Mark P. Mills and Daniel Yergin Go Deep on Energy
We seriously doubt that there are better things today than a back-and-forth between two energy-thinking heavyweights. And the Manhattan Institute just offered up a much friendlier and less controversial version of Dempsey-Tunney II and the “Long Count” bout—93 years to the day.
On September 22, 2020, an eventcast brought together Mark P. Mills interviewing legendary oil historian Daniel Yergin to discuss Yergin’s new book, The New Map: Energy, Climate, and the Clash of Nations, and other key topics in the expansive energy-environment space.
The topics were wide-ranging and, thankfully, nonlinear, perfectly suited for quick thinkers in the energy field.
Yergin sees his energy map as a trio of factors amid the worst global health crisis in many decades:
- The rise of U.S. shale oil and natural gas
- The push for fossil fuel alternatives—namely, wind, solar, and electric cars
- The rise of climate politics and funding
Not surprisingly, the first topic of discussion was the world’s most vital fuel, which lacks any material substitute: oil. Thanks to COVID-related travel restrictions, both voluntary and involuntary, global oil demand will be down by about 8% this year, to 92 million b/d. Longer-term, the “work office of the future” will be at home, especially in the West, where oil usage is either flat or declining.
But one would be advised not to count oil out. In fast-growing Asian nations that account for the majority of new demand, citizens actually prefer to go to the office for work. Generally, those in developing countries have fewer options to simply work from home.
In the past 20 years, China has been the primary market for new oil consumption, but mounting imports are a growing threat. China now depends on foreign oil for 75% of its domestic needs, which is a problem for the country’s prized energy security—China’s national paradigm of self-reliance is exemplified by the Great Wall itself.
While China, the U.S., Japan, Germany, and many other top economies seek massive electric car fleets, environmentalists might want to rethink their support. Despite promises, coal-dominated China is building three coal plants per month. In turn, electric cars in China are more aptly termed “coal cars.”
Further, the immense mining boom that must take place for clean energy usually goes unstated. And from domestic mining to global supply chains, China is seeking to dominate the critical materials required. China’s new energy policy wants to control the materials needed for “the energy world of tomorrow.” U.S. leadership must take notice.
Indeed, energy permeates the thinking of the Chinese. Realizing that it is at a key disadvantage for oil and gas supply, China is working with heavily resourced Russia to ensure supply.
Russia is gaining influence not just in China but also in Europe, where the contentious Nord Stream 2 gas pipeline connecting with Germany is almost complete, in defiance of U.S. sanctions on the project. Russia is also focusing on exporting liquefied natural gas (LNG), which would give it even more influence and flexibility in supplying the world with more natural gas—increasingly the go-to fuel to reduce emissions and backup wind and solar power.
U.S. policymakers should realize that American shale is the vital buffer to this emerging Russia-China energy relationship. We can change the world’s geopolitics with our energy. In fact, India and other nations are desperate to fully access U.S. shale, as we are seen as a dependable and low-cost supplier.
The energy transition is effectively two giant pieces: the shale revolution; and the shift to wind, solar, and electric cars. But the transformation depends on the country where you live. India, for instance, wants to use more gas, oil, and coal instead of biomass, which has devastating impacts on health. By comparison, in rich and fully developed Europe, the energy transition is about installing huge amounts of wind and solar capacity.
The reality for Daniel Yergin is that the call for oil and gas in the developing world will swamp the decline in demand in the West (OECD nations). There is large potential: some 80%–85% of the global population resides in developing nations that need more energy to grow their economies. Still, the world could see peak oil demand sometime in the 2030s, but natural gas use has no peak in sight.
Still irreplaceable at scale, oil demand will rebound as COVID begins to fade away. During this pandemic, sunken oil use and prices have dominated the energy discussion. The oil market, however, could soon flip. The supply-demand ratio is primed for an about-face because of a lack of investment in new oil supply. As demand rebounds, prices could soar because the production chain today is not readying itself.
Oil prices above $50 would be fine for America’s shale industry to return to. Now at 10.7 million b/d or so, U.S. crude production should mostly be back to normal (i.e., above 12.3 million b/d) within about 18 months; but incremental growth, if seen at all, will be far less than what it has been.
Perhaps the key emerging question for the 2020 U.S. presidential election is: Will the U.S. follow the European move toward mandated clean energy goals? Europe apparently seeks a very expensive “taxonomy” to force the energy transition to renewables and electric cars. Europe is looking to reshape everything over the next three decades, but the costs are already starting to prove prohibitive.
The Biden-Harris climate plan goes partway to “trying it like Europe.” But there is not the same agreement here in the U.S. to support such regulation for families, businesses, and investors. And another Trump term is much more likely to focus on shale’s return.
Given that European leadership is taking away cheap capital from miners, the question becomes: How can countries produce the minerals needed for renewable energy systems and electric cars? Necessarily turning to imports, one key problem for Europe’s energy-climate goals is that many critical materials will come from developing nations that lack adequate law and expertise.
In addition, forced child labor and human rights abuses are entrenched in the mining chains in many of these essential suppliers, such as the cobalt from Congo that is heavily used in electric cars. This explains why the ESG focus that has been on oil and gas will surely eventually turn to net-zero campaigns seeking to install clean energy technologies at all costs.
Finally, Yergin believes that nuclear power and the variety of energy options surrounding hydrogen deserve much more attention. Together, these sources demonstrate that the push for “only wind, only solar” is far too limiting and must be drastically expanded for countries to reach de-carbonization goals.
Editors at RealClearEnergy.