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Daniel Yergin: Looking Back and Forward at Big Trends in Energy

Daniel Yergin: Looking Back and Forward at Big Trends in Energy thumbnail

Pulitzer prize-winning author and energy analyst Daniel Yergin kicked off the 2014 MIT Energy Conference Friday by looking back at big changes in the energy landscape since the conference launched in 2006—and ahead at three visions for the future of energy.

Dr. Yergin, Vice President of IHS and author of two bestselling books on the history of energy, The Prize: The Epic Quest for Oil, Money, and Power and The Quest: Energy, Security, and the Remaking of the Modern World, said much has changed over the last decade in the energy world.

From “Peak Oil” to Energy Abundance?

“It was the year of Peak Oil,” Yergin said, looking back at 2005, when the MIT Energy Initiative was launched and the first MIT Energy Conference conceived.

America and the world were concerned about rising global oil demand and stagnating production, with a growing consensus that global oil output was heading for a steady decline.

China had just joined the World Trade Organization in 2001 and was growing at a rate of 9 to 10 percent per year.

America and Europe had yet to enter the economic crises that disrupted their growth from 2008-2010.

Oil prices were rising fast, spiking above $60 per barrel for the first time (in nominal terms) in 2005 and on their way to north of $120 per barrel in 2008.

U.S. gasoline prices also shot up by more than a dollar per gallon to more than $3.00 as Hurricane Rita damaged Gulf Coast oil refineries and revealed the fragile margins between supply and demand.

US imported crude oil prices, 2000-2014

Figure: U.S. Imported Crude Oil Prices, 2000-2014. Source: US Energy Information Administration

In marked contrast, the debate in 2014 is about whether or not the United States should begin exports of newly abundant domestic natural gas and oil.

Unconventional oil and gas production based on hydraulic fracturing has upended discussions of peak oil and changed the energy landscape, Yergin said.

“Since 2005, U.S. oil production is up 3 million barrels per day. To put that in perspective,” Yergin told the audience at MIT, “that’s more than the output of 9 of 12 OPEC nations.”

U.S. Field Production of Crude Oil, 2000-2012
Figure: U.S. Field Production of Crude Oil, 2000-2012. Source: US Energy Information Administration

The shale gas “revolution” has given North America new supplies of low-cost natural gas, which is shifting the balance of manufacturing competitiveness in America’s favor, Yergin noted.

While cheaper natural gas is giving a boost to U.S. manufacturers, Yergin says European countries are increasingly worried about a new wave of “de-industrialization” due to globally uncompetitive energy prices.

Meanwhile, liquefied natural gas terminals originally intended to import gas in 2005 are now planning to be export terminals, with half a dozen projects winning approval from the Department of Energy as of February.

Rise of Renewables and the Globalization of Energy Demand

If unconventional oil and gas are one big game changer in the energy landscape over the last decade, the other is the rise of non-hydro renewable energy sources like wind and solar energy.

In the year 2000, only about $5 billion was invested in renewable electricity technologies, Yergin said. By 2012, renewable energy investments surpassed $240 billion. Wind and solar are now mature and fast-growing industries.

By 2012, global wind energy capacity stood at 283 gigawatts, a more than 16-fold increase from 2000, while solar had grown more than 70-fold to over 100 gigawatts globally.

Global wind energy capacity 1996–2012

Figure: Global Wind Energy Capacity, 1996-2012. Source: REN21 “Renewables 2013 Global Status Report”

Global solar PV capacity 1995–2012

Figure: Global Solar PV Capacity, 1995-2012. Source: REN21 “Renewables 2013 Global Status Report”

Still, energy transitions take time, and Yergin’s IHS team projects that even at a robust 7 percent annual compound growth rate, renewable electricity sources (excluding hydroelectric power) will grow to only 15 percent of the global electricity share in 2035.

Part of the challenge is that global electricity demand is rising nearly as fast as renewables, as energy demand becomes more global.

While energy demand is fairly flat in developed economies, like the United States and European Union, energy needs are rising fast in the world’s emerging economies.

Emerging economies will account for more than 90 percent of global energy demand growth over the next two decades. By 2035, today’s developed nations will account for less than half of global energy use, according to the International Energy Agency.

Global Energy Demand Projections 2035

Figure: Projected Primary Energy Demand Growth in Key Regions. Source: International Energy Agency “World Energy Outlook 2013” 

That means that despite growing production, global oil prices have persisted at about $100 per barrel, and we look back today at all that consternation over $60 per barrel oil and $3 per gallon gas in 2005 with fondness.

Rising demand in the emerging economies has another impact. While wind and solar growth was concentrated in OECD nations over the last decade, going forward, Yergin sees renewable energy finding a larger foothold in these emerging economies as well.

Just look at China, where the nation’s over-reliance on coal and the resulting air pollution problems choking major cities like Beijing and Shanghai is motivating major investment in cleaner energy sources.

While China is still the world leader in coal consumption, they have simultaneously become the world’s largest market for wind, solar, and nuclear energy as well

Other emerging economies from India and Africa to South America are also beginning to adopt renewable energy, and Yergin sees these trends accelerating going forward.

Renewable Energy Capacity Growth By Region

Figure: Projected Annual Renewable Energy Capacity Growth by Region, 2012-2018. Source: International Energy Agency “Medium-Term Renewable Energy Market Report 2013”

Three Visions for the Future of Energy

Yergin closed his remarks at the MIT Energy Conference by describing three scenarios for the future of the global energy landscape. These three visions, created by IHS, sketch markedly different paths for the evolution of the energy sector over the next two decades.

The first vision, which Yergin called “Global Redesign,” sees the continuation of the unconventional oil and gas and renewable energy trends described above. This becomes an “all of the above” energy future, where the unconventional oil and gas booms go global, as do renewable electricity and biofuels. Electric vehicles remain fairly niche in this world, and coal’s share of the global energy mix declines modestly.

The “Meta” scenario envisions a series of climate change-related disasters—major droughts, floods, or hurricanes—and rising oil prices motivate a more rapid increase in the global use of renewables and new nuclear reactors, including small modular reactors, as well as a push to electrify transportation with plug-in electric vehicles.

Finally, a future of global economic insecurity leads to the “Vortex” scenario, where energy security and affordability become the chief priority, leading to a greater reliance on coal and stagnation of renewable energy growth.

In the end, “you vote for the energy future you want to see with your work, your passions, and your career,” says Dr. Yergin.

Which energy future are you working to make a reality?

Energy Collective

20 Comments on "Daniel Yergin: Looking Back and Forward at Big Trends in Energy"

  1. meld on Mon, 24th Feb 2014 3:08 pm 

    Vortex scenario seems the current destination. Even at $500 a barrel oil is still more efficient than solar or wind at transporting.

  2. shortonoil on Mon, 24th Feb 2014 3:42 pm 

    It is unfortunate that Mr. Yergin is not aware that the full life cycle production costs, including replacement of reserves, will never again be completely covered by the price of petroleum. As it has been the energy provided by conventional crude production that has driven world economic growth for the last century (see graph# 25 of the study below) the outcome is not likely to be one of improving economic conditions.

  3. Davey on Mon, 24th Feb 2014 4:17 pm 

    Lobby of plenty and technological exceptionalism Yergin nowhere mentions a financial correction, contraction, or collapse. These projections are nothing without a healthy financial system.

  4. meld on Mon, 24th Feb 2014 4:43 pm 

    Simple way to spot and idiot is to see if they think exponential anything can exist. If they show you a hockey stick graph it’s a good chance they are talking out of their arsenholen

  5. meld on Mon, 24th Feb 2014 4:44 pm 

    another good way to spot an idiot is to see if they put “and” instead of “an”


  6. Plantagenet on Mon, 24th Feb 2014 5:00 pm 

    China is on the “vortex” strategy—the US is on the “global redesign” strategy. May the best idea win!

  7. rockman on Mon, 24th Feb 2014 5:10 pm 

    “The shale gas “revolution” has given North America new supplies of low-cost natural gas, which is shifting the balance of manufacturing competitiveness in America’s favor, Yergin noted.”

    In this case it’s possible to slam him as an unmitigated propagandist. He knows very well what brought on the low NG prices: an abundant supply of NG along with decreased consumption. These NG reserves were not low cost: the wells were very expensive and were justified with price expectations of $8/mcf and higher. I had first-hand experience working in the east Texas shale gas play for Devon when the bubble popped. I wonder if Danny boy was actually drilling such wells at the time? The rig count for those plays dropped more than 70% in a matter of months once the price support was lost.

    Being an “expert” he should know this documented FACT very well. Just about everyone here knows it. My dog even knows it. His rationale is 100% bullsh*t with regards to the “shale gas revolution”.

    No wonder so many folks think we’re all lying bastards…some of us are. LOL.

  8. Stilgar Wilcox on Mon, 24th Feb 2014 5:17 pm 

    1. Global Redesign, 2. Meta or 3. Vortex?
    You make the call!

    Is there a sense here Yergin is offering up three options for us to choose from (instead of the exalted one choosing), as a ‘tell’ he is voluntarily taking himself off the pedestal of supposed ‘Oil Expert’, in light of his previously conjectured inaccurate predictions, such as 1-2% depletion and crude peaking at 120 mbd?

  9. Northwest Resident on Mon, 24th Feb 2014 5:31 pm 

    “new nuclear reactors” — Atta’ boy, Yergin. Keep plugging those new nuclear reactors — WTF, we’re all totally screwed anyway.

    Question: How long does one nuclear reactor last?

    Answer: 40 to 60 years max, maybe 100 years in best case scenario provided expensive maintenance and spare parts are provided.

    Imagine if we go down the “nuclear power plant” path. After a couple thousand years, we’ll have hundreds if not thousands of these decommissioned monsters dotting the landscape along our rivers, lakes and sea shores. If we survive that long, of course, which odds are we won’t especially with all these nuclear disasters waiting to happen.

    Have you thought about that, Mr. Yergin? Or do you even give a damn?

  10. C. Paul Davis on Mon, 24th Feb 2014 6:56 pm 

    As usual Mr.Yergin left some key questions unaddressed and unanswered:

    1.What will be the long term cost of unconventional oil? Above $100?

    2. How long will the “new” unconventional sources be able to produce oil? A few decades?

    3.What will be the EROEI be for unconventional oil in the years ahead? Less than 10?

    Paul Davis

  11. Nony on Mon, 24th Feb 2014 7:46 pm 

    @Rock: I think you are being too rough on Yergin.

    (1) He admits that we are at 100 and that this is even worse than the 60 from 2006.

    (2) Sure gas gets drilled more at 12 and less at 2. That’s no brainer and Yergin understands it. It’s NOT a revalation that there was a glut and with it, rigs moved off. Everyone knows it. Yegin, Zuckerman, Aubrey, etc.

    (3) Are you really sure that $8 gas is required to drill shale gas?

    (a) Plenty of articles say it is feasible at $5.

    (b) Marcellus production is expanding NOW (iow new wells, remember “rapid decline”) even though summer gas futures are at ~4.80.

    (c) Long term gas futures are at ~4.90.

    (d) Long term supply for chemical customers are being made at low prices, billions are being sunk into export facilities, etc. This would not be happening in a world that believed gas production could not keep pace without $8.

  12. Northwest Resident on Mon, 24th Feb 2014 8:02 pm 

    “Plenty of articles say it is feasible at $5.”

    From where? Motley Fool, Bloomberg and Forbes? Where else?

    “This would not be happening in a world that believed gas production could not keep pace without $8.”

    Says who?

    I love your optimism, Nony. When it comes to Peak Oil and NG, you always see the glass half-full and somehow manage to piece together quasi-reality-based information that bolsters that optimistic POV. I don’t believe there is a single discouraging or show-stopping fact regarding NG or Peak Oil that you couldn’t find a way to question.

  13. Nony on Mon, 24th Feb 2014 9:06 pm 

    I think the natural gas glass is 7/8 full. The oil glass is 1/4 full.

    P.s. Talking to you makes me want to drink beer. 😉

  14. Nony on Mon, 24th Feb 2014 9:09 pm 

    P.s.s. You left out Seeking Alpha. 😉

    And sure, I am processing a lot by reading on the Internet. But I’m eclectic. I read The Million Dollar Way, but I’m also HERE aren’t I. You can listen to more than one kind of music, eat more than one kind of food, date more than one kind of girl.

  15. Northwest Resident on Mon, 24th Feb 2014 9:45 pm 

    I love your optimism, Nony.

  16. MSN (revised) fanboy on Mon, 24th Feb 2014 10:03 pm 

    That bastard lied to me

  17. Nony on Mon, 24th Feb 2014 11:01 pm 

    I bought his new book, The Quest.

  18. Yeti on Tue, 25th Feb 2014 1:43 am 

    Yeah, I bought a copy too so as to be better prepared to argue the case of the Peak Oil Dynamic. I like the term rockman, it reframes the argument of what we’re facing by focusing on the economic impact as opposed to “what’s left”.
    Working in finance, I’m struck by the similarities between the run up to the so called sub-prime crisis and the bull-market all is well attitude we have now.
    My boss privately is concerned and sees the problem(s), but how do you run an equity shop without being bullish when you go to clients?

  19. Arthur on Tue, 25th Feb 2014 7:58 am 

    Still, energy transitions take time, and Yergin’s IHS team projects that even at a robust 7 percent annual compound growth rate, renewable electricity sources (excluding hydroelectric power) will grow to only 15 percent of the global electricity share in 2035.

    That’s perhaps a global average, but some countries will do much, much better than that, showing that the actual percentage will be a matter of choice, not some mysterious ‘limits to growth’ when it come to renewable’s.

  20. bobinget on Tue, 25th Feb 2014 2:52 pm 

    GE scientist seem sold on tight gas if not current technology.
    (Reuters) – General Electric Co (GE.N) plans to intensify research focusing on complex energy projects such as waterless fracking and gas turbine efficiency by earmarking an additional $10 billion through 2020 for its “ecoimagination” budget.

    The commitment, which represents roughly two years’ research spending for the manufacturing giant, comes as General Electric responds to new opportunities created by the U.S. energy boom.

    “The reserves are here. The potential is here,” Chief Executive Jeff Immelt said on Monday, describing how new drilling technologies have unlocked vast oil and gas reserves.

    Energy companies need help reaching fossil fuels but also bringing them to markets and GE can offer that know-how, the executive said.

    “There’s just technical intensity that is going into these industries,” he said at a Bloomberg energy event in Washington.

    Hydraulic fracturing, or fracking, has revolutionized energy development but the technique requires huge volumes of water to rattle oil and gas from deep underground.

    The method is controversial as landowners and communities raise concerns about the safety of drinking water in energy patches and GE is trying to develop drill techniques that use gas rather than water, executives said.

    Energy is the fastest growth area for GE as the global manufacturer works to become a dominant supplier of equipment and services to oil, natural gas and alternative power companies.


    As part of the new focus, GE will study with Norway’s Statoil (STL.OL) how to use carbon dioxide (CO2) in hydraulic fracturing – a process that mixes more than 2 million gallons of water per well with chemicals and sand to extract oil and natural gas.

    The energy industry’s copious use of water has put it into conflict with some residents in Texas, New Mexico and other arid states, and many companies have been trying to find ways to curb fracking’s use of water, looking at using CO2 and even propane.

    While CO2 fracking is not economical today, the companies hope to find a way to collect CO2 at the wellhead, recycle it, use it to frack again, then collect the CO2 and repeat the process, Little said.

    “Ideally, we’d have a virtuous cycle going on,” he said.

    A key challenge will be to help the CO2 carry proppant, a type of sand that holds open the cracks in rock so oil and natural gas can escape, much like water does in current methods.

    GE also wants to boost the efficiency of its natural gas-powered turbines to 65 percent from today’s 62 percent. The company believes its existing research into jet engine efficiency could help significantly reach this goal, Little said.

    GE has also become of the world’s largest wind turbine manufacturers since it bought Enron’s wind business in bankruptcy.

    (Additional reporting by Patrick Rucker in Washington and Ed McAllister in New York; Editing by Terry Wade, Leslie Adler and Bernarrd Orr)

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