Crude oil prices are below $50 a barrel at the time of writing. The decline in energy prices is a relatively new phenomenon for those of us forecasting IT and Communications markets and it’s very important to think about the consequences.

Our Figure (below) shows the percentage each major country represents of world energy production and ITC spending respectively.

Datacenters need energy
The emergence of datacenters as a major part of the IT industry brings some likely conclusions. Data centers are highly dependent on energy, and in many cases this is the major cost of their operation. One possible outcome of the dramatic shift in energy prices could be a migration of data centers to places where the energy is cheap.

As the graph shows, there are major potential drivers to this sort of change.

High oil and gas prices had been a great leveller of world economies in recent years, with the US, EU and Japan dependent on imports from producers such as China, Russia and the Middle East: a dependency exacerbated when the lack lustre attempts of Western countries to adopt Green and alternative energy policies were virtually wiped out by the Credit Crunch in 2008.

However fracking has changed things significantly – its use has made the US virtually self-sufficient for the first time in decades, while alternative energy is adding significantly to the balance of energy used in many European countries. This changing balance of power was underlined by OPEC’s decision not to restrict oil production in 2014.

It’s even difficult to guess whose foot is in which boot as the EU loads its sanctions on Russia for its involvement in the conflict in the Ukraine and Crimea, since – while Germany and France are very dependent on Russian gas – lower export revenues have been driving the value of the Rouble down and inflation up.

Energy producing countries tended to have the strongest growth in ITC spending in recent years – look at HP’s involvement in Kazakhstan for instance; but this is certainly going to change in 2015. In the Figure we’ve put a star against those countries we believe will be most negatively affected by the fall in oil prices – China, Russia, Canada, India, Iran, Norway, UAE, Nigeria, South Africa and Egypt. As these countries spend less, so the emphasis of market growth will be shift back to the most mature ITC spending countries. We all need to rethink our forecast assumptions….