Cleaning Up Episode 111 Edited Highlights - Daniel Yergin

Cleaning Up begins the new year and its eighth season in conversation with Dan Yergin. Yergin, Chairman of S&P Global, is a Pulitzer Prize-winning historian and one of the world’s leading authorities on energy.

Alongside discussing the latest edition of his best-selling book, The New Map,Yergin also provided some fascinating predictions for the future of global energy supply and demand, its international nuances, and its historical echoes.

Yergin was ready to pour cold water on a growing sense of hope around the speed and scale of the net-zero transition:

“To say, in a quarter of a century, that you're going to change the energy foundations of a $100 trillion economy; I think one has to approach that with at least a little bit of modesty… The notion of the specific timing, that there is a magic date… You have to stand back and just say, is that really realistic?”

Below are edited highlights of the discussion, condensed for brevity.

Michael LiebreichDan, you are the great historian of the energy sector. Are there any analogues for this incredibly turbulent year in energy?

Daniel YerginIn a way, no, because we've never had this kind of globalized, complicated world. Even the 1970s is not a very good analogue, because that was just about oil. But there were certain similarities, in that you had first an energy crisis because of underinvestment, and you had tight markets going in, and then that intersected with a geopolitical crisis of war. And then the world afterwards was different than the world before, and certainly we know that the world we're already in is very different from the world at the beginning of 2022.

MLI've written about Ukraine and in my world, I look at the implications for the shift towards clean energy. You've focused more on what it will do within the broader energy sector.

DYI think that we've seen the rediscovery of energy security. It had fallen off the table for different reasons. The United States kept talking about energy independence, but it never happened. The shale revolution happened, and that meant that people didn't worry about energy security. Europe with Russian gas didn't need to worry about energy security. Now you see movement on two paths. One is an acceleration of renewables, because it's also a form of energy security. But the other is a real appreciation of conventional resources. You see the Chancellor of Germany flying off to Senegal and Qatar in search of LNG; there's a recognition that things don't happen overnight. And you don't want to create shortages, that lead to turmoil, or to political disadvantage.

MLCan you summarize the thesis of The New Map?

DYThe thesis really was that you had a new map of energy and geopolitics coming together. I explored it through a series of maps; America's map, basically around shale, and how it changed the world in ways that people haven't recognized. The second map is Russia's map - which is really Putin wanting to redraw the map - and Russia as an energy superpower. The third is China's map, which is about the South China Sea and the Belt and Road Initiative. There, the question is: what happened to the WTO consensus, the globalization consensus? Now, it's all about great power competition, almost a pre-World War One quality to it. And then there's the new maps of the Middle East, about Saudi Arabia and Abu Dhabi having some of the cheapest solar energy in the world. There's the Roadmap of the Future and then the Climate map, about what an energy transition is. In the latest edition I added a section called The Four Ghosts Who Haunt the South China Sea. It’s a warning about the risks that now exist in a world of great power competition. I think the big issue now is, does this relationship between China and the United States stabilize or not? We're seeing an upheaval in the supply chains for global oil and gas, but it's part of a larger upheaval in global supply chains.

MLThere is definitely a focus on trying to disentangle these global supply chains. Where does that lead us?

DYYou could look at this Inflation Reduction Act, and you could also say it’s a Compete with China Act, and a Rebuild our Supply Chain Act. And I think this is kind of a wake-up call. Copper is the metal of electrification, and so much of the energy transition is about electrification. Copper supply is more concentrated than oil, and China has a preeminent position in copper, just as it does in lithium-ion batteries, just as it does in solar panels. And if you read the Inflation Reduction Act, a lot of it is trying to change those supply chains. China have spent 15 years getting a dominant position in critical minerals, and has been on electric cars for at least as long as Tesla. China realized it could not compete with internal combustion engines; it was too late. But it could compete with electric cars, and really has become a major force in the global market for EVs, and those Chinese EVs are now starting to show up in Europe, and they sell at lower price points.

MLIn The New Map, you highlight three technologies that you think will play a big role on what you call the march to net zero. One was batteries, the other two were CCS and hydrogen. Are those still your top three?

DYYou don't get to your 2050 goals without CCUS, because the world's going to continue to use oil and gas for longer than many people may think is the case. Everywhere you go there's hydrogen euphoria at the moment, and you have companies now really gearing up to make a major commitment. Germany are pushing hydrogen very aggressively, and the Inflation Reduction Act in the United States gives a big boost to it. With hydrogen, you have a very differentiated view of hydrogen, and have given it a lot of thought. One forgets why oil and gas are attractive - it's because they have a lot of compact energy. I've been always obsessed with energy efficiency and think it's the underestimated energy resource. And we don't think about how being more efficient can actually be one of the most important technologies.

MLTo what extent are your maps fit to guide us through the immediate future in energy?

DYWell, I think the China map is one that I would really recommend people read, because I think that's very forward-looking. I think the other one that's forward looking is the Climate map, and the question about the energy transition. To say, in a quarter of a century, that you're going to change the energy foundations of $100 trillion economy, I think one has to approach that with at least a little bit of modesty. There'll be surprises on the upside, particularly in technology, but there are going to be some bumps in the road on the way to energy transition, and one of them is the difference in perspective between the developed and developing countries.

MLAre you essentially saying that all these marvelous ideas of transition, that they're not going to happen? 

DYI think we are going to move in that direction. But I think the notion of the specific timing, that there is a magic date, is something that you have to stand back and just say, is that really realistic? Is it doable? Everybody says 2050 - China says 2060; India says 2070. How can you say that the world in 2050 is going to be at this level, when two of the three biggest emitters are saying we're not actually in that game?

MLYou spend a lot of time in India and also the Middle East. Can you summarize their side of this discussion about the urgency of climate action?

DYIndia's per capita incomes are maybe 1/20 of those in Europe. For them, the energy transition is getting people moving from burning wood and waste to using LPG. The message I've gotten from India is that there's not a single energy transition, there are energy transitions. So there’s a big commitment to renewable in India from the Modi government, but they’re also building a $60 billion natural gas distribution system. For India climate is a priority, but so is poverty, so is health, so is raising incomes. Abu Dhabi are now one of the biggest renewable energy developers in the world. So, they have gone down two tracks: expand production capability - because the world will still need oil - and also saying we're going to put in the cheapest solar energy in the world, and we're going to promote those technologies. I hear around the world people say that the real question is to address emissions, rather than carbon being the issue in itself. People may not want to hear it, but world oil demand is probably going to increase for about another decade or so, natural gas demand for another decade beyond that, and therefore those supplies will have to come from somewhere.