CERAWeek 2014 - Energy Security: Redefining the Boundaries

Energy security is an evolving and dynamic global issue. For the United States, the revival of oil and gas production is leading many to rethink long-held assumptions. In contrast, the prospect of ever-rising oil imports is an important focus in China. In Europe-and elsewhere-the role of renewables in energy security is a key variable. Energy security has multiple dimensions. Some of the issues this session will address are:

1)How does growth in North American oil and gas production-and particularly in the US-change thinking about energy security? 2)How do perceptions of US as energy "independent" square with the reality of an interdependent global system? 3)Will climate change concern become intertwined with energy security? Jim Burkhard, Vice President, Head of Global Oil Market Research and Energy Scenarios, IHS, chaired the Wednesday morning Strategic Dialogue on "Energy Security: Redefining the Boundaries." In the United States, energy security questions typically focus on crude oil availability, while oil-exporting countries may see energy security in terms of demand guarantees, and others may connect energy security and climate change concerns, he said. The revival of US oil and gas production, which the panel agreed was a game changer, has prompted a widening debate about energy security and policy. There was a consensus that government regulation has an important role to play; but ultimately the market best benefits the consumer. The panel agreed that policymakers must tackle the contradiction between trade restrictions on liquefied natural gas (LNG) and US support of free trade.

Jack Gerard, President and CEO, American Petroleum Institute, said that the dramatic increase in US oil and gas production over the past five years was a "unique American moment" that has implications for energy security and geopolitics. He said that the United States can become a global energy superpower. This could not have been predicted just five years ago, and US politicians are only now catching up to the profound changes in the industry. The beauty of the shale and tight oil revolution is that it has spread across the whole country, not just in selected states. We could not have imagined debating crude oil and LNG exports just a few years ago, he said. David Goldwyn, President, Goldwyn Global Strategies, LLC, agreed that neither the public nor politicians have caught up to the changed US energy landscape. He shared the findings of his new book, Energy and Security: Strategies for a World in Transition, and pointed out that if the United States embraces this energy abundance opportunity, it can achieve several goals: democratize access to oil and gas globally, foster more competitive oil and gas markets worldwide, reduce greenhouse gas emissions by substituting natural gas for coal, and use energy as a foreign policy tool by helping other countries gain access to base-load energy. These are tremendous opportunities that require substantial political will of the kind not seen in the past, he said. Previously oil dependency shaped US relations with supplier countries, but achieving self-sufficiency in crude oil supplies now gives the United States more freedom of action in the foreign arena. The United States can engage the world without accusations of coveting other countries' crude oil.

Robbie Diamond, President and CEO, Securing America's Future Energy, told the audience about an oil security index his organization developed that measures and compares the vulnerability of 13 countries to changes in the global oil market. Mr. Diamond said that based on this index, at the moment Japan is the most secure country because of its more diversified and efficient economy, while the United States ranks fifth. Although Japan has essentially no supply security, the economic impact of rising oil prices is not as large for Japan as for other countries. In the United States, the major vulnerability is high per capita fuel consumption. To increase US energy security, Mr. Diamond called for a national goal of oil displacement, particularly in transportation, which is 93% dependent on refined products. He set a target to reduce this share to 50% by 2040 by using more natural gas and electric power in transportation. Mr. Diamond stressed the need for a degree of energy security and structural independence, not necessarily independence from foreign oil per se. Frank Verrastro, Senior Vice President and James R. Schlesinger Chair for Energy & Geopolitics, Center for Strategic and International Studies, listed three benefits from increased US gas production. It has created jobs, brought investments back to the United States, and will help the environment (with natural gas replacing coal). Tight oil developments are even more recent, less than five years old, and how this additional oil production will play out remains to be seen. He said he did not think that using energy as a foreign policy tool was a great idea, citing technology, investment, and trade as more effective tools. He stressed that every fuel type has problems, and energy policymakers must balance the risks. Hence the energy policy debate is a complex but extremely important process.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.