WTH: The price of gas is too damn high
Dan Yergin joins us to talk fossil fuels, energy independence and who's to blame
Three things from this week’s pod:
An “energy transition” isn’t going to happen over night. Or year. Or decade.
Green energy has its own costs and dependencies. How many new mines can we dig?
There are choices ahead about whom to depend on for energy. If it’s not Russia, it must be the United States.
Car driving, commuting, holidaying, ubering, doordashing Americans are used to affordable energy. But those days appear to be all but gone. It’s not all Joe Biden’s fault, and certainly not all Vladimir Putin’s fault. There’s a concatenation of circumstances that together have combined to hit the nation with the worst energy inflation in decades. And there is relief in sight, if… if the nation’s leaders stop lying to themselves. And to us.
Solutions to climate change are not magical. Each — wind, solar, electric — carries its own risks, and some carry their own emissions. The world will continue to turn as nations try to meet emissions commitments. China has a great deal of sway over key minerals needed for any “energy transition.” Continued relentless opposition to nuclear power is tying the hands of most western leaders who are being forced to revert to coal.
And then there’s the whole the-apocalypse-is-coming crowd. They’re not helping at all; when it comes to heating your home, getting to work, and affording food, guess what? We know what choices individuals will make. As Steve Koonin has said repeatedly, what's needed is adaptation, not unmeetable deadlines that leave us prey to the whims of Xi Jinping.
HIGHLIGHTS
Things would be much worse without US LNG production:
Yergin: The US is the world's largest producer of oil. And if we were not, we'd’ve been in much more serious problems than we are. And in fact, we were until there was an accident in Texas, on schedule to be the largest exporter of LNG in the world. We're still one of the largest. And our LNG exports have become a national security asset to the Europeans in a way that they never thought about it before the invasion of Ukraine.
Are high gas prices Putin’s fault?
Yergin: This energy crisis did not start with Ukraine. This started last autumn. When the world started to get free of COVID and economic activity really took off. And suddenly China was short of coal. The world was short of LNG, liquefied natural gas, and the Europeans were paying five to six times what they had paid before for imported gas. And then, and then of course oil prices went up too. Remember it was last November, well before the war, that the administration suddenly started to get very worried about gasoline prices because that was just a year before the election. So this was already in motion. What's happened now is a global energy crisis, has now become a global geopolitical crisis and made worse by it now, of course, this war and the difficulties, uncertainties, and risks of Russian oil and gas production, which really now is putting great pressure on the European economy.
Wasn’t it obvious demand would skyrocket after COVID?
Yergin: …the assumption was quite prevalent that actually it wasn't going to take off. That 2019 was a high point for energy demand. The energy transition was going to move at warp speed and oil and gas and coal would all be irrelevant. But here we are in 2022 and 80% of the world's energy comes from oil, gas, and coal and demand really did take off. And meanwhile, we've seen what I've taken to the calling preemptive under investment in energy resources, on the premise that there were going to be needed. And it turns out they're really needed. And what's really compounded this crisis. And right now is giving Vladimir Putin some high cards to play.
What about the “energy transition”?
Yergin: I think that thinking has gotten ahead of reality. Yes, there is an energy transition. It's a longer process. One of the things I looked at in The New Map, which was really eye opening for me is this phrase, “energy transition” just gets thrown around. So I look back at all the previous energy transitions and it went so far as to say the energy transition actually started in January of 1709, when an English metal worker figured out you could make iron better using coal rather than wood, but all the previous energy transitions unfolded over a century and they weren't really transitions, they were energy addition. And a very good example is oils discovered in Pennsylvania 1859. Not until the 1960s does oil overtake coal as the world's number one energy resource.
But by the way, today, the world uses about four times as much coal as it did during the 1960s. And so now this energy transition [that] has never happened before to say in 28 years, we're going to completely change the energy basis of a $90 trillion economy. And oh, by the way, we're going to get half of that done by 2030. It's never been done before. So it is a really big gamble
So in rushing to shut down an existing electric power system to replace A with B, when B is not fully deployed is a risky thing for the economy. And that's why, as you say there's a lot of concern. If we have a hot summer this summer, what the pressures will be on our electric power system. And that's really pretty divorced from what's happening outside in the sort of global energy crisis.
What about free sun and wind? Can’t that help?
Yergin: People may not have noticed this, but the international energy agency, the IMF, the World Bank, the US government, the European Union have all actually written papers and put out reports, warning that there's a real question about, as you're saying the rare earths and indeed the minerals that you need to move towards wind and solar. People think, oh, wind free, sun free. Yes, but you need an enormous amount of minerals for that system. And that means you need a lot more mining. And the way I put it in The New Map, we're moving from a world of big oil, which of course is what headline writers and broadcasters love to say, to a world of big shovels because you're going to need so much more mining at a scale that people are just not comprehending.
The international energy agency in its report said, by the way, on average, it takes 16 years to go from discovery to opening a new mine. 16 years from today would be you're talking about 2038 and maybe it's 2040, because you got to get permits. And this mining, you can't get a permit very easily to open a new mine in the United States. So these mines will come from somewhere else, these minerals, and by the way, the new supply chain for net zero in a very substantial way, happened to pass through a country called China, and so there's where you see the energy transition and the new geopolitics colliding not tomorrow, but five or 10 years, particularly as you move in that direction. So that needs to be thought through too. Again, thinking needs to catch up with what are going to be the new realities.
Does Joe Biden get that the war on fossil fuels needs to end?
Yergin: I think there's been something of a turnaround, I mean after all during the campaign, the Democratic primary, President Biden was talking about stopping drilling. Now his administration has been urging more production from the US industry. They've come to understand that it's not a light switch, that it actually, even if you want to start a new shale well, today it'll still take six to nine months to produce. And it was Joe Biden who promised the European 15% more LNG. So I think they've come around to realizing, maybe not everybody in the administration, but this is a big strategic asset for the United States. And they've asked for more production. There's only one country that's really adding a lot of new production this year. It's called the United States of America. Our oil production is probably going to go up according to the administration's own energy information administration, 800,000 to maybe even a million barrels a day. We're adding more new oil production in the United States than all the rest of the world combined. And it could not be more timely. It's one of the brightest spots in what otherwise is the rather grim global energy picture.
Full transcript here.
SHOWNOTES
Dan Yergin Talks Oil, Gas, Putin, And Living His Book, ‘The New Map’, Forbes, June 12th, 2022
Putin’s Energy Power Play, The Rachman Review Podcast, Financial Times, June 9, 2022
Israel and Egypt sign gas export deal as Europe seeks Russia alternative, Washington Post, June 16, 2022
Climate Action Meets Energy Security: The Russian Invasion of Ukraine Adds a New Dimension to Energy Transition, Foreign Policy Research Institute, June 13, 2022
Biden to urge Congress to suspend federal gas tax for 3 months, Washington Post, June 22, 2022
Energy leaders tell Biden to tone down rhetoric following demand to boost oil production, Washington Times, June 15, 2022
Affordability, security, and emissions reductions: The sustainability trilemma, Atlantic Council, June 14, 2022
Asia will become the ‘default market’ for Russian oil, Dan Yergin says, CNBC, March 29, 2022
What Caused an Explosion at a Texas Energy Plant? Jim Geraghty, National Review, June 22, 2022
Democrats may drop another clean energy proposal to appease Manchin, Washington Post, June 22, 2022
Attack on Russian Gas Platform Exposes Moscow’s Black Sea Vulnerabilities, The Moscow Times, June 22, 2022
US-EU Task Force On European Energy Security Denounces Russia’s ‘energy Coercion,’ Republic World, June 23, 2022