Recently, we had a chance to sit down and have a frank discussion with Spencer Dale, Chief Economist, BP when he visited Trinidad and Tobago to launch the BP Statistical Review 2016. 

We asked him to elaborate on his opinion on some of the global shifts impacting the global energy industry. 

He said that the US shale revolution was one of the major factors which in his opinion, changed many things in the industry. He said that substantively, it changed the nature of the dynamics of the oil market. He told us that shale oil can respond far more quickly to prices, so it acts like a shock absorber for the market.

Before, in a world where supply took a long time to adjust to price shocks, prices had to move by a lot to bring the market into balance. Now, because shale can respond so quickly, it reduces the price dimension. 

The BP Economist added that the other important part associated with the shale revolution is the impact it has had on the US economy. He said that the US used to be the largest energy importer, importing significant amounts of oil and gas and historically, it was the largest net oil importer in the world. 

The implication of the shale revolution in the US, is that within the next four to five years the US is likely to be self-sufficient in energy. It would still be a net importer of oil but a net exporter of other energy products so in net energy terms it is likely to be self-sufficient. 

The second major global factor that he mentioned was fundamentally important, especially for Trinidad and Tobago is the growth in LNG. He said that LNG was particularly important because of the fact that LNG can respond to price signals in a way that pipelined imports cannot. 

He said, “If you have a pipeline going into Europe and suddenly the Fukushima disaster happens and demand for gas in Asia increases dramatically, you can’t pick up your pipeline which is going to Europe and stick it into Asia.” He added that in a case like this, you can’t respond to prices because your pipeline can’t respond. What eventually happened in Asia was that there was a dramatic rise in prices but prices in Europe were largely unaffected. 

“What’s special about LNG is that it’s mobile,” said Dale. He added that it can respond to the pricing signal so if there is a discrepancy or a shock like what happened in Japan, then vessels could be diverted to Asia and away from Europe. A result of which, prices across the world would tend to move up and down together. Noting that there would still be price differential because the cost of shipping LNG to Asia would be different from shipping to Europe but they would move up and down together in unison. He said that if the prices get too far apart, LNG acts like a sort of glue that brings everything back together. This means that we’re moving to a globally integrated gas market, said Dale. He added that it is the same as a globally integrated oil market where Brent and WTI prices are not the same but they move up and down together. 

Dale ended by saying, “I would expect global gas prices in Asia, Europe and North America to move up and down together. That’s a game changer relative to the gas markets that we grew up with, where we thought oil was a single, competitive, globally integrated market. Then we thought that it was a regionally segmented market. I think we’re moving to a world of globally integrated gas markets over the next five to 10 years. That has profound implications for global gas price dynamics and the sort of environment in which Trinidad and Tobago will be selling its gas.”