March 9

The Energy Question: Episode 89 – Daniel Yergin, Vice Chairman of S&P Global



The Energy Question: Episode 89 – Daniel Yergin, Vice Chairman of S&P Global

When the transcript becomes available, we will include it here. -Thank you!

David Blackmon [00:00:09] Hello. Welcome to the energy question. I’m your host, David Blackmon, and my guest today is Return Guest. I think for the third or fourth time on the show, Daniel Yergin, who is the vice chairman of S&P global and renowned author of books like The Prize, The Quest and most recently, The New Map, some of the greatest books ever written about oil and gas and energy in general. Dan, how are you today?

Daniel Yergin [00:00:35] Fine. Thank you. Glad to be on with you again, David.

David Blackmon [00:00:38] Yes, it’s always wonderful and I really appreciate your time. So we’re recording this, about two weeks, I think, before a week begins. In fact, exactly two weeks before the annual conference in Houston. Ceraweek that you, I believe, created.

Daniel Yergin [00:00:55] Yeah. This is true.

David Blackmon [00:00:56] Yeah. And they have, or the face up for all these years, an organizer. I know that’s taking all your time. Talk about, you know what we can expect out of Ceraweek this year in terms of speakers and themes that you think will be.

Daniel Yergin [00:01:10] I think I think quite a broad range of speakers, you know, from the secretary of Energy to. Walter Isaacson, biographer. Elon Musk to. Bill gates. Plus, CEOs from across the energy industry, from majors, independents, from around the world, from 85 countries, from technologists, big emphasis on innovation, this year. And, you know, the whole spectrum there, from oil and gas to wind, solar to new technologies. So it’s really, I think people say it really gives you a head start and understanding what’s going to happen. So we put a lot of work into it. Obviously organizing a conference at this scale. But every year we all learn a lot from it. And we, you know, the serendipity, the people you meet there unexpectedly turn out to be very interesting.

David Blackmon [00:02:16] Yeah. I mean, it’s so good that it’s held early in the year because it does, you know, more than any other conference, I think that takes place here. Tells you where we are in just the global energy space. Listening to all the discussions and speeches that come out of it. You know.

Daniel Yergin [00:02:37] If I could just give a one off. A few years ago, the oil minister from one of the major countries in the Middle East said, well, there’s Ceraweek and then there’s everything else.

David Blackmon [00:02:49] I agree with that, actually. You know, during and after ceraweek last year, I wrote like five different, articles for various publications about what had happened there, so kept me really busy. And I wasn’t even in attendance. You know, that was just what I can follow online. And, anyway, so last year, one of the overarching themes really at Ceraweek last year that I think came really that most everyone really took notice up was an increased emphasis on number one oil companies going back to their core businesses and focusing more of their capital investment, you know, back on their core oil and gas businesses after several years, indulging in other things. And then second, an emphasis on the need to enhance energy security. And you just wrote this great piece, that was published at the S&P global website. WW w knight HP called the Return of Energy Security, and I wanted to start by talking about the kinds of themes you address in that piece.

Daniel Yergin [00:03:58] I think that there was a tendency, particularly during the pandemic, for people to just forget about energy security, demand collapse, prices collapsed, and it wasn’t a concern. But then, you know, people came out in the spring of 2021 with these, what we call linear scenarios about how energy transition. And then all the things happened beginning with the Russian invasion of Ukraine. Energy shocks, disruptions, supply chains, inflation, interest rates, further, you know, conflict in the Middle East, etc. and it really put energy security back on the agenda. Not really any agenda, but countries really scrambled countries that were just focused on wind and solar was suddenly like Germany going to Senegal and Canada saying, can you give us some LNG, some natural gas? And people, you know, this country saying, you know, time is patient, could you increase oil production? And, just we we saw that around the, around the world, China giving higher priority to energy security than climate in is specified in its Five-Year plan. So all of these things were, underscored the fact that, in fact, energy security is something that is a priority for countries. And you may be able to forget about it during some times, you know, when prices are weak and demand is sluggish. But it’s a very critical issue. And, you know, you can talk about energy transition. You’re not going to have an energy transition without energy security. You’re going to get a big political backlash.

David Blackmon [00:05:33] And that’s that’s really kind of happening in Europe right now, isn’t it? I mean, we’re seeing quite a lot of that.

Daniel Yergin [00:05:38] And so we see it in Germany. You see it in the Netherlands, where part of it came from nowhere. Farmers party is up. You know, I think it’s the largest party in the parliament right now. Yeah. You know, the farmers were telling him they shouldn’t use fertilizer. Yeah. Well, thank you very much.

David Blackmon [00:05:58] How many people would starve worldwide if we didn’t use it? Exactly.

Daniel Yergin [00:06:01] And, you know, fertilizer depends upon natural gas.

David Blackmon [00:06:05] Right? Right. Nitrogen. Ammonia based fertilizers. You know, of course, you lng from the United States, since we mentioned Russia’s invasion of Ukraine in that ongoing war. U.S. LNG has played a big role in ensuring, countries like Germany can keep the lights on, and. You know, keep homes heated during these, these winters. Over the past two years, I wonder. And I’m tired. I go back and forth on this. Since the Biden administration invoked this permitting pause on, U.S. LNG infrastructure, I wonder what your view is on what kind of an impact that permitting delay or pause? They’re calling it a pause anyway. Could have on energy security, not just in Europe, but with, you know, Asian U.S customers.

Daniel Yergin [00:06:56] I think that. You know, one of the things I focused in on in the new map was this extraordinary development of US LNG into, you know, today that the first shipments of U.S. LNG not only left, the U.S. in 2016 and now they that face is the world’s largest exporter of LNG and LNG, really? Without U.S. LNG. Putin might well have succeeded with using the gas weapon to undermine, the coalition in Europe supporting Ukraine. And he didn’t count on us LNG, which is about 40%. 40 to 50% of the total LNG now, and the U.S. energy was not really developed or was developed for Asian markets, not for Europe, but it turned out to be a life saver. In fact, I’ve described it as you are selling cheese now, part of the arsenal of NATO. It’s a very important point of view. So the pause, well, we’ll know more about it. We’ll hear from the Secretary of Energy about how to think of what how they’re thinking about the pause at ceraweek. But I think, certainly a reaction in Japan. I mean, I’ve heard from senior Japan Japanese, in fact, one participated in a seminar in Washington. Really set your you’re telling us to stop importing Russian LNG, but now you’re putting a pause. The administration, of course, notes that. The US is going to double its current capacity. Right. Any question about what happens around 2030? I think the Europeans are pretty surprised too. And I know Europeans are coming to Ceraweek to kind of try and understand what this course means. They probably won’t know until after the November election.

David Blackmon [00:08:45] You know. Yeah, that’s that’s my concern. Are you concerned it could become not a pause, but a permanent halt? Well, I know the election.

Daniel Yergin [00:08:53] And due to new permits, I think if it did that, it would be, destabilizing for the US alliance system. Yeah. Would be, for the Europeans. It would be quite alarming. And it would be, in fact. If it was a permanent hold, it would be a favor to Farmer Putin. No one hates us more. The flatterer.

David Blackmon [00:09:18] Yes.

Daniel Yergin [00:09:19] He wishes it didn’t exist. And you know, I have that great story in the new map. When he started shouting at me at a conference. I asked a question about shale and he starts shouting. 3000 people say shale is barbaric. It’s terrible. Well, from his point of view, shows bad news because it meant that Russian gas had a competitor, from the US, and that it would be something that would augment U.S. influence around the world. It’s one of the few positives in the trade relationship with China right now. Yeah. Think of it if you think about it. So, you know, Putin has every reason to hate U.S. shale. So I’m hoping that, you know, that there’s an understanding that the shale revolution in the United States is not only about global markets. It’s not only about revenues that brings the United States, but it’s also very geopolitically significant.

David Blackmon [00:10:13] Yes. Yeah. And in your piece you talk about, you know, we I’m as guilty as anyone tending to focus on what’s happening in the United States and Europe, the Western world, which is my orientation, of course. But you talk in your story, you have a whole section in that piece of SB global, about energy security and the global South and all these developing countries that, really need to be able to rely on fossil fuels for their energy security, for the coming, you know, several decades at least. Are they? Isn’t that really kind of maybe the the most critical issue for those countries right now? Yeah. Good idea.

Daniel Yergin [00:10:59] And energy supplies, energy security and availability, energy reliability are essential for their economic development. And they. You know, have a different perspective. You take Germany as a $60,000 per person. Senegal has $4,000. Well, they look at these issues differently and they see oil. Gas would be very important. I thought one of the most significant recent statements just a few weeks ago is that Prime Minister Modi of India committed $67 billion to expand the natural gas supply system in India and to take natural gas from 6% to 15% of the energy mix, even as the energy mix becomes much bigger. Well, that’s a pretty powerful statement about a different perspective than you might encounter. And state of California.

David Blackmon [00:11:58] So is it. Yeah. And it’s is is a big piece of that plan, I assume at least, some part of that investment is designed to, you know, use natural gas to get away from using so much coal in India. No, they’ve they built new coal plants over the past few years.

Daniel Yergin [00:12:15] Yes, exactly. Because India, like China, still is very dependent on confederation. So, you know, $67 billion for India is a very big commitment. It’s about natural gas. But then there’s Germany, you know, which is going to spend $17 billion to build up to 20 new electric generating plants based upon natural gas. So they don’t run out of electricity. You know, it’s just so it’s kind of reality.

David Blackmon [00:12:44] So yeah, I think it’s just one of the numbers that you used in your piece really struck me, which is that 82% of global energy currently is supplied by fossil fuels, by natural gas, oil and coal. That is essentially the same percentage that existed 25, 30 years ago. And we then we’ve spent since then trillions of dollars on renewables and other alternatives to oil, gas and coal and really haven’t made a dent. And so, is there any reason to think the number 30 years from now is going to be substantially lower than that?

Daniel Yergin [00:13:28] I think it will be lower, because I think you’ll see more deployment of wind and solar and battery storage, but it will be a bigger pie. So this will be very significant numbers. You know, I was talking to your preparation for a week with a CEO. What country has a $300 million program to expand their oil and gas production between now and 2040? There, you know, the demand is going to be there. Now. It will be different parts of the world. China, you know, may well tell because they’re pushing electric cars so fast. But you see kind of a mixed reaction to EVs in the United States. You know, 4000 car dealers wrote to the white House a couple of weeks ago saying, could you please put the brakes on EV because people are buying them and we don’t have the capacity to to deal with them. And so, you know, it’s kind of a mixed picture. And even even if every car today sold was an EV. You know, probably 2035. It still have over a million. Gasoline powered cars in the world.

David Blackmon [00:14:50] And all the other uses, you know, for oil and gas as feedstocks for all sorts of manufacturing processes and plastics and.

Daniel Yergin [00:14:59] For your Moderna, and Pfizer vaccinations, which.

David Blackmon [00:15:04] Right. You know. Yeah.

Daniel Yergin [00:15:05] And so, I mean, people just, I think just don’t understand how pervasive, the use is and the significance.

David Blackmon [00:15:16] Yeah. And so that, you know, kind of leads into the question about the whole energy transition question, which, you know, I understand, you know, we’re supposed to be embarked upon. It doesn’t appear to be really yet anyway, have materialized into a real transition. It’s more of a. A massive innovation investment in new technologies. That someday, I guess, could scale up and produce a transition. But. You know, eaves is a great example. There’s so much disruption now, it just within that space with these carmakers. Ford lost $5.7 billion last year on the TV division. Made up for that on its gas powered cars and still turned a profit. But you kind of wonder how long investors in these big companies are going to be willing to bear those kinds of losses in a developing division, when the market isn’t really adapting the way it was supposed to adapt to them.

Daniel Yergin [00:16:24] Well, I you know, I don’t know how investors react to the, the automobile industry, but clearly it has been a surprise for the American automobile makers other than Tesla, is that the market is so tepid because they expect a stronger demand, especially with all these incentives. And remember, the administration was kind of planning to tighten the, emission standards, which would make, conventional cars more expensive. But there there is a fact, you know, there is definitely a political backlash against it as people talk about, which I was surprised I only heard the term recently, the politicization of EVs as an issue. So, you know, I live here in Washington. I see a lot of Teslas in this almost now. I see a lot of Teslas. But, that’s obviously the by far the best selling EV, but the others just just haven’t really gotten traction.

David Blackmon [00:17:23] Yeah.So I’m sorry. Yeah, just go ahead.

Daniel Yergin [00:17:26]  I mean, they’re selling it, but they haven’t gotten the scale of consumer excitement that they, expected.

David Blackmon [00:17:35] Yeah. And and for companies like Rivian and Fisker who are direct competitors with Tesla, Tesla had a 15 year head start. First of all, they don’t they’re not like Ford GM where they have these these nice car divisions that are highly profitable right now. And and, you know, more profitable than you’re losing on your EV division. And so for those companies that are pure play EV companies, I mean I think it’s okay.

Daniel Yergin [00:18:03] I mean, I have we had a couple of years ago, the founder of Rivian at a clear week. And he was very impressive. Yeah. Yeah.

David Blackmon [00:18:11] Beautiful cars.

Daniel Yergin [00:18:12] Yeah. Beautiful cars I mean and people who have them. But they said they’d love it. In fact, this summer months about where we were in the summer, these cars driven his Rivian from, San Francisco. And he said it’s the best car he’s ever had. And he took me for a spin in it. And so they’re beautiful cars. Yeah, but, it’s hard to enter the market. Obviously, Tesla without a deal on Musk wouldn’t have happened. I have that great story in the new map of, that, this, fellow named J.P. Straubel was, loved electric vehicles and things like that. I was having lunch with, with Musk in Los Angeles trying to convince him in 2003 to do an electric airplane. Said, I’m not interested in. What about. All right, well, I might be interested. And he ended up doing Tesla. And, and then I quote in the book, my saying, you know, if I hadn’t had that lunch, Tesla might never have happened. Yeah. And the accident now, it was on a different path in China because you had another person there, who, had done a Chinese who got a PhD in Germany, came back to China and eventually became minister of technology, who drove EVs in China. But for China. They were different then it was state policy because they’re concerned about being overly dependent on imported oil, which comes to the South China Sea, worried about the US Navy. And also they realize that they can never be competitive with conventional cars because they were too late, but they could be conventionally competitive globally with EVs. And you see that happening now where the Europeans are in. European countries are deeply worried about the effort to try nukes in Europe. And, they’re sort of worried about them in this country doing just sort of the divide. Administration has just decided to do some studies about where do the minerals that go into Chinese batteries come from. So I think there’s going to be. You know, the arrival of Chinese means the global market could be very disrupted.

David Blackmon [00:20:22] Yeah. In fact, there was an article I read last week, I think it was in the Wall Street Journal actually talking about how China is, is now embarking on establishing factories and plants in, in Mexico, to serve as a gateway into the United States market due to the US Mexico-canada trade agreement that has loopholes about

Daniel Yergin [00:20:45] actually happening And by the way, I believe about 20% of the new cars sold in Mexico today are Chinese cars.

David Blackmon [00:20:51] Yeah. Yeah. And it’s. Yeah. That’s coming. Yeah. I don’t I don’t know how that can be avoided really. Given the political environment here in the United States and the balance of power between the two parties, it’s hard to see how that is avoided ultimately. And in the automotive space in the United States, really, because it just it’s going to be so difficult to, to do what you would have to do to disadvantage Chinese cars in this market. So, we haven’t done it on any other product from China. I don’t know why we end up doing it with cars. I also wanted to get your views on Ukraine because as we record this today, there is still no agreement within the U.S. Congress on on an additional funding bill. You know, the the president wants another $60 billion to help fund the war in Ukraine. And, I wonder what you see as the geopolitical implications if Congress fails ultimately to, you know, approve additional funding for, for US support of that war.

Daniel Yergin [00:21:59] I think it will have. I mean, as you know, I’m a student of history, and I read history. I think it would have really, severe consequences in terms of America’s leadership and confidence in America. In the world, you know, this system of alliances and and delivering on them has been very important, for stability, I think, would be in a more dangerous world. And, I think other countries would take that as a sign that they can do what they want it to. Look at Venezuela now. Guyana. Yes. Yeah. It sounds like Putin threatened Ukraine, sovereignty. And so I, I hope that there is, an agreement because I think failing to do that will. There are many unintended consequences, including beyond the tragedy premium brand of small but often that.

David Blackmon [00:22:56] Another topic that of course has been hot now for a couple of months is the disruption of. Of shipping traffic in the Red Sea and Suez Canal. Due to the activities of the. The Houthi rebels in Yemen, and the inability of the US and British navies to. Try to really tamp that down. We have all this direct disruption to shipping traffic, and I think we’re we’re starting to see now some price impacts in gasoline in the US from all that is those cargoes that had to go around Africa, start landing here. But it’s interesting to me that the crude oil price markets haven’t really reacted as much as you would might have expected to that that disruption. And I wonder I’d love to have your view on why that is.

Daniel Yergin [00:23:48] Well, I think first, you know, the Red sea, it’s interesting. It was a kind of minor waterway for oil, but with the sanctions on Russian oil, it became quite significant. Yeah. In 2022, 2023, before they started. About 42, and equivalent to about 40% of the amount of Atlantic Ocean is greater. Hormuz was going through through the Red sea. Now it’s way down insurance costs and, and, you know, tend to risk. And I guess a ship is just been. Ship is actually sinking now as we talk. But. You know. Really. So we really have three wars going on and we have a war in Ukraine. War cost us and call it the proxy war with Iran, its proxies and houses. And yet so far it could change tomorrow. Of course, we haven’t seen any impact on oil. It’s been a disruption, but not a severe disruption. I think there’s three reasons I think that the price hasn’t gone up. One is the weak relative weakness of the Chinese economy, not as strong as California’s demand the other day. Regardless of what we talked about before the shale revolution, in general, we see that the Western Hemisphere, the balance of the world markets, changes. The growth has come from the Western Hemisphere, the US, Canada, Brazil, Guyana, adding more new oil and demand growth in the world. And of course, the biggest by far is the shale revolution, us over a million barrels a day in 2023. Canada significantly carrying supplies. So I think it’s this kind of rebalancing. To the. The Western Hemisphere being more influential in the older market. And the other, you know, that is in particular. I think, again, it shows the geopolitical significance of the shale revolution. Yeah. How important it’s been as a stabilizer. And I don’t think that’s very well recognized by many people in this country.

David Blackmon [00:25:59] And of course, you know, the other province in the Western Hemisphere that has really dramatically increasing production is that the northern coast of South America, with Guyana and Suriname developments down there? I was going to joke, I hope Darren Woods and Mike Wirth are both going to be at Ceraweek so we can hear what they what they have to say about.

Daniel Yergin [00:26:21] I don’t know what they’ll say about that because it will be a ceraweek. Yeah.

David Blackmon [00:26:27] I’m joking. I know they they can’t really talk about it publicly. I believe me, I tried to get interviews from from both those companies when that all broke last week, but, haven’t been successful.

Daniel Yergin [00:26:37] No.

David Blackmon [00:26:38] Yeah, exactly. Well, we’re bumping up against time here. Thank you so much. I never cover half of what I want to cover in these things, but, I also want to respect your time and really appreciate it. I know it’s going to be a whirlwind three weeks for you here.

Daniel Yergin [00:26:54] Yeah, it’s good coming up. And, it’s great conference. And, you know, a lot of things. Well, I don’t know if everything will be clear, but a lot of things will be clearer. And I think this theme with a multi-dimensional energy transition, that’s a theme to rephrase and think about the complexities, the energy transition. And it’s going to be multi fuel in it. I think is something that would be very helpful for, you know, thinking about the future of energy and of course oil and gas and in particular what happens in the US will be a very significant challenge for the markets from politics.

David Blackmon [00:27:30] Well, they. And thank you. I wish you the best. And, look forward to talking to you again in a few months.

Daniel Yergin [00:27:36] Thank you. Dave. I’m very glad to be on with you. Yes.

David Blackmon [00:27:39] And thanks to the sandstone Group for hosting our podcast and to our extraordinary producer, Eric Parel. I’m David Blackmon. That’s all for now.


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Dan Yergin, David Blackmon, energy question, Vice Chairman of S&P Global

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