The Geopolitics of Energy

What Biden Faces

Xi Jingpingm Vladimir Putin, pancakes
China’s President Xi Jinping and Russia’s President Vladimir Putin making bliny (Russian pancakes) as they visit the Far East Street exhibition on the sidelines of the 2018 Eastern Economic Forum on Russky Island in Vladivostok, Russia, on September 11, 2018. Photo credit: © Bobylev Sergei/TASS via ZUMA Press
Reading Time: 12 minutes

The geopolitical world that Joe Biden faces on January 20, 2021, will look very different from the world he entered as vice president in January of 2009.

A key factor shaping that change over the past 12 years has been the transformation of global energy resources. Because of fracking, in 2018 the US overtook Russia and Saudi Arabia to become the world’s largest oil producer. Indeed, the impact of fracking on the price of oil changed the game completely. 

In this WhoWhatWhy podcast, we talk with the man who wrote the book on oil and energy in the 21st century, Daniel Yergin. The Pulitzer Prize-winning author of The Prize: The Epic Quest for Oil, Money & Power joins us for a look at the energy world today and what it means for peace and global security. 

He talks about how the fracking revolution has brought Russia and China closer together, and how it created space for the Iran nuclear deal in the Obama administration. He lays out what it all means for the reality of climate change and for our collective energy future.

Yergin points out that China and Russia, two nations “once united by Marx and Lenin, are now totally united by oil and gas.” China, he reminds us, has become the largest producer of steel, aluminum, and computers, and has simultaneously become the world’s largest energy consumer. Its need for energy is and will continue to be insatiable.  

He details Europe’s changing energy needs and how years of political failure in Saudi Arabia and the rest of the Middle East have made the region almost a non-player in the energy future.  

There are a lot of global forces at play today, but Yergin shines light on the fact that in his view, the need for energy will continue to shape our future.

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Full Text Transcript:

Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host, Jeff Schechtman. When we think of dramatic global change and transformative technology, generally our gaze turns to Silicon Valley, and indeed those changes have been dramatic and profound. But arguably bigger and more global changes have been taking place in the energy sector. Changes that shape our lives, shape the United States, and literally, change the map of the world. When we pursue alternative energies, such as wind, and solar, and battery technology, all important for the future, the technology of fracking and oil and gas extraction from shale has literally transformed the world. It’s a world far different than existed when my guest, Daniel Yergin, wrote his Pulitzer Prize-winning book, The Prize, back in 1991.
Jeff Schechtman: Today, geopolitics, climate change, and the ever-growing thirst for energy to power the 21st century is shaping the world anew, and we’re not paying enough attention. We’re going to talk about this today with Daniel Yergin. He’s one of the world’s authorities on energy, international politics, and economics. He’s the author of the Pulitzer Prize-winning The Prize, and is the author of many other books, including The Quest, Shattered Peace, and Commanding Heights. He’s the vice chairman of one of the leading information and research firms in the world, and a senior trustee of the Brookings Institution. It is my pleasure to welcome Daniel Yergin to the WhoWhatWhy podcast, to talk about The New Map: Energy, Climate, and the Clash of Nations. Daniel, thanks so much for joining us.
Daniel Yergin: It’s a pleasure. Thank you.
Jeff Schechtman: I want to talk first about what’s changed, some of the fundamental changes in the past 30 years since you wrote The Prize, and at a time when we looked at the Middle East as kind of the gas station of the world.
Daniel Yergin: It is very striking, and that’s why The New Map, it was an effort to say how much does this world change, provide a framework, and do it in a lively narrative way that readers would enjoy reading. Three or four things really stand out. Number one, at that point, the question was only going to be how much more oil is the US going to import. And that meant, as you just suggested, what happened in the Middle East was so crucial to our future. That was one thing. I think the second thing was that climate was just not on the agenda. I was thinking, this is not the first time Joe Biden’s run for the presidency. The first time he ran, back then, climate was not a topic, at all. Now, of course, it’s central. Third thing, already the Soviet Union was breaking up, but the third big thing is China. I looked in The Prize and China hardly occurred because it was just a self-sufficient country, and it wasn’t part of the world system, at all. It exported a little oil to Japan, and that was it. Today, China is the largest importer of oil in the world, imports 75 percent of its oil, and the relationship between the US and China is now the most important geopolitical issue in the world, and very much tied up with energy. I think those are some of the mega changes that have occurred since the time of The Prize.
Jeff Schechtman: Of course, the other mega change that’s happened is shale technology, and the ability to get oil and gas out of shale.
Daniel Yergin: Yes. All the textbooks said it was impossible. It couldn’t happen. You talked about, you mentioned Silicon Valley, and disruptive technology is associated with Silicon Valley. This was a disruptive technology, and it also required, as some of the innovations in Silicon Valley have required, somebody who was really stubborn and wouldn’t give up. That was a man named George Mitchell, is the son of a Greek immigrant who ran a laundry in Galveston, TX. His son did well, went to university, and he just became convinced there had to be a way to get oil and gas out of this very dense shale rock, because there was a lot of shale rock. People said, “Crazy.” They said, “You’re wasting your money, George.” He said, “It’s my money, I’ll waste it if I want to.” It took 18 years, and then you had this breakthrough. People still didn’t think it mattered very much, and then it turned out it mattered a lot. It transformed the world oil market and the world natural gas market, changed the position of the US in the world, and meant that all this money that was going overseas to buy oil and import in this country, instead was staying in this country and going into jobs. It was a really big change.
Jeff Schechtman: Talk about the way that change took place, roughly between 2000 when really fracking changed the game, to 2018 when the US finally overtook Russia and Saudi Arabia, in terms of oil and gas production.
Daniel Yergin: Right. It began with gas. I would say 2003 was when you had proof the technology could start to work on scale. At first, it just showed up at natural gas. Then people said, “This will never work with oil because the oil molecules are too big. They won’t flow through the rocks.” This one petroleum engineer at a company called EOG said, “Let’s find out how big an oil molecule is. Let’s look in the research.” There was no research about how big an oil molecule was. They used medical technology, scanning technology, and said, “It will work.” About 2008, started to apply it to oil. Again, it was discounted. OPEC country said, “This is just a blip. It will go away.” About 2012, we suddenly saw the real disruption in the world oil market with all this oil flowing in. Suddenly there was more oil than there was demand, and prices collapsed and the US continued to grow. It was growing until COVID, and finally the US became, as you pointed out, the number one producer. That would have seemed inconceivable a decade ago. That was a real shock to Saudi Arabia, it was a real shock to Russia, the other two big producers.
Jeff Schechtman: And of course, it created a huge problem, with respect to Russia and Saudi Arabia. Talk about them.
Daniel Yergin: It was really brought home to me, very vividly, when I was at a conference and Putin was on the stage with Chancellor Merkel of Germany. He said to me, “Dan, you ask the first question.” The question I was trying to ask him is, “What are you going to do, Mr. Putin, to diversify your economy and be less dependent on oil and gas?” I mentioned the word shale, and he started shouting at me about how terrible shale was. You don’t like being shouted at by Putin in front of 3,000 people. You feel a little nervous, particularly when it’s inside Russia. It’s really two reasons he doesn’t like it. One is because US energy competes with Russian energy in Europe, in terms of market. And two, he sees it as an adjunct to US foreign policy, giving the US flexibility. I think nothing demonstrates that so clearly as our policies towards Iran, under both President Obama and Trump, and what might be those policies under Biden, because we were able, with what the Obama administration did set, we were going to put sanctions and prevent Iranian oil from going to the market using our economic power. Iran said, “It won’t work because you’re going to need our oil.” It turned out we didn’t because US oil replaced it. There would not have been a nuclear agreement under Obama with Iran were it not for the shale revolution. You couldn’t have used the sanctions.
Jeff Schechtman: Have we done everything that we could, or should do, in terms of projection of US power and in US foreign policy, given the advantage we have with respect to oil, particularly since 2018?
Daniel Yergin: I’m not sure what everything would be, but I think about it, I can see it in terms of India. I worked a lot in India. I was in a meeting with Prime Minister Modi when he came to the US to talk about energy, when he spoke and so forth. I can certainly see that our selling energy, oil, and gas to India has become, as Prime Minister Modi said, a major element, a positive element, in what has always been a very complex relationship with India. India is a very important country for many reasons, including the relationship that we have with them, vis-a-vis China. I think that’s certainly an example of the positive impact, in terms of relations with other countries. I find when I talked to Korea and South Koreans, other countries, they look on this change in the United States as really important because we provided them with options. The Europeans look on it as really important because it gives them flexibility, in terms of dealing with Russia, in terms of where their natural gas comes from.
Jeff Schechtman: Talk a little bit about the impact that it’s had on the relationship between Russia and China, in particular.
Daniel Yergin: One of the big political changes is that Russia and China have really gotten close together. Last year, I was in St. Petersburg, and Putin and President Xi were on the program together. Putin said, “I want to apologize to President Xi. I’ve kept you up until four o’clock your time talking.” Xi said, “Well, we never have enough time to talk.” Of course, one of the things they talk about is their common animosity to the United States. The other that they talk a lot about, is energy. At the same time that we were putting sanctions on a Russian pipeline to Germany, Putin, within weeks, had a huge ceremony with Xi, where they pulled up the valve and opened this flow of gas through what’s called the Power of Siberia Pipeline, which tells you a lot, to China. That connection becomes a very important relationship, because China needs energy, wants to diversify, and this is one of the ways that Russia can really deepen its relationship with China. I say, maybe a little not facetiously, but tartly, that a relationship that was once between those two countries that was based upon Marx and Lenin, is now grounded, at least, in oil and gas.
Jeff Schechtman: As China continues to move towards and find alternative energy, how is that going to impact that ongoing relationship with Russia?
Daniel Yergin: I think that that relationship will grow in terms of alternatives. China will continue to look for other sources, but it has actually stepped up its relationship with Russia. It’s invested in this huge, expensive, Arctic, natural gas development that will take Russian natural gas to China. China will continue to push for diversification. China does everything. It has half the world’s solar, half the wind, half the electric cars. It’s also building three new coal-fired plants a month. It needs energy for its economic growth. That’s a very high, strategic priority for it. Also, the other thing that I was struck by, and I have in The New Map, Russia would not sell advanced weapons systems to China, because they were afraid that China would copy them, and steal the IP. They’ve changed that policy now. They’re selling their most advanced weapons to China. They said it’s a priority, because it’s part of this larger relationship between the two countries. I think maybe here, we don’t pay enough attention to how that relationship is going. There’s a great photograph in The New Map of Putin and Xi, both wearing aprons, and Putin is showing Xi how to make Russian pancakes called blinys. The caption is, they’re cooking this up, this is 2018, the same time they were doing that, Chinese troops, for the first time were participating in a massive Russian military exercise. We call it pancake diplomacy, but it’s not just about pancakes.
Jeff Schechtman: As this trend, the energy transition, continues globally towards renewable sources, does Russia become the loser in that equation, and what does it mean in terms of their next strategic moves?
Daniel Yergin: That gets back to the diversification question. The other day, President Putin said, “It’s great.” He said, “Oil is no longer 45 percent of our budget. It’s only 30 percent.” That’s because oil prices have gone down. It’s not because they’re managing their economy differently. I think that, as an energy transition goes on, as Europe shifts, uses less natural gas and moves in other directions, it becomes, I think, that issue of diversification, the question that made him so mad at me is still a very big question. Like all governments, I think, the costs of the COVID crisis are going to hamper what else you can do. Same topics of reform have been on the table in Russia, now, ever since he came to power. They always say they’re going to do it, but it doesn’t really happen. It still depends heavily on oil and gas.
Jeff Schechtman: Talk a little bit about the next steps, as you see it, for the US, given its dominance right now.
Daniel Yergin: I think the US will continue to be this dominant player, at least for, let’s say the foreseeable future. We’re going to be the dominant player, one of the big three, in terms of natural gas exports, as well. We have so much gas in this country. At the same time, I think that for the US, this energy transition is going to go on. California utilities are using more wind and solar. The governor has called for the end of the sale of non-electric cars in 2035. We’re basically in an era of a mixed energy supply system. I also say in the book, we’re in the post-Paris world, Paris being the 2015 climate agreement. US left under Trump, but we’ll reenter it. I think in the post-Paris world is this continued push towards a lower carbon future is going to have a lot of strength behind it.
Jeff Schechtman: Finally, as we move to that future, talk a little bit about China and how it ideally positions itself in that transition.
Daniel Yergin: That is something that really struck me when I was researching, writing The New Map, to understand China’s position. In an energy transition towards new energies, as the Chinese call it, they benefit in two ways. One, less oil imports. They sell 50 percent more cars in China every year than we do in the United States. They worry about continuing to increase their imports, and the risks that go with that. The other hand is that China has carved out a very interesting position in what they call the new energies. They produce about 70 percent of the world’s solar panels, and another 10 percent from Chinese companies, elsewhere. The Chinese manufacturing juggernaut has just made it very difficult for anybody to compete. They dominate the lithium ion battery supply chain. They have a dominant position in rare Earth. I think we’ve seen a wake up call, in the last several months, the European Union suddenly has done this report saying, “We have all these goals, but how do we do it with…” They don’t use the word China, but being so dependent on China. This is where energy and geopolitics really collide. It’s not only in the traditional oil and gas, but it’s also on wind, solar, and the technologies of moving towards a net zero carbon economy. There’s a whole new range of geopolitical issues, focused not on the Middle East, but focused on this increasingly complex, difficult, and incredibly important relationship between the United States and China.
Jeff Schechtman: We began by talking about how things have changed since The Prize in 1991. If we look 30 years out from now, will the changes be as dramatic, compared to what you’re writing about in The New Map?
Daniel Yergin: The hardest things to write in a book are the conclusion, and then the introduction. What’s it all about, and what’s going to happen. On the conclusion, I thought, “Gee, look at all the surprises that have come. Good things, bad things, since 2000.” The plummeting of solar costs wasn’t foreseen. The shale revolution wasn’t foreseen. On the other hand, the financial crisis of 2008 wasn’t foreseen. Actually a very interesting question I have is, why wasn’t COVID foreseen? I think there I have a theory that has to do with the SARS having been an epidemic at the beginning of the century, only 8,000 people got sick, and when this appeared, people thought it was like SARS. All of those surprises.
Daniel Yergin: I think there’s a huge focus on technology, and I think that 30 years from now, there will probably be major changes in technology. Maybe we have a glimmer of it now with the impact of Zoom replacing getting in your car, or getting on an airplane. I think the technology surprises are partly surprises. Hydrogen may be a much bigger part of our energy supply. You’ll remember, 15 years or so ago, the Hydrogen Highway in California, that not going anywhere. Well, hydrogen is back, and maybe that will be significant. I would say, keep your seat belts on for surprise. I think two things will be constant. One is climate will be an essential consideration, and I hate to say it, but so will the clash of nations. We’ve got to manage both of those with wisdom.
Jeff Schechtman: Daniel Yergin, his new book is The New Map: Energy, Climate, and the Clash of Nations. Daniel, I thank you so much for spending time with us.
Daniel Yergin: It’s great to be back with you. Thank you very much, and all the best.
Jeff Schechtman: Thank you. And thank you for listening and for joining us here on radio WhoWhatWhy. I hope you join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you like this podcast, please feel free to share, and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate. 

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