From the Oil Crisis to the Current Energy Outlook Martino Lo Cascio 14 th Fall Conference of the International Relations Program Geneva, 29 November 2013

THE INTERDEPENDENCE MODEL (I.M) (1979, pre-history) Algeria, Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, Syria and U.A.E., a section of OPEC located in Kuwait, South European Countries and ENI A common thinking, common database, common econometrical models and common scenarios for the oil market in the next decade cooperated to develop a tool to shape the amorphus INTERDEPENDENCE MODEL

I.M. STRUCTURE * * Numbers are not indicating a time sequence

I.M. MAIN FEATURES  Global approach  Modular structure allows for country- and/or sector- specific data to be used.  Great flexibility in the solution method and in the check on constraints, see as examples changes in structural parameters inflation and growth rates for OECD countries (Blocks 3 and 7), man power requirement and financial requirement for OAPEC countries (Blocks 5 and 6), trade and capital imbalances, demand-supply elasticity and energy prices (Block 1, 2 and 4).  Possibility to exclude some sub-models from the general solution when additional a priori hypotheses have to be included

I.M. BASIC RUNS  Neutral System’ Interaction (NSI) OAPEC (and OPEC) countries continue their oscillating oil price policy; The leading OECD countries react (or adapt) to this policy by reducing their production level.  Interacting Cooperative Strategies (ICS) Acceptance on behalf of industrialized countries of the terms of trade balance between the two areas accompanied by a small constant real price increase of oil overtime; Smoothing co-movements between oil price and activity levels and promoting technologies transfers.

ICS vs NSI  Economy ( ) Higher growth rate approximately 1% per annum for OECD and 2.4% for OAPEC; World trade growth more than 1.7%; -500 billion dollars to recycle.  Energy ( ) ^6 Barrels/day (b/d) for OAPEC countries; -1.4 % per annum real oil price.

ICS vs NSI  In the years following 1990, the greater depletion of OAPEC reserves resumes is offset by new explorations and increased exploitation of natural gas and oil, lessening: Induced obsolescence of non-renewable resources; Problems related to recycling financial imbalances coming from oil and gas net export of OAPEC.

I.M. FINDINGS AND RESULTS  Rapid increase in supply and consumption of coal and relative spill over into other energy sources (solid, liquid e gas form);  Rapid increase in supply and consumption of gas in light of contents and results of “Block 6” (I.M.);  Energy conservation through: i) technological innovations able to increase the energy efficiency in production ii) changing the mix in the consumption/production matrices by items and products for the OECD countries (Block 7);  Multimarket equilibrium in short/medium term and feedback from oil prices to economic growth rates both for producer and consumer countries.

History

Despite the fossil fuel proved reserve / production (R/P) ratio is not always providing for reliable for deep analyses it might be worth looking at the 10 R/P from 1980 to 2012.

I.M. HERITAGE (SEEDS)  Time-varying demand and supply elasticity in short term against consensus hypothesis on long term;  Inclusion in a traditional economic energy model of a “finance block” linked iterative with the real side of economy and energy stock flow system;  The role of technological improvement coupled with some risk of artificial obsolescence of non- renewable resources;  The utility and the pleasure to work in a heterogeneous team where model builders and decision making consultants are blended.