Daniel Yergin discusses global politics of oil

For years, anyone trying to understand the oil industry and its role in the global economy had to start with a single book, “The Prize” by Daniel Yergin. Now Yergin, Pulitzer Prize winner and chairman of the consulting firm IHS Cambridge Energy Research Associates, has published a sequel, “The Quest,” which examines modern oil politics, climate change and the growth of renewable power. The Chronicle spoke with Yergin before his recent appearance at the Commonwealth Club. The interview has been edited for space and clarity.

Q: One of my former Chronicle colleagues had a piece in our paper a few weeks ago arguing that there’s going to be a boom in shale oil the way there was in shale gas. I’ve been hesitant to believe him, because it strikes me you’d need a fairly high oil price to keep that going.

A: It’s not cheap oil. But it’s the new boom. We think by 2020 it could be 2 million barrels a day, which would be a very big number. It doesn’t seem like it’s going to be on the scale of shale gas, which is just much more plentiful. But 2 million barrels a day – if that were an exporting country, it’d be a significant oil exporting country. You look at the numbers for U.S. oil production, it’s up 10 percent since 2008. And our imports, which had been 60 percent (of our oil supply) at the high point, are now down to 47 percent, partly because of new production, partly because of increased efficiency and partly because of the recession.

Q: How high an oil price do we need to have for those oil shale plays to pan out?

A: Probably these new resources need a $50, $60 price to support them.

Q: So if we are going to have that kind of boom in oil production, is that going to bring us back to an era when we’ll see $2 or below for gasoline?

A: I think in the foreseeable future that would only happen with a big downturn in the global economy. We are just at a higher floor. And one of the points I make in “The Quest” is we entered this new era around 2004, when it became clear that China was not just a source of cheap manufacturing and a lid on inflation but, it in fact was a huge market in itself. The dynamism of the growth there offsets what we call peak (oil) demand in the developed world. Last year, 11 million cars were sold in the U.S. and 17 million were sold in China.

Q: So even if we have more oil production come online domestically, are we still – as a world – going to be prone to the wild swings in prices that we had in the last 10 years?

A: I think so. Because you have everything from geopolitics to the pace of economic growth. If we got back on a fast-growth path again after this current downturn, we’d see stronger prices again.

Q: You mentioned peak demand. Do you think U.S. demand for oil and gasoline has peaked or flattened out?

A: Yes. I definitely think that around 2006, 2007 we reached our high point. And it will bounce back some after the economy gets going again. But cars are going to be a lot more efficient. You can see Detroit has a different ethos after the hell it’s been through. By 2025, 54 miles per gallon is the target. And that’s a lot different from 30 miles per gallon. Plus demographics. From the ’70s onward, you had a huge movement of women into the labor force. And that was reflected in increased driving. Now we have that saturated as well.

Q: So if we are going to have increased oil production, and it’ll have at least a moderating effect on prices, are biofuels just toast?

A: I don’t think so. On a volumetric basis, they’re almost 10 percent of our (fuel) supply. I think that’s why you’re not going to see an expansion of oil refining in the country. When I started writing “The Quest,” the hot subject was biofuels. And it was being pursued because of cost, public opinion and geopolitics. Now it’s kind of gone off the table, and all the attention is on the electric car.

Q: A couple of years ago, when I’d be reporting on biofuels, it was my sense that right about now would be the point when we’d know whether cellulosic ethanol really panned out.

A: Of course you can always be surprised, but what I’m hearing from people is that generally, it’s just a harder nut to crack. It’s not a question of whether you can do it. It’s a question of whether you can do it economically at commercial scale.

Q: Do you think electric cars are a flash in the pan, or are they here to stay?

A: I think it’s still just very early days, and it’ll probably be another half-decade before we really know whether this is a niche product. And I even find within the senior leadership of the automobile industry quite a lot of disagreement. You have (Nissan CEO) Carlos Ghosn, who’s just convinced that this is the way we need to go. And you have other executives who say, “Well, we’ve got to try everything, and this is one of them.”

Q: So we’ve got increased oil production, biofuels not gaining traction the way people thought, we’re still trying to see if electric cars gain traction – what happens with global warming in all of this?

A: There are three main themes in the book, and the third theme is exactly that: getting the energy for a growing world, and how is that compatible with the environment? The truth is there’s not a simple answer there. Because you’re not going to be able to tell the Chinese, “You can’t have automobiles – you can’t have the standard of living that we do.” I think part of the answer is to become a lot more efficient in how we use energy. Doubling our energy efficiency would be a huge contribution. We’ve done it once, we can do it again. It also means we need robust spending on (energy) research and development. You see these dollars go up and down. And that’s just not the way to do it.

Q: What portion of our energy supply do you see coming from renewable power by 2020 or 2025?

A: Looking out to 2025, 2030, if we are back on an economic growth track, we see (global) energy demand growing by as much as 35 or 40 percent. And we see renewables becoming a much bigger business. But when you look at the numbers – the lead times, how long it takes for things to come in and change the energy system – the mix doesn’t look too different from today. We’ll have more wind, some more biofuels, more solar. But overall on a global basis, the mix will shift somewhat but not a lot.
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