ENERGY SECTOR FACES UNCERTAIN FUTURE

Plunging oil prices are bringing major players in the market to the brink of having to make significant decisions. Their conclusions are likely to ripple through the marketplace for the next several months.
Prices for gasoline might have reached high enough levels to have dampened demand for crude oil in 2006, perhaps as early as the middle of the year, setting up the potential for lower prices says the International Energy Agency.
If the IEA is correct, and conditions have not changed, then the current decline in crude oil might be the first leg in a protracted decline for the price of oil.
If the analysis is correct, then the world's financial system is about to face a significant redistribution of buying power, as money shifts back into the hands of oil consumers and away from producers, both OPEC and non-OPEC, setting the clock back to 1998.
The implications are huge, from the financial, environmental, and political viewpoints.
As the 2008 presidential election nears, the Democrats would love to have high oil prices as a lever against the Republicans, tying high oil prices to the war in Iraq, and offering allegations of ties in the White House to big oil. But if prices remain low, the opportunity is lost, and a new issue will have to be raised. More than likely this seems to be health care.
At least two areas of the U.S. have ridden the high price of oil to a new wave of prosperity, as the farm belt has increased corn production and has become the ethanol belt, building distilling plants and creating a new industry. At the same time, cities such as Houston and Forth Worth have enjoyed real estate booms based on high oil prices in the former, and the exploitation of the Barnett Shale, a huge natural gas deposit for the latter.
That means that real estate prices and general employment conditions in these oil boom areas could be affected in significant ways over the next few months.
In Canada, tar sands have led to huge growth in Alberta, at the cost of what some are describing as significant environmental damage, and rising emissions of greenhouse gases.
And in parts of Indonesia and Asia, deforestation and illegal logging have risen dramatically as developers increase farm land to produce feedstock for biofuels.
If the biofuel and tar sand boom ends or is significantly reduced, long term environmental damage will eventually have its consequences.
Politically, three countries have ridden the price of oil to new prominence in the world: Russia, Venezuela, and Iran.
Russia has used its vast natural gas and oil resources to remove foreign energy companies as major players in its energy industry, as well as having flexed its muscles against Europe and its former republics by shutting down natural gas flow to various customers over the last 14 months.
Venezuela has turned high oil prices into a platform for socialism and wealth redistribution. And Iran has used the opportunity to position itself as a resurgent regional player in Middle East politics.
Yet, much of the success enjoyed by cities such as Houston, regions such as the farm belt, and countries such as Iran, have been built on the assumption that oil prices would remain at historically high prices, a notion fueled by the Peak Oil theory, and a consensus among analysts that due to production bottlenecks, the situation would not change for the foreseeable future.