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Shifting Energy Landscapes

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by Andrew Bowen

In an exclusive interview with Majalla, Daniel Yergin provides an insightful analysis of the changing geopolitics of energy and its implications for the world today. He also explores questions about the future of oil and the role of new technologies in changing this energy landscape. He examines energy security in light of the Arab Spring, before finally discussing the Middle East’s future and changing role in the worldwide energy market. Yergin also presents a candid analysis of the future of nuclear energy after Fukushima.

Daniel Yergin is a leading energy analyst and his Pulitzer Prize-winning book, The Prize, is highly regarded in the oil industry. Yergin currently serves as the Chairman of Cambridge Energy Research Associates, which he co-founded, and received his PhD from Cambridge University. Yergin won the United States Energy Award for “lifelong achievements in energy and the promotion of international understanding” in 2007. His new book, The Quest, was published in September 2011 and has been critically acclaimed as the best available analysis of the geopolitics of energy today.

Majalla: What do you see as the major trends shaping this new energy landscape? Have you observed any changes since the publication of The Prize?

One of the reasons I decided to write The Quest is because so much had changed. The Soviet Union had disappeared. Central Asia and the Caspian have become part of the global energy system. The rise of China has been an extraordinary development. Really, China played a very small role in The Prize—a minor oil exporter at the time. So, those are two of the big changes.

Climate change has gone from being the concern of a relatively small group of people to being a major energy, and indeed political, question. I think these are some of the ‘mega-changes’ and I think this kind of renewed focus on energy efficiency is another big trend.

Daniel Yergin
Daniel Yergin

Q: Are the US and China prepared to compete in this new energy environment?

I think there is a risk of that. It’s interesting that the only country that gets two chapters in the book is China, because Chinese energy is so important on the global scene. The US and Chinese energy relationship is a very important element in their overall relations and has great geopolitical implications, and has to be managed carefully.

Q: Do you think it’s being managed carefully at the moment?

I think there is a lot of intention to it. There is an effort to have continuing dialogue so each country understands the other’s energy position and needs. With better understanding comes better clarity, but clearly, when you look at issues such as the South China Sea, to take one, there is a risk for misunderstanding. As we have seen recently, different Chinese spokesmen are taking different positions on that issue. That of course relates to relations with the US, but also relations with all the other countries that border the South China Sea. The Chinese face an immense energy challenge: 20 million people a year are moving from the countryside to the city and their energy demand is growing very fast. So, energy is clearly one of the top preoccupations of the leadership and their system is changing so rapidly. Figure that by about 2020, China may be consuming more oil than the United States.

Q: In mind of China consuming more oil than the United States and their increased demand, what are your thoughts on China’s response to the Arab Spring and its role in the Gulf?

There are many levels to the Chinese response. I think also very important for the Chinese is their ever-growing stake in the security and stability of the Gulf. The recent ratcheting up of an already tense relationship with Gulf countries will create challenges for China on how it will orientate its policies.

Q: Are we running out of oil? Should we be more concerned about the future of world energy supplies?

Basically, the peak oil argument is that half of the world’s oil has been consumed and we are on this downward slope, and great crises are going to ensue. I think that the peak oil view played an important role actually in the price run up in 2007 and 2008, because beliefs matter in market and it was strong and very reinforcing. In our view, 20 percent of oil has been produced based on what we know today and technology has opened up new horizons. Right now, one of the hottest things in the United States is shale oil. US oil production is up 10 percent since 2008.

Q: What are your views on shale oil in the US and Latin America overtaking oil output in the Middle East?

I am not sure we are there yet. We think in our analysis that shale oil could add 2 million barrels a day to US output by 2020. Certainly, North Dakota is now the fourth largest oil-producing state in the United States.

Q: Do you see any new energy sources decreasing the current 80 percent share of energy coming from oil?

Please click here to read a review of The QuestOne of the things I wanted to achieve in The Quest was that it was not just about oil but gives you a panoramic view of the energy world, including the new technologies and the alternatives and so forth. Throughout the book, I found myself thinking about where have these things come from in order to get a sense of where they are going. In the book, I write about the rebirth of renewables. These have become significant businesses but these are still quite small compared to the overall energy business. There is still a drive to lower the cost of solar; wind continues to grow in scale. So, they are big businesses but they are still small.

What’s interesting is one area of research that Saudi Arabia is very interested in is, in fact, solar. The country has a lot of sun, and if the cost of solar could be brought down, that would reduce the amount of oil that needs to be used for electrical generation and frees that up for exports. So, there is a very practical interest in solar in the Gulf countries.

But, when I add it all up, we are looking at a world in which energy demand 20 years from now might be 35 to 40 percent higher than today, that means everything will grow, it will not be 80 percent oil, gas, and coal as it is today, but it still likely be 70 percent. Real changes in the energy system will take place after 2030; all technologies take longer to develop. Shale oil burst on the scene in 2008, but it took a quarter century of development preceding that.

Q: From 2030, do you see other energy sources balancing out the larger dependence on oil as the primary source of energy?

Some we can see and others we don’t see. That’s when we will probably see much bigger changes. There is such a focus on innovation all across the energy system right now and it all takes time, but people discover or rediscover oil is a very compact, efficient energy source. Last night, I was with one of the major innovators of the electric car and that subject is getting a lot of attention now. Even if it really takes off, in the most optimistic scenario, we don’t see it being more than 3 percent of the automobile fleet in 2020. There is a lot of momentum for an electric car but it will be half a decade to see if it gains traction beyond a niche. There is a lot of policy push for it.

Q: You discuss how transportation is so critical to these discussions and questions of energy security.

In a way, I did not expect it. The book evolved over time and the world changed as I was writing it. I did not expect ending on the future of the automobile, but that’s indeed where I end: with the question mark of what kind of cars people will drive in 20 or 30 years. Not just in the developed world but in the emerging markets: what will people in China and India driving in 2030 or 2035? It’s still a very much an open question. There is a push for electric cars, but there is also a real push for more efficient vehicles. Today, the average new car in the US gets 30 miles to a gallon, by 2025, it’s supposed to be 54 miles, almost a doubling. It’s quite a struggle for many of the automakers.

Q: What are the long-term consequences of the Arab Spring on future energy supplies and the role of the Middle East?

It has upended part of the strategic basis that has contributed to relative stability in the region. One of the first things that the new government in Egypt did was allow an Iranian warship go through the Suez Canal. It’s kind of symbolic of a strategic shift. It’s still early days, but it certainly increases the uncertainty about what will be the strategic balance in the region.

Q: In light of Qatar and new exploration in Saudi Arabia, what do you see as the future of liquefied natural gas (LNG) in the Middle East?

It’s interesting; you have of course Qatar at the forefront of this global trade. Other countries are now short of natural gas because electricity demand has grown so fast. It’s sort of ironic that the Gulf is the largest source of LNG, but also, within the Gulf . . . there is a lot of anxiety about whether there is enough gas to generate electricity.

Q: Will the Gulf continue to be the centre of gravity for energy in the upcoming years?

Yes, but we are seeing with development of oil in the Western hemisphere a somewhat of a shift in the balance. In terms of production, it may not be as concentrated as it had been thought. Technology that has developed in the US—such as shale oil—and is now migrating around the world will effect in due course production, but these technologies will be applied in the Middle East and may in fact augment production in the region.

Q: With Iraq and Libya in transition, do you think they will get back online?

With Libya, some parts of production will come back faster. We still don’t know what the political system and the decision-making will be. Iraq clearly is recognized as having very large oil resources, much of it not developed. There was a kind of extreme optimism before about how fast and big it will be. But, it will be slower and take longer.

Iraq is certainly a country in a substantial position to very substantially grow its oil output, but one has to be realistic about the politics, the logistics, the people issues, the technologies- all those things that need to be in place to have continued, sustained investment that would make a Iraq a big player. We already saw a tit-for-tat game, with Iraq raising its reserve estimates and Iran raising its estimates to make sure it’s still higher.

Q: What is the future of Iran’s position in the Gulf and the global energy system?

It’s importing gasoline, but it is trying to squeeze that down. Iran clearly has a struggle to maintain its investment and output. Its inability to be a gas exporter is telling since it shares a gas field with Qatar, which is at the forefront. Iran has so many political and economic difficulties, but its political system makes it very hard to address them.

Q: What are the main vulnerabilities to this energy system and which ones need better focus?

Coordination and communication among the major importers and exporters of oil continuously needs to be strengthened. It’s such a key aspect of it. Obviously, thinking through this threat, physical security is an important part of it. Cyber security and vulnerability is an issue for the energy industry, and the classic issues involve the Gulf and the Strait of Hormuz. As our society becomes electrified and more and more dependent on electricity, the safety and security of the grid system is a key thing.

Q: Is nuclear energy dead after Fukushima?

Up until the accident in Japan, we would have been talking about nuclear renaissance. It’s a patchwork: China will proceed, the US administration says its wants to proceed because it’s a carbon-free large electric source, the coming shutdown in Germany, the indecision in Japan, the UAE is going ahead with its four nuclear reactors. There is still a question about developing small nuclear modular reactors that can be built in a factory and moved to a site. So, it’s not dead- its 20 per cent of US electricity, almost 80 percent of French electricity, there are many more question marks over it. Germany is pretty explicit on what it wants to do, but Japan is facing a lot of tough decisions in the aftermath of Fukushima. One consequence is that Japan will import more liquefied natural gas. There will be a lot bigger market for LNG than thought a year ago.

 

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Andrew Bowen

Andrew Bowen is Scholar for the Middle East at the James A. Baker III Institute for Public Policy at Rice University. He regularly writes, teaches and consults on Middle Eastern politics and American foreign policy. His work primarily focuses on the regional and international politics of the Levant, but he frequently comments on the international relations of the Gulf and American national security policy. Follow Andrew on Twitter @abowen17

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