Daniel Yergin on What Happened to the Energy Transition

25:19And they've put controls on the people who have the know-how that they may not be able to have passports anymore. Let's talk about U.S. energy policy. It seems a little unfocused to me. Or we might say variable. OK. Go on. Like how would you characterize it? Or like when you say – let's say it's variable. How would you characterize what's going on with the way U.S. energy security or energy policy? Under Biden, of course, it was all about basically renewables, climate change, the goal that have no gas, natural gas or coal and electric generation by 2035. Half the new cars in America were to be electric by 2030.

26:02That was then. This is now when it's just pretty much in the opposite direction. Can the U.S. – you know, I think Trump would like powerful, dominant U.S. energy industry. He uses that word. Yeah. Is that realistic? Can he get there? I mean there's wanting to expand drilling but with the price of oil – actually it's below 50, below 60 now. It's 58.75 today for – like can these things hang together? Can we have prices at these levels and a booming domestic oil industry? No, I think that's one reason we get into not the peaking but the plateauing for that reason. And you look at the survey from the Dallas Federal Reserve that came out and below 60, people don't – they just pull back and they – husband capital.

26:54And it certainly seemed that it was possible that we would see oil prices below 60 in the latter part of the year and maybe it's come earlier than people might have expected. and very much affected by the trade war between the U.S. and China, among other things. But the U.S. is the dominant player right now. And energy, you know, the new trade deal that you're supposed to have with the U.S., they're supposed to buy more natural gas from us and so forth. And they have, they set up something called the National Energy Dominance Council, which is, you know, kind of the view of the U.S. in this position.

27:31But it is tough to both want to have a very vibrant domestic industry and have low prices at the same time. I know you just mentioned that Europe is still going to be getting U.S. oil, but do you foresee a more, I guess, autarkic energy future for the world? Because it does feel like, at least with manufacturing goods and some strategically important goods, people are stockpiling and people are focused on building out their own capacity. Is that going to be the case in energy or will it be that energy is just so geographically specific and expertise oriented that not everyone can do it? Well, we've already seen a partitioning of the global oil market in terms of Russian oil not going to its natural market, Europe, but going to China, which was a market before, and India, which was not a market before.

28:22We see that in natural gas. So I think call it economic nationalism or economic sovereignty. I think that in a sense, that's what all the tariff policies are about. I think Europe is in a very difficult position because they would like to continue to pursue net zero, as it's called, emissions by 2050. But now they have this other problem, which is called being competitive or rather not being competitive and losing industry. And on the other hand, they're now supposed to spend not 1.5 % but 5 % of GDP on defense. So I think Europe is in a very tough position. And I know you speak to a lot of experts in the energy industry, but what's your sense of the mood on the ground among, I guess, oil and gas workers specifically?

29:12Because on the one hand, Trump has been a friend of oil and gas and has said that he wants oil and gas to be dominant. But on the other hand, a lot of the policies that he's actually put in place, you see people in like the Dallas Fed survey complaining about them and the mood seems to be kind of bad. Well, I think it's both. I mean, I remember CEO of one oil company saying he was actually, to his surprise, was invited to, I don't know if he's joking or not, to the Biden White House, but he said he had to go in through the basement door. And now, of course, they're very, you know, accepted and, you know, and part of the dialogue.

29:48You know, I think it's a mixed message. They were glad to see a reduction in all these new regulations that have been imposed and kind of just the general hostility to an important U.S. industry. But on the other hand, at low prices, you've seen layoffs in the industry. You see people putting down drilling rigs. At this prices, I think, if they persist, we'll see more of a negative impact.

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33:00Complete disclosures available at public.com slash disclosure. So the U.S. is producing massive amounts of oil and gas. How does this sort of change the geography or the energy industry? Well, it really has changed it dramatically. It was really brought home in 2019 when the Iranians attacked the most important infrastructure in the entire world, oil industry in Saudi Arabia, and the price went up for a day or two and then went down. And I think that's because of the existence of shale and just that it kept growing and growing and it gave a sense of security that wasn't there before. I totally forgot about that, but I think I was actually in the Middle East when that happened.

33:38Does OPEC matter anymore? Yes. Well, it's really OPEC Plus that matters right now. And they took a lot of oil off the market, basically giving room market share to the U.S. They've now begun the process of taking back their market share, and that's partly what's reflected in price. One of the things that is a constant theme on the podcast, and it comes up in numerous industries, whether we're talking about housing or lumber or anything else, is that periods of surplus or periods of slack, you end up paying for it at the end. You end up maybe paying for it five, 10 years down the road because you get this decline in production.

34:15The talent leaves the industry. The labor moves the industry. The parts rust and you can't just take them out of the warehouse, et cetera, and start drilling or whatever again. And when you look at the declining price of oil today, are we going to pay for this at some point? Yeah, I think it's interesting because I had to write this new epilogue for the new edition, 30th edition of the prize. And I was thinking about what are the lessons. And one of the lessons to me is among the hundreds of characters in the book, there are only two who really matter. One is supply and one is demand. And they're always fluctuating between the two of them.

34:47And I could see that today. let me give you an example because there's a natural decline that goes on in oil which people are now saying and gas maybe it's five percent a year so in 2021 you had the international energy agency come out with a scenario for net zero by 2050 in terms of emissions and all these steps to get there made it look rather easy because demand was down and price was down they just came out with a new study saying the world needs 540 billion dollars of investment every year between now and 2050 just to kind of stay where we are with oil. So it is that cycle that people forget there's a whole decline there.

35:24And I think if you have a period of slack, you pay for it down the road in terms of a tight market because investment leaves. And I think you made a really important point. People leave too. They say, I don't want to be in this industry. Yeah. We did some episodes a couple of years ago, like actually when oil was much higher, about one of the constraints would be, well, a bunch of, like the petroleum schools, They didn't have the same pipeline of engineering talent because in 2019 or whatever those years were, who is going into majoring in petroleum engineering in those years? Exactly. And now it actually looks like it's a more attractive industry.

35:57There's competition from geothermal as well. If you want to go drilling some rock somewhere, you don't have options. Well, actually, we didn't talk about geothermal. But in fact, there is now the notion, can you apply shale technology drilling to geothermal? Are you optimistic about that? I don't go through optimism or pessimism, I'd just say, but it's promising. Let's see how it plays out. I want to talk more about Europe. You mentioned the industrial economy is getting clobbered. I mean, let's just talk about just Germany. Maybe they were able to substitute LNG imported from the U.S. from some of its Russian sources, but the price is up.

36:32And industrial production in Germany has been terrible. Do you think at some point European leaders will sort of cry uncle or cave on the net zero ambition? Because it feels like the politics of that have been running on fumes for a few years now. Well, you know, it's interesting because, of course, it's so entrenched that it's hard for them. I mean you could say, OK, we're for net zero but maybe not by 2050. But Europe continues to – you know, it's not just energy costs. It's this incredible weight and burden of regulations that are designed without any connection to the markets. I was talking to one company on Sunday and they said they just closed one facility plant in Europe.

37:15They had another one that was 80 % built that they decided not to go ahead with. Talking to another company that's also closing, I mean, they impose these policies with no connection to the marketplace or to technology, saying 70 % of jet fuel has to be so-called sustainable aviation fuel. Well, it's less than 1 % now. And so it's just, if you say it, it's going to happen. So I think maybe in Germany, we're starting to see some of that easing up. But I think that those economic realities are weighing down with them. And if they don't step back, and as I say, it's not just climate policies, but it's this whole regulatory's straitjacket that tells people go invest in the United States.

37:58I do feel like even before Russia invaded Ukraine, there was a sense that, I guess, ESG in general was kind of failing. You know, inflation started to pick up. Zerpira phenomenon. Yeah. Well, inflation started to pick up and suddenly there was what I thought was an inevitable backlash against ESG and targets net zero and things like that. Do you think that ever comes back or how would you characterize, I guess, the helpfulness of ESG when it comes to building out clean energy? Well, I think it was clearly that all was a package together. I think now really the clean energy argument, the argument for solar now is less about that and it's about that you can do it quickly and lay it down quickly and get those electrons into the grid.

38:48So it's more about less about… So the economics are kind of working. economics rather than virtue. And ESG clearly has faded away. I can't see it coming back with the full force that it did because it has a built-in backlash, which we're seeing now. So I think it means that these things have to be more market-driven. Does the boom in LNG exports from the US raise prices for American households? That is, of course, a very critical question. And it was raised at the end of the Biden administration. We did a study on that, you know, we being S &P and the Commodity Insight team there, and concluded that we have a lot of natural gas so that it's not a threat in terms of prices.

39:33Natural gas is not as constrained as oil. What about nuclear? We've gone this entire conversation without talking about nuclear, but nuclear, you know, could solve all these problems. Well, and it's also interesting because that circles back to one of the points we talked about before because you say, well, what's brought nuclear back? Partly it's just time, partly it's need, but I think it's also the entry of the tech companies from being just consumers for software to really worrying about data centers. And you look at it, last time I looked, there had been$6 billion of venture capital infusion.

40:09Nobody ever used to do venture capital and fusion. That was what the government did because it was 50 years away. And we had an event at our CIRA conference in Houston this year where we had Commonwealth Fusion, which came out of MIT, the head of the largest, the main utility in Virginia, and the governor of Virginia saying, you know, we think we're going to have fusion here by 2032. So nuclear is definitely back. Small modular reactors are a hot topic. I think the first ones will be deployed around 2030. So you think they're actually going to happen? Because this seems like another technology that's always five or ten years away.

40:44Well, I think it's going to happen, but I think the test will be then, can you bring down the cost? And is it a more flexible way to add nuclear? But it is, I think it's really the tech companies who, I mean, there you had Amazon investing in one of the SMR companies with the notion that they will then buy successive reactors with the idea that each one, the cost will come down. Now, that will still be tested. It still has to go through regulatory process at the Nuclear Regulatory Commission and all of that. But there's certainly, you have the sort of entrepreneurial Silicon Valley spirit now imbued into nuclear, which, of course, is not an overnight thing.

41:24But it is back on the agenda. And I think history will go back and say, in Germany, Chancellor Merkel's, one of her two biggest mistakes was shutting down the nuclear basically in a weekend. And that was 25 % of her electricity. What was the other mistake? The other mistake was saying, you know, immigration, the door is open. This might be a dumb question, but you know, if - There's not such a thing. I better watch out now. Okay. But if Amazon or someone invests in a small nuclear reactor or some other type of energy plant. How are those agreements actually structured in terms of the offtake? Because I assume they get priority and then does whatever is left over get sent into the grid?

42:09Well, I guess it depends if it is a reactor that's owned by a utility or is it possible that these would be like merchant nuclear reactors. You have seen examples already where some of the, I guess we used to call them big tech, now we call them hyperscalers. When did that happen? We just all started using that term. I don't even – anyway. Yeah, exactly. I think it's about a year. Don't you think? I mean, for the first time, you had to think, what's a hyperscale? Is it like an elephant? What is hyperscale? But where they've signed, where they will take the entire offtake of a nuclear power plant.

42:42So they are very – these companies are very concerned about power because it's so electricity intensive. The other day, there was a story saying that the two data centers that Elon Musk is building in Memphis will use more electricity than all the households. So this is a big issue for regulators. Going back to the question you raised before about who pays for this, how do these costs get disaggregated? Right now, you mentioned electricity costs having gone up faster than inflation. Right now, can we draw a line between these prices and the data center boom? Or is this two things that happen to be happening at once?

43:23I've seen different views on how directly data centers right now are contributing. I think it's part of it. But it's just the general increase of demand, including, you know, EVs, although not on the scale that had been envisioned. So all those things. And just having, I mean, we had gone for 25 years with flat demand in electricity in the United States. And now it's just recently that it's started to grow again. And so you have a whole generation of utilities who've grown up in flat demand and now figuring how do you get things built? How do you get into the regulatory process? And even when you get it approved, then you end up in court because somebody challenges it.

44:03Are we ever going to solve the energy problem? No, I think it will just, I mean, it will always be there as long as industrial society, it'll be one form or another. Maybe fusion, the dream of… Ah, fusion, yes. I used to play SimCity and that was always the ultimate goal. You work up from the gas plant to nuclear and then to fusion. Fusion solves everything. But it's also striking to me what I've noticed, you know, having studied energy for, you know, some time, that you get a consensus about energy and it lasts about three years. And then something new comes along and just changes the view. Are there any past periods?

44:42We actually talked a little bit about the late 90s when there was the gas boom then. Are there any other past periods that people should study right now that might help inform the current environment? Well, I think that what we have to remember, which to me is absolutely critical, is energy security and that it gets forgotten. And for me, I have this story in The Prize about Winston Churchill converting the Royal Navy from coal to oil before the First World War, which to me is that is what made oil a strategic commodity, that transition. Why did he do that? He did it because he gained speed, flexibility.

45:22You didn't need to have all these guys shoving coal on board, and you gained 30 % extra cargo space. That's the very start of the book, right? That's the opening anecdote. Exactly. And I've always thought that phrase, he said, safety in oil, but we could say in energy, lies in variety and variety alone. You don't want to be over-dependent on anything. You want variety, whether in terms of your suppliers, in terms of your sources. Were you ever going to bring whale oil back? You know, I said there's not a single energy source that has not increased. Even wood has increased. The only one that hasn't increased is whale oil.

45:57All right. Joke and dream, I guess. Dan Yergin, author of the probably, I'm pretty sure, the best book on the oil market ever. Thank you so much for coming on All Thoughts. Thank you. It's great.

46:21Joe, that was so much fun. I'm so glad we finally got to do that. I can't believe it took us that long to talk to Dan, but that was great. I know. Well, fortuitous meeting in Washington, D.C. I got to say, his point about the sort of interconnection between energy and technology, definitely, it does seem to be a driving force, right? And as soon as you get new advancements in weaponry or transport or, in this case, software, you do tend to get a sudden rethinking of what your energy needs actually are or some sort of transition. And then on the flip side, if you ever are in an era of energy surplus, you're going to find something to do with it, right?

47:03You never just sit around and it's like, here's a bunch of cheap energy. Let's not do anything with it. Although China is stockpiling successfully, right? Well, they are stockpiling. We don't know for what exactly. But yes, they haven't spent it yet. They haven't spent it yet, although they're spending, I guess, in a sense to acquire all the oil. It does feel to me and it's not like this is that new, but there was a phase in probably the U.S. and Europe in the late 2010s and maybe it extended through 2020. magical thinking with respect to energy being solved, that there is just this clear path towards cheap, clean, abundant energy.

47:43And some sort of realities clearly smacked a lot of policymakers in the face. And I guess the question is, how locked into current plans are they? What has to give? It does feel like in Europe specifically, the constraints when it comes to industry, energy, climate, security are pretty real. It seems to me like the big problem is the cyclicality of the industry. You're constantly going through booms and busts. And as soon as you get a boom in oil production, it inevitably leads to a collapse in oil prices. And then you struggle to build out capacity for years and years. And then there's not enough oil.

48:20And then prices start to rise and everyone goes back in again. If we could find some way to moderate that, I don't know how you would do it, but that might be a way forward. I feel like an underrated element of the Chinese economic story over the last however many decades has just been this like sustained boom without major downturn, etc. And so then you don't get these like big periods of people leaving an industry or whatever that are really hard to escape out of. It's like I sort of think the cure for the boom bust cycle is just perpetual boom. Like that's the answer. Just always be booming.

48:55Always be booming. Always be booming. I like that. But I also have to say, China, as a source of energy demand, you know, they're buying for stockpiles right now, but they're using so many electric vehicles that their gas consumption is actually going down gasoline. It's very impressive. All right. Should we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our producers, Kerman Rodriguez at Kerman Armand. Dashiell Bennett at Dashbot and Kale Brooks at Kale Brooks.

49:26For more OddLots content, go to Bloomberg.com slash OddLots. We have a daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you like it when we talk about the future landscape of the energy industry, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes, It's absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

50:23Thank you.

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