from 54 per cent in 1973 to less than 33 per cent today. Ultimately, it is the market share which determines the relevance of a player in a marketplace. The fear of losing it further will be the greatest deterrent to any OPEC debate on oil production cuts.

In the first 10 years of this century, China’s oil demand more than doubled and is expected soon to overtake the US as the world’s largest oil importer. Even now, China and India together import more oil than the US. Therefore, energy policy choices that China and India make, particularly in the transportation sector, as host to more than one-third the global population, will influence the direction of future global oil prices as never before.

The import of oil by China and India is essential to meet the ever growing demand for transportation fuel and energy in both countries. Whether one travels by air, sea, rail or road, petroleum products remain the sole fuel of choice. As long this dependency continues, oil prices will remain volatile and cyclical, derailing the economic progress of emerging economies.

Flexi-fuel option

But smart countries are those which focus on developing alternative transportation fuel options such as gas, ethanol, methanol and appropriate electric power, even while oil prices decline. China is ahead of India in its quest for alternative transportation fuel, opting for more and more flexi-fuel cars, which are run on a combination of compressed natural gas (CNG), diesel, ethanol, petrol and methanol

India consumes around 150 million tonnes of liquid petroleum products every year, with the top 11 States consuming 82 per cent of the petroleum products. Maharashtra, Gujarat, Tamil Nadu, UP and Rajasthan each consume more than 10 million tonnes of liquid petroleum products. Over 70 per cent of diesel consumption in India is by the transportation sector.

Buses, cars, even railways can, and must plan to switch to a flexi-fuel mix of gas, ethanol, methanol blend along with petrol and diesel, while encouraging electric-powered cars in select regions.

We must pursue this flexi-fuel goal even if gas were to be imported in the form of LNG and a premium price is required to be paid to increase domestic production of ethanol.

This will send a strong signal that India will depend less on imported oil, even as its demand for energy will continue to grow in tune with its economic growth. Higher oil prices and the resultant subsidies and fiscal deficits, appear to be the only speed-breakers on India’s road to accelerated growth.

Libya, Iran, Iraq, Syria, Yemen, Nigeria and Ukraine will continue to remain geopolitical hotspots with a potential impact on oil markets. However, their ability to create fear of oil shortages and trigger price spikes has weakened. And the market’s reaction to political upheavals is gradually getting moderated. Thanks to the shale revolution, no one talks about “Peak Oil”, and no one ever talked about “Peak Gas”.

Moving away from excessive dependence on oil as the sole source of transportation fuel is essential. This is a conscious choice each country, and in the context of India, each State needs to make and move.

The writer is a former CEO of Cairn India

(This article was published on October 20, 2014)

Philip

The article's reminder regarding "peak oil" is greatly appreciated.  Seeing now it was just another ruse, likely engineered by the detestable "renewables" crowd . . . perhaps a bit akin to "global warming", their current bugaboo.  One wonders what lie they will conjure next!!

Whatever new lie might be in the offing, it'll be intriguing I'm certain .  They are professionals after all.

Experts have warned that a rush to start fracking for oil across Britain may already be over before it has even begun as the slump in global crude oil prices makes the controversial method of drilling look increasingly uneconomic.

Bids from oil companies for licences to search and potentially drill for oil onshore in the UK are due on October 28. The auction of mineral exploration rights across vast swathes of the country will, it is hoped, spur a shale oil and gas “revolution” similar to that which has helped transform the US economy.

Hydraulic fracturing or fracking has made America increasingly energy independent and has broken its reliance on the volatile Middle East. The US, which pumps about 8.5m barrels per day of crude, is forecast to soon overtake Saudi Arabia as the top global producer of liquid petroleum.

However, the recent sharp declines in the price of oil traded on global markets – Brent is down around 25pc since hitting $115 per barrel in June – have cast a cloud of uncertainty over the process of opening up the UK to fracking due to the high costs associated with the process.

Fracking for so called “tight oil” involves the expensive process of cracking open shale rock formations deep underground and then pumping fluid and sand into the fractures under high pressure to force out the thick low quality crude.

The fear is that with the Organisation of the Petroleum Exporting Countries (Opec) – a group of 12 mainly Middle Eastern producers who pump a third of the world’s oil – apparently locked in a price war as each seeks to pump more crude than the market requires, it is the high cost of “tight oil” such as the projects being proposed in the UK that will suffer.

Recent research from Deutsche Bank speculated that if prices of Brent crude slump below $80 per barrel then almost 40pc of shale oil wells in North America could become uneconomic overnight. Although prices fluctuate, the German investment bank argues that relative to the US dollar a current “fair value” for Brent oil could be around $80 per barrels for a prolonged period.

“Investment decisions on future oil and gas developments in the UK have to be viewed in the context of the price over the next five years,” said a spokesperson for the trade body UK Onshore Oil & Gas.

Effectively, the embryonic shale oil industry in the UK finds itself caught in the middle of a global price war for control of energy markets. Although Opec countries need prices to hold at around $100 per barrel long term, analysts increasingly suspect that they are prepared to tolerate lower levels in the short term to counteract rising production in the US and even force some North American wells to shut down.

“We believe US shale oil activity could be increasingly sensitive to a falling oil price, particularly compared to Russian or Canadian supply because of the shorter drilling contracts in the US,” said Deutsche Bank’s strategist Michael Lewis.

However, in the context of the UK the breakeven cost of fracking is expected to be far higher, which might put off the major oil and gas companies that the Government wants to get involved and dissuade them from bidding in the current exploration licensing round.

“Fracking here is still in its infancy, but in North America a price range of $70 to $80 (per barrel) is seen as a challenging point for drillers,” Graham Sadler, the managing director of Deloitte’s Petroleum Services Group, told The Sunday Telegraph. “It’s hard to tell what the impact will be in the UK, but the cost of drilling would certainly be more expensive.”

Britain lacks any significant onshore infrastructure such as pipelines and processing facilities to handle a shale oil boom in the Home Counties. A study by the British Geological Survey of the “Weald” basin published this summer revealed that there were likely to be 4.4bn barrels of shale oil in the area, primarily beneath Surrey, Sussex and Kent. However, extracting this oil would be expensive when compared with the US due to the environmental considerations that will be imposed on drillers, experts say.

“It has to be more expensive,” Michael Tholen, the economics director for Oil & Gas UK told the Telegraph. “You can’t just plough up bits of Surrey and Blackpool like they can do in parts of the US.”

Despite these concerns, the Department of Energy & Climate Change (Decc) says that the licensing round – arguably the most important for the UK’s upstream sector since the opening up of the North Sea in the 1970s – is progressing regardless of the fall in oil prices and that it expects to award exploration permits early next year.

“We’re optimistic that there will be a strong response,” said a spokesperson for Decc.

However, most international oil companies approached by the Telegraph say they have no intention of bidding for onshore rights to explore in the UK anyway, given the more lucrative opportunities that are opening up elsewhere.

The British exploration auction coincides with Mexico – one of the hottest emerging fossil fuel producers – opening up its acreage to international oil companies for the first time.

Failure to secure significant interest from the industry’s blue-chip operators such as Royal Dutch Shell, BP and Chevron would be a blow for the Government, which hopes that fracking will compensate for declining production in the North Sea, provide long term energy security and boost the economy in the same way that can be seen in North America.

According to IHS Global Insight, shale gas production in the US will support nearly 870,000 by 2015 and contribute more than $118bn (£73bn) to the American economy.

It’s not just Britain’s nascent fracking industry that would suffer from a prolonged weakness in global oil prices. The North Sea – which has traditionally produced the vast majority of the country’s oil and gas – is vulnerable due to the high cost of production offshore and current taxation.

North Sea production is already under severe pressure from the rising cost of operating and the need to drill even deeper on the outer regions of the so called UK Continental Shelf. Output from the North Sea has slumped to around 800,000 barrels per day, a figure last seen in 1977.

Part of the problem has been George Osborne’s decision in 2011 to increase tax on drillers. The falling price of crude could now add to the crippling increases in cost that companies have had to endure offshore.

“A lot of projects that are currently being looked at are expensive. At $80 per barrel the more challenging projects don’t look as attractive as they once did,” said Mr Sadler.

According to Oil & Gas UK, there are about 150 projects offshore in British waters that are seeking investment and final sanction. These could be threatened if falling oil prices further erode the profits of drillers in the area, in addition to the higher tax burden they already face.

Oil companies working in the North Sea face handing over 81 pence in every pound of profits they make from the oil they produce, a figure that ranks UK production among the most heavily taxed in the world.

A consultation process on North Sea fiscal arrangements between the Treasury and the industry is currently ongoing and the Government is already coming under intense pressure to revise its current rules or risk a further decline in output, which is already down about 40pc over the last five years.

“The Government has squeezed the industry offshore for the last 15 years since oil prices started to rise,” said Mr Tholen. “The industry is frustrated, trying to keep old wells alive and get new stuff off the ground.”

Oil & Gas UK estimates that the North Sea will need a staggering £1 trillion of investment in order to recover all of the estimated 20bn barrels of reserves that remain untapped. Should oil fail to recover its recent levels of $100 per barrel and instead settle into a prolonged period of decline, then the Government will have to fund significant tax cuts and incentives to keep drillers working offshore.

To tap these reserves will increasingly mean oil companies must explore in frontier areas in deeper water. One such project that is being closely watched by the industry is the Rosebank field. Located 80 miles north west of the Shetland Islands, the field lies in water depths of 3,600 feet and will require a floating production, storage and offloading vessel. It is thought 240m barrels of oil could be recovered from the field, but the US oil giant Chevron which is investigating its viability has still to make a decision on whether to progress.

“A lot of companies think that North Sea investment opportunities look unattractive at around $80 (per barrel),” said Mr Tholen.

http://www.theguardian.com/business/2014/oct/19/oil-price-us-opec-b...

Low oil price means high anxiety for Opec as US flexes its muscles

Motorists, airlines and industry are enjoying low energy costs, the US is relishing its reduced reliance on the Middle East – and Opec is wondering how to reassert its authority.

During a week of turmoil on the global stock markets, the energy sector played out a drama that could have even bigger consequences: a standoff between the US and the Opec oil-producing nations.

While pension holders and investors watched aghast as billions of pounds were lost to market gyrations, a fossil-fuel glut and a slowing global economy have driven the oil price down to a level that could save the world $1.8bn a day on fuel costs. If this is some consolation for households everywhere after last week’s hit on stock market wealth, it means pain for the Opec cartel, composed mainly of Middle East producers.

Opec’s 12-member group has largely controlled the global price of crude oil for the past 40 years, but the US’s discovery of shale oil and gas has dramatically shifted the balance of power, to the apparent benefit of consumers and the discomfort of petrostates from Venezuela to Russia.

The price of oil has plummeted by more than a quarter since June but will Opec, which holds 60% of the world’s reserves and 30% of supplies, cut its own production to try to lift prices? Or will the cartel allow a further slide from the current price – in the mid-$80s per barrel – in the hope of making it impossible for US drillers to make a profit from their wells, and so driving them out of business?

Saudi Arabia – Opec powerhouse and traditional ally of Washington – and other rich Gulf nations have been building up their cash reserves and have shown themselves willing to slash prices in a bid to retain market share in China and the rest of Asia.

The US, the world’s biggest oil consumer, has relied in the past on Saudi to keep Opec price rises relatively low. But now it has the complicating factor of protecting its own huge shale industry.

Even US oil producers see the political benefits of abundant shale resources and the resultant downward pressure on prices. Rex Tillerson, chief executive of Exxon Mobil, the biggest US oil company, said recently that his country had now entered a “new era of energy abundance” – meaning it is no longer dependent on the politically unstable Middle East.

So there will be understandable tension next month when the ruling Opec body meets in Vienna and its member states fight over what to do. The cartel would like to reassert its authority over oil prices but some producing countries, such as Saudi, can withstand lower crude values for much longer than others, and the relative costs of production vary wildly between nations.

Since the Arab spring, many countries in the Middle East have hugely increased their public spending in response to growing dissent over unemployment and high prices. A lower oil price endangers this.

Bijan Zanganeh, the Iranian energy minister, has already put in a plea for a production cut: limiting supply would raise prices and increase national income from fossil fuels. He knows that his country’s higher-than-average production costs, plus an economy undermined by years of sanctions, mean it would come off badly in any oil war with the US.

Venezuela and Angola are also known to be keen for the cartel to push prices up again with production cuts.

In Vienna, Opec delegates will debate the merits of reducing production quotas for member states in an attempt to drive up the international oil price, or keeping prices low in a game of chicken with the US that could force cutbacks in the shale lands of Texas and Pennsylvania.

Recent history offers an incentive for Opec brinkmanship. In 2012, a slump in the price of US natural gas led to major changes. Exploration and production companies had rushed into shale gas drilling, only to be forced into a huge retreat when the ensuing fossil-fuel glut saw prices fall from $11 per million British thermal units in 2008 to below $3. Even the largest oil companies, such as Exxon Mobil and Shell, were badly burned by their shale gas assets plunging in value.

While Opec wrestles with its internal politics, the US president is mulling a gambit of his own. Barack Obama is now considering whether to lift the restriction on crude exports imposed in the 1970s, a move that could put further pressure on Opec producers by lowering prices but also turn the screws on Russia, which is in Washington’s bad books over Ukraine. One of the many conspiracy theories currently doing the rounds over the oil price suggests the US and Saudi Arabia are acting in concert in a bid to hurt Iran and Russia.

Deutsche Bank analysts have claimed that US oil output stands to be undermined as long as the price is under $90 a barrel. But Ed Morse, global head of commodities research at Citigroup, disagrees. “Production is getting less costly every year and break-even costs are plummeting to much lower levels than commonly believed, certainly lower than $75,” he argued in a blog.

Over recent years drilling has been going on in US national parks, back gardens and even underneath aircraft runways, and local production is at its highest in 30 years. The latest survey from global oil services company Baker Hughes reports that the number of oil rigs in North America has reached its highest ever, at just over 1,600.

But it is not just the enormous increase in US production over the past couple of years – it grew by 15% in 2013 alone – that has caused the glut. It is not just more supply that has tipped the balance. The world is seeing much lower than anticipated demand for fossil fuels because countries from Europe to Asia are struggling to return to the economic growth levels of the pre-crash era.

And moreover many countries, Britain, Germany and Japan among them, have also been working hard to reduce their demand for oil by becoming more energy efficient.

Meanwhile traders have also started to unwind the effects of the geopolitical risk that was attached to oil amid fears that Islamic State advances in Syria and Iraq could lead to supply disruption in the wider Middle East. Concern that the standoff between the west and Russia over the Ukraine could lead Vladimir Putin to restrict oil and gas exports to Europe has also subsided.

But Russia is at risk itself in this low-price environment, because half of the state’s revenues come from oil and gas. The Moscow stock market has dropped by more than 20% since the summer and the rouble has fallen by a similar amount this year against the dollar. Russia’s central bank is said to be working on a shock scenario of oil prices hitting $60.

It is no wonder, therefore, that market sentiment towards oil has changed. There has been an wholesale rewriting of price forecasts across Wall Street and the City of London. Credit Suisse has reduced its forecast for Brent to $93 for 2016 and $88 for 2017.

This compares with a price of oil which averaged $111 in both 2011 and 2012 and which only dipped to $108 last year. A continued trough around the current level of mid-$80 would hurt the producing countries but clearly help the consuming nations.

This is the flipside to last week’s stock market rout. Citigroup’s Morse believes if oil prices remain low it will act as a “huge quantitative easing programme which would help to spur sputtering economic growth”. The decline in prices would generate a $1.8bn daily windfall for the global population in lower fuel costs, or some $660bn annualised, he argues. “Tracking this into gasoline prices in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household.”

The reduction in oil prices has already pushed down petrol prices in Britain and helped reduce costs for farmers. There has been a 14% fall in UK wholesale gas prices, which is partly linked to global oil prices, although this has yet to be translated into household bills.

Peter Atherton, a utilities analyst with stockbroker Liberum Capital, says it is now possible to predict that wholesale power prices in Britain will rise from around £50 per megawatt hour to around £57 by 2020, which is considerably less than many had feared.

After that, he says, a series of government interventions aimed at supporting the building of new gas-fired power stations, windfarms and nuclear plants will push prices up as the costs are passed on to households. These low-carbon initiatives – which are partly aimed at beating climate change, but also billed as a hedge against rising fossil-fuel costs – could cause trouble for governments in the future. “If the rest of the world is enjoying cheaper energy costs, will the British public be willing to foot 20% to 40% higher bills? Maybe the climate change argument will be enough but maybe it won’t,” Atherton asks.

Some industry experts do indeed believe that, far from hovering around the $110 seen in recent years, the oil price has moved into a new phase of being priced closer to – or even lower than – $80. But Ann-Louise Hittle, head of macro oils research at consultant Wood Mackenzie, disagrees. She believes too many governments in countries dependent on oil and gas revenues have too much to lose from a long-term price slump. “We do not think oil prices can remain well below $90 per barrel for this reason,” she says.

But Nick Butler, a former BP executive and an energy adviser to Gordon Brown, is not sure anyone has much control over volatile crude markets any more. “Once started, a price fall is going to be very hard to reverse,” he says. “Much of Saudi Arabia’s power is psychological – people have believed that because they have controlled prices in the past they will do so for ever.”

Oil price winners and losers

Oil prices have an effect across the UK economy. Lower prices have started to drive down petrol costs – cutting the business costs as well as consumer bills – and reduced the price of wholesale gas and electricity. UK inflation has already been pushed down by falling energy prices and this should also reduce food costs, as fuel is a significant element in food production. But it is not all good news: lower crude values will also reduce the profitability of the North Sea and cut tax revenues. Much depends on how long prices stay low. Here are the winners and losers so far.

Consumers It is no surprise the supermarkets have started a price war on the petrol forecourts. Sainsbury’s, Asda and Tesco have all slashed pump prices: some now charge 126.7p a litre for diesel and 123.7p for unleaded petrol. In spring 2012, motorists were paying more than 137p for unleaded, and this put enormous pressure on George Osborne to scrap planned fuel duty rises. Much of the cost at the pump is tax, but further falls in the oil price should bring more relief to drivers – while possibly increasing car miles and carbon emissions. Energy suppliers are resisting passing on the lower wholesale gas and electricity prices, citing a possible price freeze by a Labour government next spring. If wholesale costs remain low – gas is down 14% – the big six suppliers will be forced to act.

Industry The price of fuel is not only a pain for consumers; it hurts farmers, airlines and manufacturing. September’s fall in inflation – to its lowest level in five years at 1.2% – is partly a consequence of lower energy, food and transport prices. Transport is a major part of agricultural costs, and supermarkets spend a fortune trucking goods around the country. Airlines are acutely vulnerable to oil-price rises and should be able to reduce fares if lower energy costs persist. Falling energy prices may ease some of the pressure the government is under from energy-intensive industries such as cement and steel, which often complain they are uncompetitive against countries such as the US, where the shale gas boom has driven down energy costs.

Armed forces The biggest single user of fuel in the world is said to be the US army, so lower fuel costs in theory could mean more military manoeuvres by America. But its current number one adversary, Russia, derives more than half of its revenue from oil and gas, and its economy could be driven into recession by a prolonged reduction in commodity costs. Oil and gas prices are linked in many of the world’s biggest contracts. The Kremlin’s military intervention in Ukraine has made Europe more aware of its dependence for its energy security on Russian gas exports, but this is less of a worry if Moscow’s economic power is weakened.

Scotland The economic power of Scotland is diminished at times of low oil prices. The Scottish National Party based much of its economic model for independence on extracting a further 24bn barrels of crude, but that presumed a global price of $100 a barrel. Now it is under $90 and some say it will fall further. Alex Salmond was hoping to raise $1.5tn of tax revenues, but lower oil prices would reduce that. The North Sea is already a high-cost domain and it will become of less interest to oil explorers than lower-cost regions where huge discoveries could still be made.

Power generation The past high price of wholesale gas and the relatively low price of electricity have led to many gas-fired power stations being closed or mothballed, but although falling gas prices have helped generators, they will need to fall further for many of those plants to break even. Cheaper gas also undermines the competitiveness of other forms of power generation such as wind and nuclear. A period of low gas prices could make subsidies for new reactors at Hinkley Point in Somerset and new wind farms and solar arrays look even more toxic. Lower gas and oil prices should reduce investor interest in UK shale-gas fracking, which would delight environmentalists but disappoint the government and industry supporters. But overall, lower fossil fuel prices - oil, gas and coal - will weaken the hand of those arguing for a low-carbon economy.

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