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Editorial comment

The collapse of Lehman Brothers a year ago triggered the worst global recession since the Second World War. This one event, and the panic that ensued, turned a global downturn into an economic calamity. Certainly a US$ 147/bbl oil price in July 2008, along with record spikes in other major commodity prices, was causing a sharp tail-off in demand and rising inflation in many western economies. However, few would have foreseen the subsequent implosion of a series of respected banking institutions and a total loss of confidence in the global financial system as a whole. With business activity grinding to a near halt and credit virtually impossible to obtain, the vast majority of companies put investment decisions on hold and postponed planned expansion projects indefinitely.

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Governments have reacted to this severe recession through a number of extraordinary economic measures including cutting interest rates, privatising financial institutions and injecting capital into the system in order to keep the world’s economic cogs turning. Today, there is much talk of the ‘green shoots of recovery’, yet little hard evidence in western markets where caution still dominates. Ben Bernanke, US Federal Reserve Chairman, recently declared that the US recession ‘is likely over’. Clearly, Mr. Bernanke’s choice of words reflects the widely held belief that whilst progress has been made since the dark days of September 2008, there is still some way to go before we can be absolutely confident that the way is clear for a true and longlasting recovery to take hold.The Asian market, on the other hand, is already experiencing an apparently strong recovery. Crippled in late 2008 by its export dependent economies, the region was showing signs of growth returning from as early as February 2009. Helped by strong government finances, low private-sector debt and well timed fiscal stimulus programmes across the region, current estimates foresee China’s economy expanding by 7.2% this year, India’s by 6% and even Japan’s by 3.7%. As a whole, Asia should grow by a total of 5% in 2009 in marked contrast to the overall contraction anticipated in western economies.

With surging demand for hydrocarbon derived products in China, India and the other emerging Asian economies, largely blamed for the rapid increase in crude prices in 2008, will the oil and gas sector be any better placed to meet the heightened demand that will surely come from a rebounding Asian economy? A string of recent discoveries including Anadarko’s new 1100 km offshore oil basin stretching from Ghana to Sierra Leone, the giant Petrobras and BG discovery offshore Brazil and BP’s equally impressive discovery in the Gulf of Mexico, have doubtless buoyed a subdued oil and gas industry. However, these reserves will take a long time to develop and it is the relative short term where the greatest supply problems lurk due to a lack of investment in previous downturns. Much depends on the strength of the recovery but if demand returns too soon a serious crunch is unavoidable. Some forecasters predict 2014 as being the pivotal year. If this is the case, then perhaps the events of September 2008 and subsequent economic lull will prove to have been merely a brief ‘time-out’.

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