REGARDED widely as the world’s number one energy analyst, Daniel Yergin’s latest tome, The Quest, debuted at No.4 on the New York Times non-fiction best-sellers list in early October last year.
This was a long-awaited event as Yergin also authored The Prize, which was released in 1991 and is perhaps the best account of the global petroleum industry thus far.
In some respects, the chairman of energy analysts IHS CERA is the alter-ego of the late Matt Simmons, founder and long-time chairman of energy investment bank, Simmons and Company International.
Indeed, when Pulitzer Prize winner Yergin published The Prize, it was Simmons who hosted the book’s launch reception in Houston.
The global energy stage has changed enormously between the two books. Indeed, it has shifted a lot since Yergin embarked on The Quest five years ago.
That is one reason why he didn’t stop working on the manuscript until made to.
“I didn’t so much finish it; they (Penguin) took it away from me in the second week of July,” Yergin told Energy.
The world of petroleum has always been and ever will be riven with politics; and in its different way, renewable energy is headed the same way.
According to Yergin, there are three really deep energy questions confronting the human species: growth versus scarcity, energy security and balancing energy demand against the environment.
Growth v scarcity
“We have a world economy that is set to double over the next two to three decades and that’s going to require a lot more energy,” Yergin told Energy.
“The big question is, where will that energy come from? What will be the next major source and who will pay for it? That’s the starting point. Doubling the global economy will require a 30-35% increase in total energy consumption. There will have to be a lot of energy efficiency built into that future. Even though there is a big win to be had in that regard, it’s a daunting challenge.”
Energy Security
“This is a classic issue and disruption of petroleum exports from Libya demonstrates this anew,” said Yergin.
“The number one security question, geopolitical question today is clearly Iran and what its intentions and capabilities are and how this impacts the rest of the world.
“Then there’s how Israel and the other Arab states respond to whatever Iran does and there’s the sense of a clock ticking.
But there’s another geo-political question that’s longer term and it’s what the Chinese themselves call the Rise of China. It is a question of whether there is inevitable competition and contest between China and the west for oil resources.
I hear people talk about that in Beijing, in Washington; but I don’t believe competition is in any way inevitable. I think China has considerable common interest with the west as an energy consumer interested in stable markets and access.
But I think that’s a problem that has to be focused on and worked on and confidence has to be built. I’d say that’s a major priority.
“I approach this as an optimist. It’s a message in The Quest and it’s interesting that the book has been published in China by PIP, which is its petroleum press.”
While accepting that there is today growing competition for oil and gas resources between international oil companies and national oil corporations, especially Chinese, on the global stage, Yergin told the writer that there remains “ample room” for both sides.
“They’re not going to pre-empt supplies. Their consumption is growing rapidly and they may one day catch up with the US, but they’re still part of a larger market and of course, where did the money come from to fill their coffers? It comes from the people who buy their goods and they happen to be the rest of us.
“That’s why I focus on the positive.
And India?
“India’s 10 to 15 years behind China; they started their economic reforms a dozen years after China and they still have a lot of growing to do. There’s also the need for huge investment in their infrastructure, if they are going to have more automobiles.”
Yergin suggested too that energy efficiency has a major future role to play in assuring energy security in the face of eventually dwindling hydrocarbon resources
He said too that the US and Japan, for example, are roughly twice as energy efficient today as they were during the years of the various oil crises starting with the Yom Kippur War (Arab-Israeli War) of 1973.
But there’s a problem with selling energy efficiency … flashy visibility.
“One of the things that I point to in The Quest is a comment that a former EU energy Commissioner made, namely that the problem with energy efficiency is that there’s not red ribbon to cut,” said Yergin.
“We don’t have a grand photo opportunity with politicians and business leaders to celebrate that we are becoming more efficient.
“But then I thought. There is in fact a great example of the red ribbon to cut. And it’s a 250-ton red ribbon … the Boeing 787 Dreamliner.
“This is the story of how Boeing was basically torn between whether to develop an aircraft that went 20% faster or one that 20% more energy efficient. They invited their customers … 59 airlines … to Boeing and they voted unanimously for a more efficient rather than faster aircraft. To me that’s a hopeful sign.”
Environment
The third big question out there is how do we as a species meet our energy objectives whilst satisfying our environmental objectives at the same time.
Yergin suggested that achieving a global climate change agreement that is meaningful and workable is verging on a tall order; but that there are a growing number of countries with individual policies and approaches to encouraging renewable development and tackling key environment-related challenges.
But there are also “out of left field” changes to the energy diaspora that threaten to disrupt the gradual move towards some form of consensus, and one of these is shale gas.
Put it this way, five years ago when Yergin started drafting The Quest, it was not the headline-grabbing story that it is today. So when he started writing the The Quest, shale gas hadn’t yet aroused the media.
“Shale gas was thought to be something the independents did, but it wasn’t significant,” he said. “Talk was of rising prices for natural gas as supplies dwindled and of LNG terminals being built to receive imports of liquefied gas. But now those are seen as possible export terminals.
“It was only in 2008 that people saw that, instead of declining, the output of gas in the US was in fact going up. That’s when the bell rang with the majors. Ask any of the majors and all will say didn’t pay much attention to shale gas until 2009. By then, the smaller companies involved were mastering the technologies needed for successful production.
“It’s been amazing. One of the things that shale gas does do is to change the economics of the entire US power generation base and markets.
“In Europe, so far, some countries like Poland are welcoming shale gas, however, the French have decided they don’t want it, or at least not yet.
“It seems to me that in Europe, if the US has been the laboratory for shale gas, then Europe and in particular the UK and Germany, are the laboratory for offshore wind.
“In the US, everything offshore gets bogged down in environmental battles. That’s why I think in Europe you see so much more palpable and real initiative offshore. Mind you, the US still has plenty of onshore opportunities whereas it is more limited in Europe.”
When Yergin wrote The Prize, post-Soviet Russia and the Caspian figured large n this seminal book, so what’s his view of that part of the world today and looking ahead?
“First, one should remember that Russia is the largest producer and exports a much greater share of its oil than previously. And of course it is also a mammoth gas exporter. Near-term, if anything, the German decision to shut down its nuclear power plants will see more gas imported from Russia.
“The Russians are heavily dependent on oil and gas exports but face a major challenge in trying to create an entrepreneurial business culture. They need a host of reforms to achieve this, but those are more likely to happen when oil and gas prices are lower than higher.
“From a hydrocarbon point of view, the deal that Rosneft has made with ExxonMobil to develop Arctic resources indicates that the Russians realise that they have to move beyond the current emphasis on the former Soviet brown-field legacy. Their next frontier is definitely the Arctic.”
OK, but what about Russia’s relationships with the still outside world? It does rather tend to blow hot and cold; does it not? How will that unfold, especially when one considers what happened to the oil oligarch Khordokovsky and the dismembering of his company, Yukos?
Yergin: “It does seem to go through cycles. Think about how many they’ve gone through since 1991. It’s been very up and down. I cover the Yukos story quite extensively in The Quest. That was a political struggle.
“In terms of the oil and gas business I think the current message is that they want to work with Western companies, particularly on the challenging projects. And ExxonMobil has not gone into Russia with its eyes shut. It’s been there since the start of the 1990s. Sakhalin and so-forth tell me they’ve been successful. They took a long view at the outset and they continue to take a long view.”
Turning to the vexed question of post-war Iraq and neighbouring pariah state, Iran, he said that, now that US troops had finally withdrawn from the Iraqi stage one of the big questions is how Iran will behave. Will the Tehran government seek a dominating role in its neighbour, particularly southern Iraq?
“Everybody knows that Iraq’s resources are huge and I think that, over the past couple of years, people have come to realise that Kurdistan’s resources are very large as well. There’s much discussion about what Kurdistan’s rights appear to be under the constitution and I think that’s going to be a long argument,” said Yergin.
“We’re going to have a Kurdish oil minister at our (IHS-CERA) conference in Houston in March. I’m sure there will be a great deal of interest in what he says. Now that you have major companies also going into Kurdistan, this is an indication that it is a very resource rich area. But there are big questions regarding the politics of the region and how that will affect the companies, and how they might get the oil to market.
“Turkey’s the obvious route and there are many facets to that one, given that country’s own internal issues. People really don’t really know what Iraq’s orientation will ultimately be and to what degree Iranian influence is brought to bear in the country … politically and the oil industry. I’d say that’s a big question that’s going to unfold over the next couple of years.”
Then there is the Israel question. Now she’s reinforced with the recent major offshore gas discoveries, might Israel become bolder in the region because, suddenly it is a lot less resource deficient than it was and may seek to flex its muscles even more than it has done?
“I think not in terms of gas. Remember, Israel has been very dependent on Egypt for its natural gas and, given events that have unfolded in Egypt this year the Israelis cannot count on that source anymore.
“What the gas finds do is reduce Israel’s sense of vulnerability. There is a point of view that it may put Israel in a position to be an exporter … another source of gas for Europe, which in turn opens other geopolitical questions.”
Yergin agreed that, with the likelihood of gas being found off Cyprus and Lebanon, a whole new dimension was being added to the econo-politics of the region.
“Here is an area that was considered a dead sea in hydrocarbon terms. But then plucky (US company) Noble goes and changes all of that. Plucky Noble kept at it for years when others had quit and declared that there was nothing there. And lo and behold they made the gas discovery that is appropriately called Leviathan since when further finds have been made.
“Suddenly, the Eastern Mediterranean has become an energy hotspot, which is a positive for the region; but then it is also a political hotspot, which is a negative.”
Turning the telescope towards West / East Africa, Yergin suggested that similar stories are being played out in terms of finding new resources, sometimes where pundits thought there might not be any and where politics are often difficult.
“It turns out that Africa also has quite sizeable oil and gas resources and companies have certainly stepped up their efforts there. Perseverance has been richly rewarded. Sustained oil prices have played an important part of late and Africa has been a beneficiary of that.
“But of course then there is the issue of governance and how to create a solid economic foundation in the face of corruption. That story is being played our again and again across Africa.
“Indeed, what I’m struck by is a rebalancing in world oil that is occurring now. This may be the decade when we see the rebalancing of world oil. What I have in mind are three things: oil sands, “pre-salt” reserves and “tight” oil.
“The first is oil-sands. So long regarded as a fringe pursuit, it is now a significant resource in Canada and producing more oil than Libya was exporting prior to the civil war. And it has the potential to at least double so long as the main obstacle, logistics, is overcome and that is transportation.
“The second factor is Brazil cracking the code on “pre-salt” geology. I write in The Quest about how Brazil went into ethanol in the 1970s because it appeared to have no oil. Of course that it has all changed; Brazil now has a lot of oil and, with the pre-salt discoveries, it is possible that, by 2020, this country could be producing up to 5million barrels per day, assuming its development programme stays more or less on track.
“That means they (the Brazilians) could well achieve double the output of Venezuela. If so, that would change the oil balance of power in Latin America.”
Turning to tight oil, he said it only emerged as a serious contender winter / spring 2010.
“The US has gone from 200,000 barrels per day in 2000 to about 1million bpd today and we (IHS-CERA) think it could be 3million bpd by the end of this decade/start of the next. Given the gap between oil and gas prices, this is a tremendous incentive to develop the resource. And it’s happening fast.
“And if you add up oil sands, tight oil, Brazil pre salt oil and then you also add in increased energy efficiency, one suddenly sees the Western hemisphere importing a good deal less oil.
“This is what I mean by rebalancing.
“One “of the things that’s endlessly fascinating about the energy business is that it never stands still. And just when everybody thinks they know where everything is going, changes come from out of left-field. Then everyone has to redraw their mental maps.
“Just think, until March 2010 and the Japanese tsunami that demolished the Fukushima complex, we had a possible nuclear renaissance.
“This world does not stand still.
“But then the US share of renewable energy at the end of the 1970s was pretty much the same as it is today. That helps me keep my perspective.”
Recommended for you
