Daniel Yirgen has written some of the most influential books on energy, advising companies and governments on policies and markets. He is currently Vice President of IHS Markit. His latest book, The new map – Power, Climate and Conflict, The rise in the United States and the rise in China see how oil policy has changed over the past two decades. Jገንrgen, 74, recently sat down with him Of Baron To discuss the dynamics of new energy markets. Edited scriptures follow.
Baron: He wrote about more than 150 years of oil. Is it over now?
Dan Yirgen When I returned to my fourth book, I thought about it, The prize. It is not necessary to think about the future when the demand is only growing, or when it is high. And that oil had a permanent monopoly on transportation. None of them are true anymore. I think oil and natural gas will continue to be important components of energy for a long time to come. But it will be a very different mix. Reforms will be a big part of it. Maybe hydrogen or something. So it will not be the age of the oil – it will be the age of the energy mixture.
The oil industry has had bombs and buses for decades. Prices go up, digging starts. Prices go down, digging goes down. Now American oil companies are doing something new – they are slowing down to produce oil even as prices go up. They will be more disciplined, they will say, “No more digging, baby, digging.” Do you think that is the case?
I think it holds, because we are now witnessing the Second Shale Revolution. It is the revolution in the relationship between investors and companies. It is no longer growing at any cost. To return investors to the field, you need to return money to investors and rebuild confidence. I don’t think we can ever see unrealistic happiness, as we have seen in the past. I think the pressure on the investor is too much, and the investors will not come back much until they make sure there are enough regular returns.
Do you think the industry is now invested? The stock has been much higher than last year, but has disappeared over the past few months.
“It will not be the age of the oil – it will be the age of the energy mixture.”
I think they will invest again. It was a pleasure a month or two ago when prices went up to $ 100 per barrel. Unless there was a real crisis, we were skeptical. Prices seem to be in the range of 60 to 80. What we saw before the shadow of the delta fell to the ground is that it is becoming stronger than most people expect. Demand for oil increased by seven million barrels a day in the first quarter of this year. The world will continue to use a lot of oil for a while.
There are some investors who do not want anything to do with the industry. But for those who see the returnees living there, and for those who are consistent, those returnees will be very interested as part of their portfolio. Unless we have another major viral crisis or a major crisis in US-China relations that will shape the world economy, these companies will be more focused on paying off debt and repaying investors. They have it in the past.
You mentioned US-China relations. Your book examines how much your world has changed in terms of energy policy. Globalization has been declining over the past decade. Of course, Donald Trump was behind them, but it happened before and after. Will that change the volatility in oil, and perhaps future prices?
I think I write a lot in geopolitics, which is part of the story. It calculates the relationship between the United States and China in different ways. For China, the question of ownership in the South China Sea has a lot to do with oil imports. The Chinese import 75% of their oil. And they want America to be independent. They worry about the US Navy and that oil shipment. China, on the other hand, has become an important market for US oil and gas exports, something many people do not know.
The big question is where does the US-China relationship go from here. As you said, the change began before Trump came. Until 2015, it was led by what I called [The World Trade Organization] Agreement: China will be a responsible shareholder in this global system. It’s amazing how much things have changed. [Barack] Obama’s final national security strategy discusses constructive engagement with China. And they see what happens next, not just in Trump, but in power [President Joe] Baiden. Bindon is there like the people of Obama’s time. Binden is a strategic competitor, talking about China’s great power race. And the Chinese see it the same way. Finally, the biggest geopolitical and economic question of the 21st century is where this US-China relationship really goes.
Part of Trump’s Chinese trade deal was that the Chinese would buy a certain amount of our fossil fuels. Does that start to change? Can China say “we will push Russia” or another supplier?
I really think it can happen, because if the Chinese show resentment, they will take action. Australian wine will no longer go to China. They will stop selling the earth’s unconventional minerals. But for them, the bottom line is that we are the most important export market for them. So retaliation breeds vengeance. They are importing oil and gas from the United States as part of a strategy to manage trade balance between the two countries so that they can continue to sell more goods to us.
You also write a lot about Russia. Where do the Russians fit into this? How does the US bubble affect them?
“Relations between Russia and China, which were once based on Marx and Lenin, are now based on oil and gas.”
I have a myth in the book that someone asked [President] A question by Vladimir Putin at the St. Petersburg Economic Forum. Well, that was me. I began to mention the word “shale.” And when he started shouting in front of 3,000 people, that was very uncomfortable. How low can you be in your seat when this happens?
I realized that he did not like American Leile for two reasons. First, it makes us competitive in the European gas market, which [the Russians] Think of them as their backyard. And secondly, he sees the United States as a helper to American power by giving us some flexibility in the world that we did not have before.
Putin made Russia a world player. And relations with China have become stronger. The personal relationship between him and her [President Xi Jinping of China] It is very strong. There are those in Washington who think we can get Russia out of China. And he may want to have some flexibility. It is good that Putin has met with Biden. But in fact, I think Russia and China have seen eye to eye on many issues, especially the opposition to the US-led global system.
How does oil play in this?
Relations between Russia and China, which were once based on Marx and Lenin, are now based on oil and gas. Russia has become an important supplier to China, and could be a more important supplier of natural gas or LNG in the northern hemisphere. This is a very active strategy to bring those countries together in terms of energy.
All of these new variables, including the US bubble, are changing things in the Middle East.
A.D. In 2019, I was shocked to learn that Abkhazia was attacked in Saudi Arabia. If that had been five years ago, oil prices would have risen sharply. This time the market is silent. I think US development has become a major security pillar in the face of terrorism in the market. But at the end of the day, there is still only one global oil market. If you have major and prolonged disruption, that will affect everyone. The United States is in a much better position than it was in 2008, but it is not divorced.
Does that prevent a Middle East war or at least reduce our chances of participation?
I think there are questions about our military commitment. How important is the relationship with the Gulf states? And you see Saudi Arabia moving in the direction of strategic relations with Russia. [The new oil alliance] OPEC + is, of course, a Saudi-Russian agreement.
If we go out of the oil age, who will be in power in the next one?
We have long focused on oil supply chains. We have just begun to see supply chains for the zero-zero carbon world, and there are many complexities out there.
If you want where to accumulate geopolitics and energy at zero-zero, China is, because China has such a dominance in supply chains: 80% lithium ion battery supply chains, 60% of the world’s rare earth.
Of those supply chains, China is the largest, and the supply chains are relatively small compared to what you need to build. To achieve these goals, we need more mining. We are very familiar with the big oil. At the same time, we need to talk about big shovels.
Thank you, Daniel.
Write Avi Salzman at avi.salzman@barrons.com
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