February 10, 2010 1311 VIEWS





 Looking at the subject matter from a risk assessment perspective we should worry.


Here are a couple of reasons why:


(1.) Every sector/sphere within the global economic structure is not immune to shocks that may arise from a sudden volatility (sudden increase in price of crude oil) in the global oil markets. This fact must have been clear to Sir Richard Branson given the setbacks experienced by the Airline sector after the September 11 attack on the World Trade Center.


Systemic shocks that could arise, an example being the global financial crisis of 2008-2009, has the potential of pushing world oil markets into a 'crunch'. Instability or unforeseen shocks may sound a death knell for Virgin Atlantic especially (and the aviation industry at large),in spite of their ability to hedge against volatility in the oil markets by locking-in prices for oil stocks during good times. It is therefore in Branson's best self interest that we are not caught unaware.


(2.) It is however understandable when Saudi ARAMCO CEO moves quickly to assuage fears, during the World economic Forum (WEF) at Davos, with regard to the issue of proven oil reserves. A sudden switch to alternative fuel sources that might result from advancements in technology (a long shot in the short term) and coupled with a downward spiral in the price of crude oil will inevitably impact on revenue streams for oil producing countries whose economy are monoproduct economies: Nigeria,Russia,S.Arabia,Venezuela et al.


(3.) Geo-strategic political considerations & Global sustainable economic concerns among countries with dwindling oil reserves. Recently, a row developed between Britain and Argentina over the efforts of 4 British firms ( Desire Petroleum, AGR Petroleum Services,Falklands Oil & Gas ) to prospect for oil & gas in the disputed Falkland islands.


The proven oil reserves in the North sea is projected to dwindle in the next thirty years-production at the North sea's oil fields has been declining,driving companies out of the region,reducing tax revenues and increasing the dependence of the UK on foreign supplies. Such dynamics sets the stage for conflicts and wars and can thereby lead to external shocks. The Bakasi peninsular on the continental shelf between the Republic of Cameroon and Nigeria, which is reported to be rich in oil & gas reserves, might also be a likely hotspot for disputes if not properly managed, in spite of the Green Tree Agreement and the judgement of the International Court of Justice (ICJ) ceding the peninsular to Cameroon.


However, It is noteworthy for developing economies with proven and potential oil reserves, - countries like Venezuela, Angola, Malaysia, Ghana, Republic of Congo, Sudan, Nigeria, even Saudi Arabia and the rich gulf states et al- to develop a risk assessment model which ensures blueprints and plans for alternative energy sources are incorporated, as an imperative, into their overarching strategic energy policy.


In sum, Sir Richard Branson's retort should give industry watchers ample reasons to worry about the future. The solution may lie in devising better scenario planning and analysis; innovative thinking and the ability to look inwards by thinking of ways to better conserve and use energy (a la renewable sources) in a manner that would serve our best interests in the medium to long term.


Forward-thinking initiatives as exemplified in the cases of Norway, the Netherlands ('Dutch disease') and Brazil (with Ethanol exploitation in spite of attendant negative effects on food stocks), where they have been successful in planning and evolving a workable sustainable energy model, which is 'light years' ahead of others should an unforeseen oil crunch happen upon us. Sadly, this a reality which the mono-product economies have not mastered so well. A fact that should not be lost on the 'oil-thirsty' American lobby and other interest groups whose shrill refrain: 'drill-baby-drill' belongs to the middle ages (speaking figuratively and literally).

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