Home' Trinidad and Tobago Guardian : July 19th 2015 Contents JULY 19 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG15
Greece might be centre
stage in Europe, but a
bigger issue is oil. A
rush by Europe to limit
oil and gas imports
from Russia is pushing
the region deeper into
the grip of a slightly less
unpleasant supplier of essential fuels, OPEC.
Changing trade patterns caused by geological
and geopolitical events means that Europe has
become the number one target of the Organ-
isation of Petroleum Exporting Countries, the
Arab-led oil producing cartel.
Geology and politics are an
Geologically, the growth of the unconven-
tional (shale) oil industry in North America
means that a large part of the global market
is no longer the big importer of fuel it once
Geopolitically, the increasing isolation of
Russia from trade with the western world
means it is targeting China, India and the rest
of Asia for its oil and gas exports.
Russia is eating OPEC's lunch in Asia
The upshot of those forces is that OPEC is
getting squeezed out of Asia by Russia with
the organisations members working hard to
cultivate Europe as their major market, even
to the point of offering discounts to develop
An analysis of changing oil and gas trade
flows is one of the interesting aspects of a
study titled Oil and Gas Reality Check by the
international accounting and consulting firm
The first two of six key findings by the study
was that shifting supply and demand funda-
mentals are fueling a "power play between
traditional and new oil suppliers" and that as
the oil and gas industry changes "new global
trade patterns are emerging."
32% and falling
The other findings included a reminder that
OPEC itself is under pressure with a falling
market share, liquefied natural gas (LNG) is
a buyer s market thanks to rising supply, and
capital spending in the oil and gas industry
The Deloitte study, written before this week s
nuclear deal with Iran which should see that
country boost oil exports, touches briefly on
the declining market share of OPEC which is
expected to slip from 32 per cent of the world s
crude oil market to 27 per cent by the year
2018 thanks to the rise in US oil production.
But, the issue which has the greatest poten-
tial to change the way the oil and gas industry
behaves over the next few years is the rising
level of Russian exports into Asia, with OPEC
potentially finding itself being displaced as
the market leader.
The rise of Russian oil and gas in Asia is
a profound problem for OPEC which in 2013
sent almost 60 per cent of its exports to China
and other Asian countries.
Russia's pivot to Asia is hurting
As relations between Russia and Asia develop
in what Russia refers to as its "pivot to Asia"
Deloitte said OPEC "may look to expand its
share of the Western Europe market," but
might find that this does not fully replace the
market it risks losing in Asia.
The importance of Western Europe to OPEC
can be seen in the close attention being paid
to the region by the world s biggest oil producer,
Saudi Arabia just as Europe s domestic oil
industry continues to decline with output
already down 50 per cent on the 2002 pro-
"Saudi Aramco cut the official selling price
for its Arab light crude to north-west Europe
by US$1.50 per barrel in February this year,
putting it at a discount of US$4.65 per barrel
to the Brent weighted average price, the lowest
price since 2009," Deloitte said.
Haves and have nots
The report shies away from tipping the
death of OPEC but does re-visit the question
of "haves" and "have not" in the organisa-
Big, low cost, OPEC members such as Saudi
Arabia, Kuwait and Qatar have the financial
muscle to ride out a protracted downturn in
oil ans gas prices.
"The remaining OPEC members, however,
are facing greater challenges," Deloitte said.
GCC to replace OPEC?
"Some argue that the divergence between
OPEC have and have-not nations may create
a splintering of those countries whose break-
even points require higher oil prices than those
that currently prevail."
While concluding that the long-term tra-
jectory of the oil and gas industry was unlikely
to effected by price fluctuations significant
changes could occur. Some Canadian projects
were likely to become uneconomic in the short
term, and the US shale break-even oil price
was likely to continue falling.
"Taken together, these trends suggest that
OPEC s power over long-term market move-
ments is waning," Deloitte said.
"Certainly, its dominance as a coordinated
entity is long past.
"Yet the end of one era often signals the
start of another; arguably the Gulf Cooperation
Council (GCC) states could stand in for OPEC
in the years to comes," Deloitte suggested.
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Call for details
European Central Bank head Mario Draghi
delivered financial and moral support for
embattled Greece on Thursday, saying
that emergency credit to Greek banks will
be increased; a first step toward helping
Greek banks have been closed since June 29, more
than two weeks ago, since the ECB s governing council
halted the credit flow due to concerns the banks would
go broke and not pay the money back.
In a news conference following the ECB s regular
policy meeting, Draghi said the ECB agreed on Thursday
to increase that credit amount by 900 million euros
over one week. That raised the total to about 90 billion
The decision came after the Greek parliament
approved a bill of budget savings and economic reforms
that the eurozone countries said was required to start
talks on a new bailout programme worth about 85
billion euros (US$86 billion) over three years.
It was unclear when the Greek banks might reopen
or when the country might be able to lift or ease limits
on cash withdrawals and money transfers. ATM with-
drawals have been limited to 60 euros per person per
day. Normal commerce is impossible as suppliers
demand businesses pay cash they don t have.
Draghi offered more support by saying that debt
relief of some sort for Greece was "uncontroversial"
and that the ECB "continues to act on the assumption
that Greece is and will remain a member of the euro-
German Finance Minister Wolfgang Schaeuble has
mentioned a possible temporary exit from the euro for
Greece to sort out its problems. Draghi said that he
was "not going to comment on politician s statements."
European officials have said Greece could get more
time to pay and lower interest on its debt, although
Schaeuble and others have ruled out actual reductions
in the face value of the debt.
Carsten Brzeski, analyst for financial group ING-
DiBa, said that more complex steps and negotiations
would follow, but that the ECB s decision to increase
emergency credit is "no game changer, yet, but at least
a symbolic leap of faith."
Draghi also re-stated that the ECB is willing to use
all the stimulus measures at its disposal to prevent
market turmoil from destabilising the economy of the
19 eurozone countries. AP
Greece is a problem but oil could
become a bigger one for Europe
ECB raises support for Greek banks
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