Falling oil prices...what impact will they have on shale gas and recycled plastics?
Posted on 18 December 2014
The tumbling price of oil has thrown the oil and gas sector into turmoil – and the economic viability and commercial development of shale gas and oil into sharp relief.
According to a firm of accountants, Moore Stephens, 18 UK oil and gas businesses became insolvent this year, versus six such outfits in 2013.
Jeremy Willmont, the firm’s head of restructuring and insolvency, said the oil and gas services sector had enjoyed very strong trading conditions for the last 15 years, “so perhaps they have not been quite so well prepared for a sustained deterioration in trading conditions as other sectors would have been.
“There was a sharp drop in the oil price during the financial crisis, but the sense that oil prices could be depressed for some time is much more widespread this time around.”
And George Osborne’s cut of 2% in the rate of the supplementary charge on UK ring-fenced profits wouldn’t go far to alleviating the problem, the firm believed.
And while shale gas development will surely continue, falling oil prices have begun to leave their mark on some companies for whom the economics of exploration are starting to shift into less positive territory.
Indeed there are some for whom shale, both in gas and oil terms, is not the panacea many believe it to be.
I was at a chemicals industry gathering recently and some of those in attendance who write specifically about this sort of thing clearly remain to be convinced shale has the long term future hoped of it.
Of course there were those present who took the opposite view, but it is always interesting to hear a voice or two going against the perceived wisdom inherent in a particular market.
Another area likely to come under pressure is the commercial viability of recycled plastics. Falling oil prices are sure to bring down the price of a number of core plastics materials; virgin polymers could be much cheaper, after all.
But this is no reason to duck the pressing need to recycle and re-use. Sure, the economic argument might be harder to justify in current market conditions, but the environmental one will simply grow stronger.
As many in the recycling world have argued, the creation and development of solid, commercially-viable end markets are what recycled plastics need most of all.
And in the long run, whatever happens to the price of a barrel of Brent crude in the coming weeks and months, such markets must prevail.
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