The news cycle in recent weeks has been intense, with the eyes of the world fixated on the Japan crisis.
Footage on rolling news reels starkly illustrates the huge human and economic cost of the disaster, while the longer-term effects will resonate for months and years to come.
Japan has historically had a very progressive nuclear energy programme, with a third of the country’s electricity coming from atomic power.
This programme has clearly suffered a serious setback, with the nuclear policies of a number of other countries now coming under severe scrutiny.
This will inevitably bring the debate on renewables back into sharp focus.
Within this industry, there is likely to be significant short-term supply disruption, particularly for solar, with around 25% of the world’s photovoltaic components being manufactured in Japan.
Longer term, however, it is likely that developed and developing countries will need to give increased consideration to the role of renewables within their national energy policies, in view of nuclear concerns and the need to reduce reliance on carbon energy.
This need will become ever more acute as oil prices continue to rise.
The driver of the most recent spike has of course been unrest in Middle East and North African (MENA) states.
The significance of the oil producing MENA countries to the global economy is clear: North Africa produces 5% of the world’s oil; the Middle East produces 30%, and has just under two thirds of the world’s proven reserves.
Of particular concern to global markets is the potential for conflict to escalate between Gulf heavyweights Iran and Saudi Arabia, where a huge proportion of these reserves are concentrated.
The deployment of troops by Sunni-ruled Saudi Arabia to quash Shi’ite dissent in Bahrain could lead to a showdown with Iran, which is Shia led.
Since the relatively peaceful Tunisian transition of power in January, civil unrest has spread across a raft of other countries in the MENA region, escalating in severity and geopolitical significance.
Libya, the world’s 12th largest oil exporter and a member of OPEC (Organisation of Petroleum Exporting Countries), is now in the midst of a brutal civil war.
More than half of Libya’s oil was exported to Italy, Germany and France last year, with a number of foreign operators having a significant presence in the country including Spain’s Repsol, French firm Total, Italy’s Eni and Germany-headquartered Wintershall.
Meanwhile, UK-listed BP and Royal Dutch/Shell had both planned multibillion dollar investments in Libya over the next few years, which will now hang in the balance.
Currently, the exposure of each to this state is minimal.
All of the aforementioned European majors have seen their stock values fall since the conflict began, to a greater or lesser extent, depending on the prominence of Libyan assets in their international portfolio.
A large proportion of the destruction in market cap may well be due to fears that the assets of western operators may be nationalised if Colonel Gaddafi prevails.
It is also likely that future oil concessions may be awarded to companies from China, India and Brazil, all of which abstained from the UN Security Council vote on resolution 1,973; stipulating sanctions on Libya, a no-fly zone and the use of air strikes.
As such, western influence on the MENA region could diminish significantly in future years.
In view of the above, along with the obvious risks of deepwater drilling – as evidenced by events last year in the Gulf of Mexico – one may assume that North Sea assets should attract a premium as exploration & production companies consider where to allocate capital investment.
It was therefore disappointing to see the chancellor de-incentivise North Sea investment in his recent Budget, in the form of the “fair fuel stabiliser”.
Essentially, the UK Government will increase the level of supplementary corporation tax levied on profits from UK oil & gas operations from 20% to 32%.
The effective tax rate for UKCS operations will therefore become 62%.
Worse still, for those fields still subject to petroleum revenue tax, the effective rate will be closer to 81%.
George Osborne stood at the dispatch box and proclaimed his intention that the UK should have the most competitive corporation tax system in the G20.
Unfortunately, however, this goodwill did not extend to the oil & gas sector.
David Barclay is a divisional director at investment management and financial planning specialists Brewin Dolphin.
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