Yergin: Only politics can threaten energy supplies

AP News
Posted: Oct 26, 2011 6:24 PM
Yergin: Only politics can threaten energy supplies

Fears that energy producers will be unable to meet rising global demand have come and gone many times since oil was first drilled in Titusville, Pa., in 1859.

They surfaced again earlier this year as the price of oil spiked above $100 a barrel. But, says energy historian and consultant Daniel Yergin, these fears are unwarranted.

Yergin, best known for his 1992 Pulitzer Prize-winning oil epic "The Prize," forcefully makes the case in his sort-of sequel, "The Quest: Energy Security and the Remaking of the Modern World." The book, released in September, continues the story of oil from the early 1990s up to the present. It also includes a history of electricity, renewable energy and climate-change science.

Among the major conclusions in the book: New drilling technologies and better efficiency will ensure there's enough energy to satisfy a world population that is growing and becoming wealthier. It just may cost more than we are used to paying.

Yergin, 64, is the chairman of IHS CERA, an energy consulting firm he co-founded in 1983. He began writing "The Quest" _ in longhand _ in 2006 and soon was met with a wave of dramatic events in the world of energy to fill its pages: Record-high oil and gasoline prices; staggering new discoveries of natural gas; the worst oil spill in U.S. history; and civil unrest in North Africa and the Middle East, which is responsible for a third of world oil production. All of this happened against a backdrop of mounting evidence that burning fossil fuels is responsible for changing the planet's climate.

Then, just weeks before Yergin planned to turn in his manuscript, a nuclear disaster in Japan shifted the ground under the global electric power industry.

"I didn't finish the book," Yergin says. The publisher "took it from me."

"The Quest" explains how the world's energy mix will shift in the coming decades from oil and coal and toward natural gas and renewables such as wind, solar and biofuels _ but very slowly. Rising prices for fossil fuels will spur new technologies for finding them, and for developing alternatives.

Yergin spoke with The Associated Press in New York about energy's past and future. Below are excerpts of the interview, edited for length and clarity.

AP: Since The Prize in 1992, what do you see as the two or three most important changes in the energy business?

YERGIN: Number one is the collapse of the Soviet Union and the reintegration or the reconnection of that whole region with global markets. And the other thing is the rise of China. It's the single most dynamic element in the global supply picture. I'd also put among the top changes in technologies that are opening up new supplies of oil.

AP: With China and other emerging economies growing fast, will the competition to secure oil lead to political conflict?

YERGIN: That's a very common fear. And it's a great subject for a thriller. But China and the United States have common interests in terms of stable oil markets, access to oil, a healthy world economy and economic connections between the two countries. Clearly you can see the potential for some flash points, but there isn't a fundamental competition.

AP: There's growing demand for oil in the world. Can producers meet it?

YERGIN: The resources are there. The investment plans are there. If (the resources aren't developed) for some reason to the level that might be expected, it would be for political reasons.

AP: Iraq's oil production is only a fraction of what experts think it could be. Will Iraq's economic potential ever be realized?

YERGIN: The view is that Iraq's potential is very great, and it really could be competitive with Saudi Arabia. It's noteworthy that you have a very wide group of companies in terms of nationalities who are working there. Companies made the decision to be there with all the risk because they recognized the potential is so great. And something like this doesn't come up every day.

AP: North and South America have begun to increase their oil production and make large new discoveries. How is that going to affect the global oil industry?

YERGIN: It would mean that the Persian Gulf would be increasingly looking eastward to Asia for its markets, not to the Western Hemisphere. During World War II there was a famous geologist named Everette DeGolyer who Roosevelt sent to the Persian Gulf to assess what people said were giant discoveries. And he came back and reported to Roosevelt that the center of gravity of world oil was shifting from the Gulf, the Caribbean, and the Southwest of the United States to the Persian Gulf. Now there is somewhat of a shift backwards from that.

AP: Could oil prices ever fall back to $20 or $30 dollars a barrel for an extended period?

YERGIN: If we have another sharp (economic) downturn you could have that sort of thing happen again, but not for an extended period of time. The cost floor for oil for new large expensive projects seems to be between $60 and $70 (per barrel). If you had a low price for any period of time, those projects get put on hold, and the market (price) rebalances just because the supply isn't coming on.

AP: The national average for gasoline in the U.S. has been about $3.50 per gallon this year. Will Americans get used to those prices and go back to gas-guzzling cars?

YERGIN: That's not something that they'll just become accustomed to. Gasoline prices around this level will continue to keep people's minds focused on fuel efficiency.

AP: How will electric cars change gasoline demand?

YERGIN: It's still the very early days. In our most optimistic scenario we show that about ten percent of (global) new car sales in 2020 could be electric vehicles. That's still a lot of cars. But it's a small part of the overall market. So you don't really start to see the impact until 2030.

AP: What's going to be more important, the need to drill baby drill or to protect the environment from the oil industry?

YERGIN: We use a lot of oil. We can produce more. The question is how do you manage it in an environmentally appropriate way. I think we can do it.

AP: Can you talk broadly about renewables and their impact on fossil fuels?

YERGIN: There's plenty of room for surprises, but the world energy system won't look much different twenty years from now. The world today is eighty percent oil, natural gas and coal. Twenty years from now it will be somewhere between seventy and seventy-five percent. There'll be a change in the proportions but the real changes will come after 2030 because of lead times and the scale and so forth.

AP: Is there another wave of energy efficiency coming, like there was after the oil shocks of the 1970s?

YERGIN: I think that's happened. I think that the (price) signals that people got starting around 2004, 2005 are really working. The subject of energy efficiency used to actually be a fairly contentious subject. And yet today it seems to me there's a pretty strong consensus across the political spectrum. And it's more part of people's mentality. Just think if we hadn't had that improvement in efficiency how much more difficult our energy issues would be.