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The highly informative and thought-provoking 2014 annual International Association for Energy Economics (IAEE) International Conference came to a successful close last week in New York. The energy world, a world of disparate natural resources endowments that constantly wrangles with its steady companion ‘political risk’, is highly volatile and, therefore, always in flux. In this context, Jason Bordoff, Founding Director of the SIPA Center on Global Energy Policy at Columbia University (New York), issued the following sobering warning: “Rosy projections for the next decade are always a little harder to accomplish in reality.”

In light of the widely unexpected current developments in Iraq with crisis shockwaves quickly reverberating through the global oil market, the IAEE Conference could not have found a more fitting end than with Mr. Bordoff, until January 2013 a Special Assistant to the President and Senior Director for Energy and Climate Change on the Staff of the National Security Council, laying out changes in the global energy landscape in the context of energy security with a particular focus on the geostrategic impact of the US shale boom.

First, Mr. Bordoff set the stage with examples of the rapid transformation within the global energy landscape we are increasingly witnessing:

1. New production growth coming online from Non-OPEC countries

2. New demand growth coming from Non-OPEC countries

3. Climate Change becomes an integral part of energy policy

4. Energy trade flows are shifting from West to East

5. Rising cost challenges for the energy industry

Additionally, he pointed to the fact that supply outages were at elevated levels since 2011. That begs the general question about adequacy of oil supply if even more supply goes offline. “What if the US did not have this stunning oil production growth,” he asked. This brings us to Bordoff‘s neat laundry list as it pertains to the geostrategic impact of the US shale boom:

1. Reduced Russian leverage in Europe

2. Eased oil market impact of Iranian sanctions

3. Potential for more global gas trade and lower Pacific Rim prices

4. Global oil market stability enhanced by freed up oil supplies destined for the US in the past

5. Potential for shale boom to be replicated elsewhere

6. Continuous need for OPEC supply

7. Oil market still “global” and true “energy independence” is elusive or rather impossible

8. Increased US macroeconomic resilience to supply and demand shocks

Taking all the above into account Bordoff views energy security best enhanced by diversifying supply, open markets and liquidity. Perhaps, his most important point in light of the Iraq crisis and what it could mean for the global oil market is that OPEC supply is still and will be critical to meet future demand growth – with system risks lurking.

The following graphic illustrates the last point nicely.

World Oil Reserves

Source: RealClearEnergy

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