The main drama on the world energy scene has been the collapse in oil demand since September 11. This has caused a slide in oil prices, with a knock-on effect on gas prices which are generally indexed to oil. If sustained, the drop in oil prices could also, though in a far less direct way, damage prospects for nuclear power and renewable sources of energy.

Lower oil prices should benefit the world economy and help rekindle demand. Just as the recessions of 1974-75, 1980-82 and 1990-91 were preceded by oil price spikes, it can be argued that, even before September 11, the world economy was already headed for a downturn after oil prices tripled in 1999-2000.

But September 11 provided a unique shock to oil demand. According to the International Energy Agency (IEA), the world may be witnessing the sharpest contraction in demand for the fuel since the mid-1980s. Global demand for oil fell by an average 750,000 barrels a day in the third quarter, because of the 2.5 per cent plunge in demand in September.

This quarterly drop of 1 per cent in world demand is the biggest drop since the 3 per cent fall in the fourth quarter of 1990, after Iraq invaded Kuwait. But while oil consumption recovered fairly rapidly in 1991, the IEA is forecasting that oil demand will continue to decline year-on-year until mid-2002. Not only has demand for jet fuel obviously declined with passenger aversion to flying, but consumer demand, especially in the US, remains spooked by the possibility of terrorist retaliation for the campaign against Afghanistan.

The fall-off in oil demand has also led Opec effectively to abdicate its self-appointed role as guardian of the oil price, until such time as it can secure cooperation from producers outside the cartel. Earlier this month it said it believed the world oil market was over-supplied to the tune of 2m b/d, and that it was ready on January 1 to take take 1.5m b/d of its own oil off the market - but only if non-Opec producers would reduce output by the remaining 500,000 b/d.

"During most of this year, demand growth was normal and Opec did not bother non-Opec producers," said Al Naimi, Saudi Arabia's oil minister, explaining why Opec members had been willing to go ahead on their own and cut their production quotas by 3.5m b/d. But, after September 11, Opec has refused to go it alone, arguing that it was intolerable for its members to continue cutting production, while those outside the cartel were steadily increasing output. It has particularly taken against Russia, which has the fastest-rising output and exports of any non-Opec country, but has only offered a token reduction in its 7m b/d production.

In contrast, the gas market has had no cartel to support it - or at least not so far. In May this year, the Gas Exporting Countries Forum (GECF) held its first meeting in Tehran. It has five Opec members - Algeria, Indonesia, Iran, Nigeria, Qatar - and six others - Brunei, Malaysia, Norway, Oman, Russia and Turkmenistan. With two-thirds of world gas reserves, it might have the potential to ape Opec, but there are several fundamental differences.

One is that there is no world gas price or market to try to rig. Largely because of inherent transport difficulties, gas markets remain regional, although recent very high prices in the US did create something like a spot market in attracting liquefied natural gas (LNG) cargoes to the US from as far afield as Algeria, Australia, Nigeria, Oman and Qatar.

The second difference is that gas producers need far longer-term relationships with their customers than oil suppliers do, and would prefer not to damage these relationships by setting up a confrontational cartel. The third and fundamental reason is that gas has needed little artificial help. Demand for relatively clean gas is rising faster (4.8 per cent in 2000) than for oil, and international trade is increasing twice as fast as that (9 per cent in 2000). Ultimately, the role of GECF may be regional, providing, for instance, a forum for Algeria, Norway and Russia to discuss gas liberalisation in the European Union, a market they all supply.

Nuclear power, on the other hand, needs support if it is not to decline relatively and absolutely, but cannot seem to get it outside of France, Japan and a few other Asian countries. On present trends, its share in the total primary energy mix is set to fall from 7 per cent (generating 17 per cent of the world's electricity) in 1997 to 5 per cent by 2020. Climate change concerns have strengthened the case for nuclear power because, for all the hazards of its radioactive waste, it emits barely any carbon or other greenhouse gases. However, the arrival of liberalised energy markets, and the commercial turbulence and uncertainty they have brought, makes long and expensive investments like atomic generators hard to carry out.

The case for other alternatives to fossil fuels such as biomass, wind and solar power was made in a special report by a task force on renewable energy to the Group of Eight summit in July. This argued that over the next decade up to 1bn people (800m of them in developing countries) could be served by renewable energy, if governments of richer countries took action - among other things - to reduce renewable energy technology costs by kick-starting the market through imposing quotas or offering tax incentives; to make renewable energy a priority in their aid programmes; and to remove incentives for environmentally-harmful energy technologies. But the Bush administration took the latter recommendation as criticism of its "clean coal" programmes, and the report appeared to make little impact on G8 leaders.

In any case, the slump in oil demand and prices provides, at least for a while, an unpromising context for fast development of renewable energy sources.