The Full Transcript
Elizabeth Wason: Welcome to the Policy Leadership Series Podcast, new from Resources for the Future, in which leading global decisionmakers speak to RFF President and CEO Richard Newell about big environmental and energy policy issues. In this episode, Richard speaks to international energy expert and Pulitzer Prize–winning author Daniel Yergin. The conversation took place on October 2.
Richard G. Newell: I'm really delighted today to be joined by Dr. Daniel Yergin. Dr. Yergin is one of the foremost thinkers in the world on energy. He's the vice chair of IHS Markit, where he cofounded Cambridge Energy Research Associates. He also chairs the global CERAWeek Energy Conference, which many of us have attended. Dr. Yergin is also the author of several renowned books examining the complex relationship between global energy and politics, including The Prize, The Epic Quest for Oil, Money, and Power. The Prize won Dan the Pulitzer Prize in 1992. It also became a documentary series watched by millions of people on PBS.
His most recent book is called The New Map: Energy, Climate, and the Clash of Nations. Thanks again for joining us, Dan.
Daniel Yergin: Thank you, Richard. It's great to be here. I know that Resources for the Future goes back to really President Truman and President Eisenhower, and ever since, it's made a huge contribution to understanding, as you've said, resources, energy, all these things put together, and certainly all of us who are in the field look toward Resources for the Future today for its insights and its analysis.
Richard G. Newell: Thanks so much, Dan. You're known around the world as one of the foremost global thinkers on energy, but your background is actually in English and international history. You have a BA from Yale and a PhD in international relations from Cambridge University, where you were a Marshall Scholar. I'd be interested to hear about how you first became interested in energy and how this disciplinary background—how has this influenced your global energy work over the decades?
Daniel Yergin: Thank you. As one looks back over one's career, you think there's a logic to it, but you realize one thing leads to another. As an undergraduate, I did history, economics, but I also did English literature, in particular, the nineteenth-century novel. I think it's always given me an ongoing interest in storytelling as a way to communicate things and engage people.
Then I did a PhD in international history and international relations at Cambridge, but at that point, I also did work on economic history. I think, in a way, I see myself as an economic historian. If I look at the work I've done, it's really a blend of those different things.
As for energy, in one of these accidents, I had a two-year postdoc at Harvard after my PhD, and no one was supervising me, so I could kind of do what I wanted. I just became obsessed with energy and then became involved with the International Energy Seminar at Harvard. Out of the blue, I had a job at the Harvard Business School where we became part of an energy project, and that was the course that launched me to where I am today. It set up our original company the same year I started writing The Prize, which I look back on as also thought was a little insane, but I guess I could say it all worked out.
Richard G. Newell: Yeah. I think it did. That's really interesting. I actually didn't know that history, some of those parts. Earlier I mentioned The Prize, which was your celebrated account of the history of the global oil industry, which if you can believe, it was published in the early 1990s. I'm wondering as you look back on the last 30 years of energy, what surprised you the most?
Daniel Yergin: The other day I actually came across the phrase—actually my wife told me—she works on Russia, that Vladimir Putin has the phrase, “The dog barked and the caravan moved on.” In a sense, the caravan has really moved on in terms of energy. As I look back at The Prize, China's hardly in it, climate is not an issue. In fact—I was thinking the first time Joe Biden ran for the presidency—climate was not an issue.
The sense was that the United States was going to be an importer of ever more oil and whatever happened in the Middle East was going to determine the fate of the world. I think that was the sense, because the book came out, then came the Gulf War where who would control the oil in the Gulf was really central. Those were some of the things that have changed since The Prize.
Richard G. Newell: The energy system moves slow on the one hand, but then as you look back things do change. In some cases, significantly. In 2012, another one of your great books, The Quest, was published. That's only eight years ago.
Daniel Yergin: Yeah.
Richard G. Newell: What's changed since then?
Daniel Yergin: I think at that point I understood just the beginning of the impact of the Shale Revolution. So certainly, the Shale Revolution, which has been so disruptive, has been a big change. The other thing that changed is I got really interested in where the modern solar industry came from, and where did the modern wind industry come from? They went back to the 1970s, and one of the two places for the first solar companies was actually Exxon and another was two scientists who both immigrated to the United States.
The time the Quest came out we were just about to see those two industries mature, I think about the age of 40. They finally reached, let's put it, adulthood, but what's happened since then is the cost of those two, particularly solar, has come down so dramatically. Of course, the growth of renewables is still small in the overall energy mix. I see that as a big change.
The third thing, I go back to China again because in that book, at that time, people still thought there was going to be a zero sum game, a struggle between China and the United States for who was going to have access to world oil. I said there's a lot of interdependence here, and there's still a lot of interdependence. There's no longer that sense it's a zero sum game because of what's happened with shale. The other side of it is that the kind of interdependence is now being offset by the growing tension in the relationship between the United States and with China. I think that's another big change.
Richard G. Newell: All those are really important issues. As I think back to the Department of Energy and around 2008 to 2010, people were starting to understand the shale gas boom, and at that point, on shale oil, people were starting to have a sense maybe there's an application. There was the dollar a watt solar, and it's amazing how after really that period of the last decade those two things in particular have—
Daniel Yergin: Yeah. I think we have a Shale Revolution and a solar revolution. Richard, which were the years where you ran the Energy Information Administration?
Richard G. Newell: It was 2009 to 11. I remember that time really well. I actually remember talking to somebody at a CERAWeek conference about the application of shale gas to shale oil. This is probably around 2010. Numbers started coming out about how maybe it'd add a few million barrels per day. The US at that point was I think at maybe five, six million barrels a day.
Daniel Yergin: Yeah. Five million. That's right.
Richard G. Newell: Yeah. Nobody—well I can't say nobody expected. There were some very prescient people who saw it coming.
Daniel Yergin: I think even then, when it occurred, I think people didn't see the full scale. Even the people who saw it didn't realize it. You're right. First it was gas, and 2008 was the first time that gas output went up, and that was a signal. Oil was later. In both cases, the role of individuals really jumped out here, people who were just determined, obsessive, and stubborn, and are very important in terms of creating it.
The general thing was first that shale gas couldn't work because you couldn't get stuff out of shale. It took about 18 years to demonstrate you could do that and one obsessive person, George Mitchell, down in Texas, because he had a gas contract for Chicago. He had to fulfill it. He needed gas. There had to be a way to do this.
People then said, “Okay, it works for gas. Gas can flow through the fractures, but not oil.” There was a guy named Mark Cafu who wrote about it who said, “We're going to have a gas flood. We'd better get out of gas and get into oil,” and people said, “Oil molecules are too big.” I love the way he tells the story. He said, “Well, let's go look it up.” They looked it up and they couldn't find anywhere what's the size of an oil molecule.
Eventually they found out how much bigger it was than the gas molecule and it turned out that that worked. It was only in 2008, 2009 that the first sense of it, just as the time you said that there's a sense well maybe this is going to affect oil, too, but I don't think anyone imagined that the US, by February of 2020, would be not only the largest oil producer in the world, we'd be producing 13 million barrels a day as opposed to that five million that you had talked about.
Richard G. Newell: I want to come back in a minute and pursue that further. I want to jump to one aside for just a second, which is to bring us right to the present day. We're in an extraordinary time in our history. It's a potential inflection point for huge industries and sectors of the economy. Some of that hopefully is passing. If we just look at the upcoming presidential election, one question is how consequential do you think November's election will be for the future of US energy policy and particularly the oil and gas industry?
Daniel Yergin: I think this will be very consequential depending on the outcome. Obviously Joe Biden has a $2 trillion climate plan. Climate will be a major theme, not just running through all departments, and there will be a question of what happens to this position that the United States is in in terms of oil and gas; We will essentially go down two avenues or one avenue.
I think that you do look at 12.3 million jobs before COVID, the impact it's had on the balance of payments. You look at a state like New Mexico, 40 percent of its budget comes from leasing from oil and gas leases. In terms of what it means for manufacturing, over $200 billion of investment in factories in the United States. What it's done for our foreign policy. Two thoughts. Joe Biden was chairman of the Senate Foreign Relations Committee and recognizes that in a way that many Americans don't, that this has had a big foreign policy impact, too.
I think that if you have severe restrictions on the industry, then it really becomes an ‘import more’ policy, and you wouldn't want to be president and preside over the most rapid increase in oil imports. I think there'll be a huge focus on climate. I think that there'll be more regulation on oil and gas, and what I think is really bipartisan is continuing the research in basic science, the $6.5 billion that the DOE now spends, which is to give us the technologies we need for the future. I guess I would say obviously Donald Trump doesn't have a $2 trillion climate plan.
Richard G. Newell: Agreed. Pretty big contrast on the energy and environmental front in the upcoming election. I want to turn now to your most recent book. It's called The New Map: Energy, Climate, and the Clash of Nations. In that book, you explore what you call the new map in global energy and in geopolitics. I'm wondering how did you arrive at that framing? Why a new map?
Daniel Yergin: It started off looking at the flows of energy that were going on because of shale, how the map of US energy was changing the direction oil and gas were flowing, looking at the global LNG market, looking at the new map of renewables. All of those things were there in a kind of literal way. Then it really became a metaphor for describing this new world of the interaction of energy and geopolitics and the sense that the book provides a framework, a guide for how to think about how this world is changing and where it's going and how all these things are interacting. That's how I came up with the idea of calling it The New Map.
Richard G. Newell: Reading the book, as you get into it, it provides a really interesting and provocative framing for the overall discussion. Early in The New Map, you go back to the late 1990s and you alluded to this a bit earlier, Dan. You tell the story of S.H. Griffin number four, which was a natural gas well drilled by Mitchell Energy in a small town in Texas. You write about how in that drilling they're doing something, and I'm going to quote you here, “Something that petroleum engineering textbooks said was impossible, which is namely cracking the code for extracting natural gas from dense shale rock in a way that was not only technically but also commercially viable.” Tell us a bit about the trajectory that that well created, and why it is so central to the new global energy map.
Daniel Yergin: You go out and look at it today, it's just a little wire fenced-in closed thing. There's some houses nearby and so forth in a town called Dish, Texas, near another town called Ponder, Texas. It was the last throw of the dice. They'd been working for 17 or 18 years to try and figure out how to do this. This is the kind of accidents of history that a project manager happened to go to a baseball game in Dallas and happened to meet some guys who were using a different technique of fracking in another part of Texas, not in shale, and let's try it here. Lo and behold, wow, it works. That was the beginning.
It still took another five years to yoke that technology to horizontal drilling, which is really the way to penetrate two miles underground in a horizontal fashion. That came together in the summer of 2003, and I remember a big study that was being finalized at that time about how the United States would become the largest importer of liquified natural gas. That was happening at the same time these guys, in 100 degree weather were drilling these wells and finally it worked, it clicked.
It was still slow. This is just things that independents do that are not serious. Then suddenly you started seeing the volumes going up. Then of course on oil it went up. Suddenly the US had become number one gas producer in the world overtaking Russia and also the world's largest producer of oil. I have a chapter in the book called The Plague. By the way, I only finished this book in July. I didn't really finish it. They took it away from me. I have to explain that that's what actually happened. About in April when oil prices went negative as a result of what I call in the book, “the economic dark age,” that descended as a result of COVID, it was really the United States that brought Saudi Arabia and Russia who were fighting with each other in the oil market together. It demonstrated that these were the big three oil-producing nations, and it demonstrated the influence and impact of the United States.
Richard G. Newell: You mentioned Russia. Maybe say a little bit about China and Russia and how have their energy maps changed?
Daniel Yergin: This is really interesting. There are a lot of forces at work. There's a wonderful picture in the book of Putin and Xi Jinping wearing aprons together making pancakes, and Putin is showing Xi Jinping how to make these Russian pancakes that are called blini. The caption is pancake diplomacy. At the same time, Chinese troops were for the first time participating in this huge Russian military exercise. The master chef Vladimir Putin showing Xi Jinping how to make it, but at the same time, the troops.
They have come much closer together for many reasons. They both believe in absolute sovereignty. I was at one conference last year where Putin said to Xi Jinping, “I apologize I kept you up until 4:00 AM talking,” and Xi Jinping says “It's okay, we never have enough time to talk.” We know one thing they talk about is their antipathy to an international system led by the United States. We also know that they talk about energy. That is a very important part of their relationship.
Not completely, but I do say that a relationship that was based upon Marx and Lenin is now based upon oil and gas because Russia's become a big supplier to China of energy and energy is very important to China, which is now sort of in a position the United States was 10 or 12 years ago to import 75 percent of its oil and China regards that as a big strategic problem. That relationship, Russia selling weapons to China, they've gotten closer and closer. That's one of the big geopolitical changes, and you can also trace it out on the map in terms of the flow of energy supplies.
Richard G. Newell: Yeah. If you look at China's import of almost all forms of certainly traditional energy, but in particular oil, their import dependence is well beyond what we ever had in the United States. You can understand how that influences their thinking. To focus a little bit on China and China and the US, are we headed into a cold war with China?
Daniel Yergin: I worry about that, Richard, as you mentioned previous books. One book builds upon the other. My first book was on the origins of the Soviet-American Cold War. That was a cold war that was based on ideology and nuclear weapons. I could say I never expected to be writing another book about the origins of a cold war, but you certainly see us moving in that direction.
Here in Washington, there are very few things that Republicans and Democrats agree on. One thing that really is quite striking, and this really precedes President Trump, is this sense that China is no longer our partner. Previous presidents talked about a constructive relationship with a changing China or positive engagement. Now the term you hear is strategic rival, great power competition.
Now if I quote some of the Chinese military documents and they say the same thing. That's a big change for two countries that happen to be the two biggest economies in the world, that happen to be very interconnected and both of them deeply embedded in the world economies. Henry Kissinger talked about being in the foothills of the ‘new cold war.’ I think it's something of concern. and I think it's going to be the big geopolitical question to deal with, and it has big economic implications because the United States and China are much more integrated than people know.
I think General Motors sells more cars in China than it does in the United States. I think if people look in their 401K plans they'll see that they own Chinese equities as part of assuring their retirements. This is a very different kind of competition because Soviet Union was hardly a factor in the world economy. That's a very different thing.
Richard, if I can add one other thing that really strikes me, is I hear from other countries when I was traveling, and just in conversations with them, whether in Asia, whether in the Middle East, whether in Latin America, is that we don't want to have to choose. Don't put us in a position to have to choose. We've seen that with issues over technology like Huawei. This is one place where we really need a new map because this is risky terrain to be in. There's some destinations we don't want to end up in.
Richard G. Newell: Yeah. That framing of not making us choose is very compelling. Just shows you the benefits of cooperation and collaboration wherever that's possible. I want to turn again to the issue not transition so much in geopolitical relationships but in energy and energy technologies.
If you look back on the past century, there's been maybe some types of transitions, but if you look at an aggregate level and the world as a whole, what we've really seen is a lot of energy addition. We've seen, while shares of energy change, we use more biomass, we use more coal, we use more oil, we use more natural gas, nuclear, and now renewables. Huge growth in renewables.
What we've tended to see, so far at least, at a global level is energy addition, one kind of stacking on top of the other. Particularly from a climate point of view—because people are interested in an energy transition that isn't just adding on top—what the environment cares for and also what most companies care for is the absolute amount of energy. You write about this in your book about energy transitions. Are we at the frontier of a possible major energy transition and your thoughts about where we are in that? What does that depend upon? How does that influence the energy industry and also potentially geopolitics?
Daniel Yergin: I tried to, in The New Map, look at a framework for thinking about energy transition, because the phrase is thrown around a lot, but you say if we look at the numbers its energy addition so far. The second thing is if you look at the numbers, the US CO2 emissions are down to the levels, I think it's now, the early 1990s. Our economy's doubled and that's largely because one energy source, gas as coal and generation. It's a more complicated thing.
Sometimes I want to make this book a very lively book, a narrative book, but sometimes I go down rabbit holes too. I wanted to go back and say when did the energy transition really begin? You can say well, they were burning wood in London in the 13th and 14th century, but I think I pick out a date of January 1709 when a metal worker in a village in Shropshire in England figured out that you could make better iron using coal rather than wood.
Then it took two centuries until coal became half of the world's energy supply. You see this over a long time, oil discovered in 1859, doesn't become predominant until the 1960s. We live in a different era. We have technology, we have money, we have know-how. Wind and solar are not 10 years old. They're 50 years old. The question is the speed.
The view that I take in the book—and this is really an engagement in an ongoing dialogue and a discussion—but it seems that it's still based on everything. In particular, I mean that I am not just generalizing from the US, north Canada and Europe, but from the world, the world oil demand actually continues to grow until the 2030s or so and then begins to decline just by looking at the numbers.
There are 280 million cars in the United States. We're going to see more electric cars, electric utilities in the United States, most of them are very committed to moving towards wind and solar. We see that shift in investment going on. I think it takes time to happen. I think we also need technologies. One of the other people you had in this series was Ernie Moniz, the former energy secretary.
We did this study for the Bill Gates Foundation and the Breakthrough Energy Coalition, about the technologies we don't have. Obviously one of them is batteries of a different nature, potentially hydrogen, but another one is carbon capture. You go to India and they talk about indoor air pollution because people are burning wood and animal waste and crop residues. They have a $60 billion project to introduce more natural gas into their economy to have more commercial energy.
There's no question an energy transition is going on and governments are going to push it, a lot of popular opinion behind it. There is the reality of an $87 trillion world economy and how quickly it can turn. One other question that's out there, Richard, and this is your economist hat, is how deep are the wounds from this COVID crisis, and how much flexibility would governments have to spend there as opposed to there? I tend to think we will be moving into more of a transition. We'll reach a point where it's not just energy addition, but I don't think we're there yet.
Richard G. Newell: I'm going to bring in a question from the audience that directly relates to this. There's been some major announcements by some oil and gas companies like BP. There's many others. To what extent do you see the energy transition being driven by these existing large companies relative to, let's say, the new guys?
Daniel Yergin: It's going to be a mixture. I have a wonderful chapter about the rise of the electric car, where Tesla came from and how it began at a lunch in a fish restaurant in LA, J. B. Straubel was trying to convince Elon Musk to do an electric airplane. He says, “I'm not interested.” “What about an electric car?” He says, “Well, I might be interested in that.” There's individuals, small groups, couldn't have been done probably anywhere other than Silicon Valley. Great deal of ingenuity, creativity, and just sheer determination and grit. There'll be players like that.
On the other side, you have these big companies that have the capability, they have deep engineering skills. They are used to working at scale. They know how to execute complex projects. They'll have a big role in this as well. I think it's a kind of mixture of the two. There is—between the companies—obviously a difference right now is the European companies are very much saying we've got to move to be energy companies and either keep level or bring down our oil and gas business while we develop renewables, while we move into electric power, while we do new technologies. One thing I see all the major companies very focused on, more than I've ever seen it before, new technologies, on startups, on venture capital. These are technology companies at the end of the day, and they're looking for the new technologies.
Richard G. Newell: One of the things that I recall particularly in teaching is there is sometimes an impression among some people that the incumbents are not as technologically advanced as some of the newer companies. That's definitely not true. I would tend to agree with you that the more that those assets and that capability can be deployed in the transition alongside-
Daniel Yergin: Yeah. I mean, I think it's one of the major energy companies that has more PhD.s in science and engineering, I seem to remember it was something like more than Harvard, MIT, and Stanford combined. One thinks of them as just commercial organizations for many people, but at the heart they're run by people who are very technical.
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Richard G. Newell: I want to turn back for a moment directly to your book. There was a really fascinating extract in the book that appeared recently in the Wall Street Journal. In that you're talking about the prospect of an energy transition and you say, I'm going to quote here, “China is posed to be the big winner. Russia and the Middle East, exporters, the big losers. The US is likely to fall somewhere in between.” Talk us through a little bit why you reached those conclusions. What do you think is fueling China's success and what will ultimately determine whether the US ends up leading the world on energy or following others?
Daniel Yergin: I think China gets into the winner's circle in two things. One, if it imports less oil, because as we said before, oil's a strategic problem. China is more aggressively promoting the electric car than anybody else. Half the world's electric cars now are in, not surprisingly, China.
The other side is that China is focused on what they call new energies. It's 70 percent of the world's solar panels, lithium ion battery supply chain, rare earths; Their position in all of those things. As the world, as you say, makes that shift, they're in a very strong position. It does raise a question. This is a big research area that I'm helping to lead at IHS Markit: What are these new supply chains going to look like in a net zero carbon world? Under some scenarios, the amount of wind and solar capacity to put in is twice all the existing electric generating capacity in the world.
How are these supply chains going to work? This is where energy transition and geopolitics, which one is there and one is there, that's where they come together right now. I think China's in a strong position. Vladimir Putin said that Russia's government's revenues from oil have gone down from 40 percent to 30 percent and this was good. Of course, this went down because volumes are
