(EnergyAsia, May 24 2011, Tuesday) — High oil prices brought on by a combination of political unrest in the Middle East and North Africa, and increased demand from post-March 11 quake Japan could threaten global economic growth, said Ernst & Young in a briefing last week.

Releasing its latest quarterly global oil and gas forecast, the consulting firm said that despite the fact that short-term oil and gas supply and demand remains relatively balanced, prices have gone up in anticipation of supply shocks.

As a result, Dale Nijoka, Ernst & Young’s global oil & gas leader, said the world’s economic growth projections are being reduced and are dropping to around 4% for 2011.

“We are dealing with a new kind of ‘oil shock’. Past oil shocks have been caused by embargoes, war or demand growth, this pricing shock is being driven by broader geopolitical factors across a larger geographic area. More simply put, markets are proactively reacting to a potential supply problem, not necessarily real-time fundamentals,” he said.

West Texas Intermediate (WTI) crude oil prices hovered in the US$70 to $80 per barrel range for most of last year, and began rising in the last quarter as the world economy grew, said Ernst & Young.

The WTI price broke through the US$100 barrel mark in early March 2011 as Libyan supplies were cut off. While a disconnect has emerged between WTI prices and the more globally-traded crude oils, continued political upheaval in the Middle East and Africa will prolong upward pressures on oil prices.

Mr Nijoka said a combination of factors has created a more positive outlook for natural gas.

The crisis at Japan’s Fukushima Daiichi nuclear power plant and the loss of Libyan gas supply have established a “floor” for natural gas prices.

He said that in the short-term, additional liquefied natural gas (LNG) will be needed to replace the damaged nuclear generation, but the nuclear power generation risks brought to light in Japan could also renew a push for greater long-term use of natural gas for electricity generation in the US and other countries.