Royal Dutch Shell&rsquo;s latest results show there is a flip side to shale nirvana. The combination of vast new supplies and a continuing lack of export capacity have kept oil and gas prices down in North America. The cost advantage for the region&rsquo;s manufacturers might excite the Davos set, but the much-hyped shale revolution also creates relative losers.

Shell and shale

Business Standard

Qatar can&rsquo;t seem to get enough commodities exposure. The emirate&rsquo;s sovereign wealth fund holds three per cent of French oil major Total, has built up an eight per cent stake in UK miner Xstrata ahead of its planned merger with Glencore and has even dipped a toe into gold. Now it&rsquo;s adding Shell to the portfolio. Buying into the Anglo-Dutch oil major is a logical next step, given existing strategic ties. The move may even do more to diversify the gas-rich economy&rsquo;s resource exposure than appears at first blush.

Scooping up Shell

A sigh of relief is in order at BP. The embattled UK oil major settled US federal criminal charges and some civil ones for $4.5 billion - less than feared. But BP&rsquo;s legal troubles stemming from its 2010 Gulf of Mexico oil spill will continue. Its admission of criminal guilt could be used against it in a high-stakes civil trial. No wonder investors aren&rsquo;t yet cheering. Still, both sides can take some satisfaction in the deal, announced on Thursday.

Spillover risk

The International Energy Agency&rsquo;s latest global forecast suggests booming production from gas and oil-rich shales could make the United States self-sufficient by 2035. The geopolitical implications would be far-reaching. Yet, the buzz about US energy autonomy masks a broader challenge. Gas may present a cleaner, reassuring profile. But if the IEA&rsquo;s forecasts are right, the window for fighting destructive climate change is narrowing.

Energy leveller

BP&rsquo;s lucrative but loveless Russian marriage appears headed for divorce. But, there may still be time for Chief Executive Bob Dudley to salvage his Russia strategy. If state-owned Rosneft bought BP&rsquo;s 50 per cent stake in its troublesome TNK-BP joint venture, the oil major could end up with a desirable mix of cash and Arctic access. The trick is getting the prices &mdash; and the Kremlinology &mdash; right.

End of the affair

The North Sea is enjoying a moment in the sun. Trading in Brent crude futures hit a record in June. In the second quarter, average volumes of London-traded Brent contracts eclipsed those of New York-traded West Texas Intermediate futures for the first time, according to Energy Intelligence.

North by Northeast

Miners see a silver lining in the fading super-cycle: it lets them be pickier about working with grabby governments. Yet while that may be true when it comes to new investments, existing mines will remain vulnerable to profit-skimming, or worse. Populist pandering doesn&rsquo;t necessarily wax and wane in lock-step with commodity prices. And, if governments continue to pursue a bigger share of the resource pie, it will only aggravate downward pressure on miners&rsquo; returns.

Diggers can be choosers

Resource companies measure out their lives in decade time scales. On that basis, the world is Shell&rsquo;s oyster. Eight years after 2004&rsquo;s reserves accounting debacle, the Anglo-Dutch oil major is sitting pretty with one of the best long-term stories in the business. Its exploration and production assets and technical knowhow are world class. Its growth projects &mdash; in deep water oil, offshore liquid natural gas and other unconventional fields &mdash; are attractive. The snag is that Shell is struggling to meet short-term expectations.

Shucks

Brent&rsquo;s precipitous slide from $126 to $90 a barrel could prove to be a deceptive correction. Fear may be dominating for now, but if the worst can be averted in Europe, oil traders may find they&rsquo;ve been taking too dim a view of the global economy&rsquo;s prospects and too sanguine a view of oil supplies and geopolitics.

Greasy Swoon

Twelve nations belong to Opec but only Saudi Arabia has mattered of late. At the latest meeting in Vienna, the kingdom again batted away Venezuela, Iran and others who wanted to cut output. The deepening divide in the Organization of the Petroleum Exporting Countries could face a more serious test if prices keep sliding.

Fraction of the whole

The worsening crisis in the euro zone and a shaky looking global economy are good reasons to worry about oil demand. But what started as an orderly correction to the crude price in April took on panic-like character at the end of last month. With investors now at their most bearish on commodities since 2009, and Iran tensions still festering, contrarians must be tempted.

Crude contrarianism

The merger of Glencore and Xstrata combines a cheap commodity trader with a cheap miner. The board&rsquo;s challenge is to make the deal more than just one big cheap natural resources company.

Re-rating

Next year could see markets start to wake up to a proper carbon bubble: the inflated value of hydrocarbon-heavy corporates.

Fuel, fuel everywhere

Iffy Chinese demand makes it hard to gauge the outlook for bulk metals such as copper and iron ore. But grains look different. Global stocks of agricultural commodities are low and the drought that hit harvests in the fall of 2012 has continued, jeopardising the new wheat crop. With low rainfall also hitting river-borne US trade routes, grain prices may well stay elevated.

Grain elevators

Iron ore was a middleman&rsquo;s dream in 2012. The benchmark Chinese spot price of the main raw material of steel rose a modest five per cent during the year, but that was made up of a 37 per cent slump between January and September followed by a lurch two-thirds higher. That&rsquo;s a kind of efficiency; the market was responding to changes in supply and demand. But such volatility is a nightmare for the steelmakers which actually use the stuff.

Perverse efficiency

It was time for Tom Albanese to go. But the snap succession at Rio Tinto which dismissed its chief executive on January 17 as it took a $14-billion dollar writedown on the value of its coal and aluminium businesses, makes a bad situation look even worse. Although Albanese&rsquo;s successor, Rio iron ore boss Sam Walsh, is experienced and capable, the decision to install a new CEO immediately looks rushed.

Canned

Oil majors cannot do much to protect their workers. The bloody showdown between Algerian security forces and armed hostage-takers at the In Amenas gas field underscores the lesson. Executives would be happy to throw money at the problem but this kind of safety cannot be bought by corporate cash.

Hard lessons

Macondo is back. After March&rsquo;s $7.8 billion settlement with Gulf Coast fishermen and other private plaintiffs, a deal with the U.S. government over civil and potential criminal liability for the 2010 Gulf of Mexico disaster seemed to be in reach for BP. It probably still is - the two sides are still in talks ahead of a civil trial in January. But sharp rhetoric in new filings by U.S. government lawyers is a reminder that the UK oil major faces a tough path to securing a favourable outcome. The market&rsquo;s reaction - wiping $5 billion off BP&rsquo;s market value - looks appropriate.

Bargaining power

Xstrata should accept Glencore&rsquo;s revised $35.5 billion offer for the mining giant. What was originally billed as a merger of equals is now, for all practical purposes, a takeover at a modest premium. Changes to the proposed governance arrangements make the business combination look riskier than before. Glencore may have to pay up to convince Xstrata&rsquo;s top people to take orders from its boss, Ivan Glasenberg, after his Xstrata counterpart Mick Davis leaves.

Rearranged marriage

The United Nations has chosen the wrong time to try to tame America&rsquo;s corn monster. The global body wants Uncle Sam to prevent the nation&rsquo;s drought from turning into a food crisis by suspending remaining support for corn-based fuel. Letting ethanol fend for itself makes sense and would stop diverting crops from hungry mouths. But the UN plea comes too late to affect the current crisis.

Corn-ered

Shocking scenes of South African policemen gunning down a mob of striking miners will reverberate far beyond the country's shores. The sharp escalation of the union turf war at a Lonmin platinum mine is both a sovereign challenge and a global concern.

Kevin Allison