FundForum 2012 LIVE: Shale gas "global game-changer"
OPEC will be the “big winner” in the new global order as oil prices increase, even though the Middle East will remain unsettled and divisive, according to Marvin Zonis (pictured) of the University of Chicago Booth School of Business.
But Zonis, speaking on the global geopolitical outlook, warned: “Europe is in a state of paralysis and marching toward the cliff. Emerging markets face a huge test, and many of them will fail.”
Zonis believes the discovery of shale gas in the US is a game-changer for energy supply in the US and globally, eventually making the US a liquid natural gas exporter to the world. Already US oil imports have fallen to 45 per cent of consumption this year from 60 per cent in the recent past.
“Gas prices have plummeted thanks to the discovery of shale gas,” he said. “Plants are being converted to process LNG, which will lower the cost of electricity.” However, as oil reserves are gradually depleted, prices should rebound from this year’s fall 25 per cent fall.
Meanwhile, Russia and China face their own problems. Russians appear to be responding to political developments by voting with their money: capital flight was USD84bn in 2011 and USD42bn in the first four months of 2012. Asked Zonis: “If Russians aren’t investing in Russia, who will?”
With exports to the EU depressed and electricity production struggling to match demand, China’s next leaders face difficult times. An industry survey suggested that given the choice, 40 per cent of China’s most successful people would move to the US – “not ideal if they’re to develop their domestic economy.”
Zonis is generally bearish on emerging markets, noting that despite rampant growth in countries such as India and China, they score poorly on governance issues such as regulatory robustness and the rule of law.
“Can these countries build quality institutions to move them from a middle-income to a higher income bracket?” he asked. “Only 13 of 101 middle-income economies had graduated to high income ones by 2008, mostly oil producers. Emerging market countries are unlikely to escape middle-income status any time soon.”
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