More sources of supply mean energy prices are likely to stabilise at lower prices than in the last decade. The decline in US dependence on Middle Eastern oil is likely to make the US see instability in the MENA region increasingly as a European problem.

A decade ago, there were fears that the United States would be increasingly dependent on an unstable Middle East and a hostile Venezuela for oil imports. There were worries that US natural gas prices would be determined by the price of imported LNG. Today, there is growing attention to the prospects of the United States as a LNG exporter influencing prices in Asia and Europe. The shift occurred because of the unexpected emergence of unconventional oil and gas production in North America, especially as Saudi Arabia did not reduce its oil production to stabilise prices at relatively high levels.

This development, together with renewed supply from Iraq and Libya which had previously declined because of domestic political instability as well as reduced demand arising from the economic slowdown in China and the recession in Europe and the US following the global financial crisis of 2008, resulted in a sharp fall in the oil price. Earlier projections of continued increases in demand were based on continued healthy economic growth and tighter supply. The assumption was that a lack of new sources of production would lead to rising prices for oil and natural gas and a growing emphasis on energy security as consumers tried to lock-in supplies even as alternative sources of energy were promoted. It is now recognised that the majority of these alternative sources are not commercially viable unless subsidies are provided.

… Barry Desker is Distinguished Fellow and Bakrie Professor of Southeast Asia Policy, S. Rajaratnam School of International Studies, Nanyang Technological University).This article was first published in the Straits Times.