Pulitzer-Prize winning author and energy historian Daniel Yergin spoke with RealClearEnergy editor Bill Murray earlier this month about oil prices, the current state of the shale revolution, and how the U.S. presidential election may impact future U.S. energy policy.
RealClearEnergy: People are arguing that OPEC is being either irrelevant or maybe in a coma in terms of its relevance geopolitically. What is your take on where the organization stands?
Yergin: I think there have been a number of epitaphs written over the years concerning OPEC. OPEC, the Organization of Oil Exporting Countries, is useful when they use it in a more proactive way. Clearly it’s not working right now and one big reason is because of the deep rift between Saudi Arabia and Iran, two of the most important members. But you see that the balance in the world oil market has changed. OPEC emerged from a certain group of oil exports, but now you see that Russia is part of the dialogue, and there are really the big three in terms of oil production, the third one is the United States and the U.S. isn’t involved at all. So the changes taking place in OPEC really reflects the changes going on in the world oil markets. But it’s still in place and it’s still an organization that provides a framework of exporters.
RealClearEnergy: So now we see the spigots are open and everyone is pumping, depending on what the price allows for production. We’ve seen such a large – 2 million barrel a day of oil – supply overhand, that is now being downsized. What is the estimate in terms of the market coming back into balance?
Yergin: When things are down, people think they are going to be down forever. Even last year, there was some confidence that things would return to $60 a barrel, and there was shock and surprise to see oil get as low as $26 a barrel. But one has to remember that these markets are cyclical, these forces of supply and demand are very strong. And in fact, the oil price did not start down when OPEC had its meeting in November 2014; it started down under $100 in September 2014. So it’s been going on a long time, a (lower) price has been working; we see it in terms of supply, we see it in terms of demand. Our view at IHS is that in the second half of the year, we’ll start to see an oil market that is much more in balance.
RealClearEnergy: So does this mean that the shale revolution is complete, or are we just entering another stage now?
Yergin: The shale revolution, if you think about it, is a pretty recent phenomenon. In terms of oil, it only started in 2009-2010. An enormous amount of learning has gone on. Around February, we saw almost a capitulation, with these very dramatic budget cuts (by international oil companies). So the view is now around $50 a barrel is maybe when U.S. production starts to stabilize; $60 a barrel is what it needs for shale to start growing again. But shale is going to be an important part of not only U.S. energy supply, but world energy supply. When the signal from the market for more supply comes, it’s not going to be met by the big multi-billion dollar mega-projects that have been postponed or cancelled because they take 10 years (to construct). It will be from short-cycle oil, and that means U.S. shale.
RealClearEnergy: So where does this leave wind and solar if we have $50-60 a barrel oil.
Yergin: You have to remember that wind and solar are not really competing with oil, they are competing with inexpensive natural gas. If you look at the range of subsidies, incentives, mandates and requirements that say utilities have to have a certain percentage of their power from renewables, that’s going to drive it all. Our numbers are that as a result of the trade-off last December between oil exports being freed up on the one side, and renewable tax credits of one form or another being extended, we’re going to add over the next five or six years, not 60 gigawatts of renewable capacity that we had anticipated, but more like 140 megawatts. So wind and solar continue, although they are buffeted by economic forces as well.
RealClearEnergy: With the lifting of the export ban and U.S. LNG going offshore to places like Brazil and Portugal, what’s interesting in the 2016 election cycle is that things that people talk about be being issues today, energy issues, aren’t really issues anymore. The psychology has changed in the country – we are now a producing country, and it seems the scarcity psychology has left.
Yergin: It’s a great arc. If you go back to the oil crisis of the 1970s, Americans were shocked, furious and angry, because among other things, they didn’t even know we imported oil, they still had image of gushers in Texas from the movies. So now we’ve thought of ourselves for 40 years as being very dependent on world markets. We’re not energy independent, we still import 25 percent of our oil, and we’re integrated into a global market in any event, but there is a shift in our psychology. But it’s ironic, or paradoxical, because it has made people less concerned about energy security and more complacent, and to take it for granted. The U.S. would not have been where it is today in reducing carbon were it not for the advance of shale gas. That has been a really important part of it, but it’s not what you hear on the campaign trail.
RealClearEnergy: We’re not complacent here at RealClear about politics and it’s the 2016 election cycle. I’m putting together a story about some of the real differences in environmental and energy policy between the Republican presumptive nominee Donald Trump and Hillary Clinton on the Democratic side. Do you think people will really care about these issues in the fall?
Yergin: It’s not clear; it’s usually when prices are high that people care. Otherwise, specific constituencies for whom it matters becomes energized, either NGOs or people in the industry who pay attention to it. This may not be a broad-based issue, it may be narrower, and you can see Secretary Clinton struggling with where to be on this. As Secretary of State, she supported a global shale gas initiative, then, of course, the pressures of the campaign, she talked about a lot of regulation that would essentially shut things down. And, of course, fracking is used in conventional oil and gas as well, but now she’s come back and pointed out that shale gas is part of the way to meet climate objectives. It gets to the larger question in 2016. If you have these climate goals and want to achieve them, what do you need to achieve them with? Gas is part of it, and nuclear is zero-carbon emissions and yet it does not count in the mandates that favor wind and solar. You lose nuclear power plants and that’s a big hit to your low-carbon strategy.
RealClearEnergy: Meanwhile, we have with Donald Trump, a climate skeptic. According to everything we’ve heard him say or seen on his Twitter feed, he’s not a big fan of the climate change regime. That’s got to be problematic for people overseas.
Yergin: The Paris consensus about climate assumes that the Obama administration continues into the Clinton administration. I think on the whole regulatory front, not just in the energy area, there is a different view on regulation in general in our society and our nation. I think, as we go into the campaign, we will see quite a division over the whole issue of how far regulation should go, obviously the EPA is a target for Republicans. There is not a consensus in this country.