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Shale gas impact on the Tyre industry

Posted: January 12, 2016 at 10:26 am   /   by   /   comments (0)

Historically nations have tried to control energy resources , in particular oil- and this has led to collaboration and competition between countries ? however this is about to change dramatically.
Because there is a new kid on the block-Shale reserves. Shale oil production globally could reach up to 13 million bpd of oil in the next 20 years; this amounts to approximately 12% of the global oil supply.
We all understand that any commodity being available in excess of the delicately balanced business ecosystem is going to bring in disruptive changes in the environment. Shale oil in particular would have a significant impact since its reserves are distributed across the globe in a manner different from what we are used to seeing for generations.
1. China 7500
2. Argentina 1150
3. Algeria 820
4. U.S.A. 680
5. Canada 570
6. Mexico 550
7. Australia 440
8. South Africa 380
9. Russia 280
10. Brazil 230
India holds approximately 38 trillion cu.ft.
Surprise! The Middle Eastern countries, do not figure in the top 10 list of energy suppliers in this list. Countries like Argentina and Algeria are front runners in this new age fuel source – and China has more of it than the rest of the world put together.
What is happening in the world is an interesting scenario.
U.S.A.:The U.S. is in the process of expanding its shale gas production capacities at a very hectic pace, and soon it would become the largest producer of shale gas, in the world.
By diverting its coal fired energy corporations on to shale oil & gas, coal surplus has already been reached by the U.S. and it is a net exporter of coal today.
It is estimated that the U.S. will change into a net exporter of oil by 2030.
Imagine that -U.S.A. not chasing oil.
China:Twenty years ago, China was a net exporter of fuels-a fact hard to fathom. By 2030 it is likely to become the world’s single largest oil (and natural gas, and coal) importer, relying on imports for almost 80% of its oil and more than 40% of its gas.
Although China does have the largest known shale gas reserves in the world, it does not have the technology today to make it viable option for extraction, especially with low prices of crude and coal.
However with China’s known capabilities of reverse engineering any industrial technology, it’s highly likely that they would be at the forefront of extracting shale fuels very efficiently in the near future.
The demand in China for energy would grow at a scorching pace so the impact of shale fuels supply would not be very dramatic. However even China?s dependence on shale fuels will increase and will be fed by its own reserves.
Europe: Europe, over the same period, is likely to remain a large importer of fuels.Europe is and will remain a net importer of gas and oil till this time frame of 2030 for which we are estimating the scenario. Shale fuels have a major issue since environmentalists have opposed the industry and therefore Europe is closed to the idea of actually extracting & fracking shale within their borders.
So Europe continues on its current path, and probably gets more embroiled in the Middle East.
Middle East & Russia:Would remain net exporters of oil & natural gas, but low prices would reduce the profits that they have enjoyed so far for so many decades.
Imagine this – the Middle Eastern economies would have to look for means other than oil to progress – is that possible ?
India:The prices of coal would remain depressed, and we would also be benefited by low prices of oil and natural gas. Our trade deficit will be positively affected.We do not have any direct benefits like huge reserves of shale fuel, however we do have a hardworking population that is adaptive and resilient – there is less cause for worry in India.
Partnering with countries like Argentina and Algeria would lead to a better future for us. These alliances should be formed starting today, so that when the time comes, they are so deeply forged that entry barriers are easy to place for other countries.
The benefits of oil price reductions will vary significantly by country.
Net oil importers like India and Japan might see their GDP up by around 5%-7% by 2030, while the US, China, Europe might gain by 3%-4% of GDP. Net oil exporters like Russia and the Middle East would have a drop in their trade balances of approximately 5%-10% of GDP.
Enroute to 2030 however the demand for oil from the U.S and other countries would shrink so dramatically that it will have a major geopolitical fall out- trade surpluses would turn into trade deficits in the Middle East and Russia.
Because the U.S. has been importing not only oil, but also capital from the Middle Eastern countries-since the latter have been supporting the U.S. exports of defense equipment. The billion dollar question is – what will the U.S. import with all the money it saves by becoming energy self-sufficient. The scarier question is who will buy all the defense equipment that the U.S. exports once Middle East trade surpluses start shrinking.
Wishful thinking would be that the US could decide to import more of something else instead of energy- probably, a cleaner environment. This could be done by reducing their industrial base of even mildly polluting industries like tyres – and this could have a positive impact on the world economy.
The U.S could also import more of services like R&D facilities, and hopefully India would be at top of their game as suppliers for both – a set of population that is at the top of their game in supplying services, and a labour force that is conducive for creating a production base.
Shale gas and shale oil is a mystery that is unravelling in our lifetimes.
Since we would have the luxury of low energy prices it is likely that raw material prices for the tyre & rubber industry would also remain low.
Let us look at the relatively shorter term of the next 1 to 2 years -A question that needs to be answered is whether the prices of crude oil would remain at below USD 38 per barrel or would they move upwards to USD 60 per barrel or more.
There is a price war between the different players at present and the arsenal available with them is as below:
Approximate Cost of crude oil production
Saudi Arabia: USD 10 per barrel or less
Other Middle East & North African sources USD 20 per barrel
Russia: USD 25 per barrel
Rest of the world USD 30 to USD 40 per barrel
In comparison to crude the approximate cost per barrel for shale fuels is USD 60 TO USD 90 per barrel at present
For shale – It is expected that a level of USD 40 per barrel in the future may be achievable for very few locations over the lifetime of the extraction site.
For crude, yes, there is a price war going on .It is likely that the production would be curbed leading to increase in the prices of crude because:
a) The prices are dangerously close to the bottom of the curve for many nations
b) There would soon be no more place to store the product
With this scenario it seems to be highly likely that most crude oil producing nations would not go on with production at such low prices and the prices would increase anywhere up to USD 60 per barrel.
The reason that they may not cross USD60 per barrel is because anything above that, and shale gas becomes profitable and maybe the Middle Eastern countries don’t want that. Therefore if the price of crude oil rises please expect an increase in prices for rubber & tyre industry raw materials also – in the near future.
Hemant Lal

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