Salient to Investors:

Meghan O’Sullivan at Harvard writes:

Many analysts anticipate North American energy independence by 2020, while our rising energy fortunes strongly counter the now-common global narrative that the US is in decline. Europe, China, Japan and other large economies face futures of ever-growing dependence on imported energy.

The US is highly unlikely to become completely self-sufficient. Importing energy will become a greater obsession for China.

It is unlikely that the hydraulic-fracturing phenomenon remains limited to North America, but it creates more breathing space for our European partners as diverted cheaper gas gives Europe the leverage to challenge its long-term, high-priced gas contracts. If the US begins to export natural gas in meaningful quantities and European nations invest in more LNG terminals, their vulnerability to Russian political pressure could ease.

Japan has also made its desire to import American gas very clear, curbing its reliance on nuclear energy and gas imports from volatile markets.

The US oil and gas bonanza creates difficulties for our adversaries and more prickly partners. Several developments in the global gas markets have fundamentally challenged OAO Gazprom’s longstanding business model, and it could lose its monopoly on Russia’s gas exports.

Increased American production, continued weakness in the global economy,  and increased conservation in the developed world could cause the price of oil to fall considerably. Ed Morse at Citigroup sees $50 a barrel, but this is unlikely over a long period, given the high break even prices of unconventional sources such as oil sands.

The Russian School of Economics says Russia’s Oil Wealth Fund would be fully depleted if the price of oil fell to $60 a barrel for one year. Russia and most OPEC members need prices to stay above $85 a barrel to meet their budgets. For Iran and Venezuela, the per-barrel number is $129 and $124 respectively.

Daniel Yergin says increases in American oil production have almost offset the declines in Iranian exports, allowing the US to proceed with a sanctions-led approach toward Iran’s nuclear program.

The US will remain invested in stability in the Middle east even if it does not consume a single drop of Middle Eastern oil – for terrorism, nuclear proliferation, the security of Israel, and the well-being of more 300 million Arabs reasons. US allies and China will become increasingly dependent on the Middle East in the years ahead, and  a major increase in global prices caused by instability in the Middle East would be destabilizing to the US.

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