Businesses reaping the benefits of falling oil price
Although the drop in the price of oil to a five-year low has cheered local firms for the moment, there could be nasty surprises around the corner, writes Clare Weir
Oil prices reached a five-and-a-half year low this week, with Abdallah Salem el-Badri the head of Opec, the Organisation of the Petroleum Exporting Countries, signalling on Monday that there were no plans to reduce production.
Northern Ireland consumers have been delighted by price cuts at the petrol pumps and cheaper home heating bills - particularly in this period of 'fuel poverty' - and there has also been cheer for hauliers and manufacturers in Northern Ireland.
Last week supermarket Asda's new national fuel price cap saw prices drop to their lowest since October 2010.
Retail, leisure and other consumer spending sensitive sectors including bars and restaurants are also set to benefit, as with falling heating oil and motoring costs, more disposable income will be freed up for discretionary spending elsewhere.
Stephen Kelly, chief executive with Manufacturing NI, said that many firms, large and small, especially in locations not connected to gas, are pleased to see their bills going down.
"Fuel and heating are big costs for businesses as well as consumers," he said.
"Firms, especially those in mid-Ulster with no access to gas pipelines, are making big savings, as they have had to rely on an alternative mix of electricity and diesel.
"Some of our biggest employers and brands are using diesel generators so they will see big benefits.
"Haulage companies or anyone that uses them to transport goods will also be experiencing savings."
Seamus Leheny from the Freight Transport Association in Northern Ireland agreed and said that fuel represented about 40% of running costs for hauliers running commercial vehicles.
"It costs about a £1 a minute to operate a heavy goods vehicle so any reduction in fuel prices is welcome, particularly if these savings can be passed to the customer and indeed the end user," he said.
"Most haulage operators have a fuel calculator, so there is a flat charge for taking something from A to B and then a surcharge for fuel.
"The one concern would be that falling fuel prices could lead to a rise in fuel duty in future, against which the FTA has been campaigning."
Richard Williams, head of energy policy at the Consumer Council in Northern Ireland, said that a 900-litre fill of oil this time last year cost £520, down to £395 this year, a reduction of £125.
"In the last three months the price of home heating oil has dropped by 14% while the price of crude oil has dropped by 30%," he said.
"We recognise there are different factors which affect the price we pay for home heating oil such as currency, supply and seasonal demand.
"But it is essential suppliers pass on any reductions in the price they pay for oil to consumers as quickly as possible.
"We would urge all households to check if they need to top up their tanks as deliveries could be delayed due to demand or weather disruption.
"Emergency 20 litre oil drums should only be used as a stop-gap because they can be two-and-a-half times the price of buying in bulk. On Friday, the cheapest 500-litre fill was £215 and the highest £260.
"The price of home heating oil does vary greatly and there are savings to be had," he said.
But behind the short-term joy, analysts have warned that the oil glut may be a forewarning of more sinister long-term economic woes and a potential future economic slump.
Experts are asking that if major industrial economies like China need less oil than they used to, and with Russia, the world's third largest oil producer already hit hard by economic sanctions, what might be lurking around the corner?
Paul Reilly is from Clear Treasury, which has offices in London and Dublin and is soon to set up in Belfast.
The company was set up by three former Treasury bankers, two of whom worked for the now-defunct Anglo Irish Bank, and provides a number of services including currency brokering and commodities analysis.
He said that the impact of plunging oil prices is two-fold.
"Firstly its going to have an impact on inflation which is something all major central banks are currently worried about, in particular the European Central Bank and the major risk of a deflation spiral," he said.
"On the flip it could be viewed as a form of much needed stimulus."
Indeed US Treasury Secretary Jack Lew said last week that an oil price drop "is like a tax cut".
The American politician said that the plunge in energy and accompanying prices at the pump have helped boost the country's economy.
Mr Reilly added: "Another interesting development over the past few weeks as a result of the oil price drop is the devastating effects its had on the Russian economy and the Rouble currency, which has fallen 25% in three months.
"This will have a much larger impact than any sanctions the EU and US have implemented.
"As a result, inflation there is surging due to the weakening currency."
Richard Ramsey, chief economist with Ulster Bank in Northern Ireland, agreed that the big losers would be the main exporters of oil - and potentially renewable energy suppliers.
"At a global level the big losers are countries like Iran, Iraq, Libya and of course the USA, which is the biggest oil producer in the world.
"Russia could probably be guaranteed a recession next year, with the combination of sanctions and a lack of oil revenue.
"Big drilling companies like Shell and BP will also see their profits squeezed.
"At a more personal level, anyone who has shares in the big oil firms, any investor or pensioner, may be hit by the price slump."
Mr Ramsey said that at a basic level, a fall in oil prices represents a transfer of wealth from producers to consumers.
"Any country which imports a lot of oil will see huge benefits," he said.
"In Northern Ireland we see petrol prices falling and this will be great news for commuters.
"Transportation companies, delivery businesses, airlines and holiday firms should also be able to pass on savings to customers in due course.
"And as oil prices and agricultural prices tend to mirror one another, we should see the cost of fertilisers, feeds and other commodities reduce for farmers.
"However, public transport company Translink, which announced last week it is to raise fare prices next year, won't make a saving as they have fixed the price of buying oil for 18 months, so they will experience no cost savings over that time.
"Local councils will see smaller bills in terms of heating large facilities like swimming pools and leisure centres, which is an unexpected windfall."
However, Mr Ramsey sounded a cautious note about the long-term implications of the cheap oil bonanza.
"The falling oil prices could have an impact on the renewable energy sector here," he said.
"With a wind farm already being scuppered off the coast of Co Down, it remains to be seen how financially viable wind turbines will be, seeing as a lot of them sprang up in the age of high oil prices.
"The over-supply of oil is of course linked to slow-down in demand, which is a worrying aspect for some economies.
"The last big oil-price drop was in 2009, during a global recession, so that will be an issue to watch."
Indeed, at the weekend it was warned that the collapsing oil price could make renewable power sources "bad value".
Gas company firmus energy said that the wholesale cost of energy in Northern Ireland plunged 10% in November due to the fall in oil prices.
Despite the charge for a therm of natural gas rising by 7% last month, gas prices were the lowest for any November in the past four years.
John French, firmus energy's director of regulation and pricing, said that a period of cheaper oil cannot be anything but good for those countries which have to import it.
"Energy consultancy IHS suggests that gas will turn out to be the big winner, dethroning oil in transportation and dominating the power sector by 2040," he said.
"Somewhat surprisingly despite advances in technology, it predicts renewables will only supply 15% of global electricity needs.
"Coal, IHS says, will survive as a major fuel source despite growing acceptance of the devastation wrought by climate change."
Rocky patch for biggest producer
The USA is producing the most oil in over 30 years, according to statistics - but despite economic growth and crude prices plunging, the American love affair of petroleum is going through a rocky patch.
Oil production is up 65% in just five years and some are predicting that America will export more energy than it imports by 2025.
But latest figures show that oil consumption fell 0.3% in the third quarter of 2014, with analysts pointing to changing demographics, greater fuel efficiency and a move towards renewables.
Taking into account demographics, the population in "downtown" areas grew at more than double the overall rate of USA metropolitan areas from 2000 to 2010 - and with more people living in city centers, less people need cars.
There has also been a rise in the extraction and use of shale and the production of biofuels, with ethanol now accounting for about a 10th of American motor fuel sales.
Exploration project in Co Antrim
American investors are joining an oil and gas exploration project in Co Antrim.
InfraStrata was awarded a petroleum exploration licence for the Larne and Lough Neagh areas by the Department of Enterprise, Trade and Investment (DETI) in March 2011.
Larne Oil and Gas Limited, part of Larne Basin Exploration LLC has signed an option agreement with InfraStrata and their joint venture partners, Brigantes Energy Limited and Terrain Energy Limited, which will complete the funding for the well.
The company has said the planned activity will employ conventional methods and will not involve the practice of hydraulic fracturing, also known as fracking. A series of information evenings will take place in November.
InfraStrata's plans to drill the Woodburn exploration well in Spring 2015 are unchanged, the lower cost base associated with conventional onshore drilling means it is less affected by falling oil prices.