If there is an oracle on energy, Daniel Yergin is it. Yergin is the co-founder and chairman of IHS Cambridge Energy Research Associates (CERA), a leading energy research and information firm. He serves on the U.S. Secretary of Energy's Advisory Board and chaired the U.S. Department of Energy’s Task Force on Strategic Energy Research and Development.
Yergin recently sat down with Free Enterprise to discuss The Quest, the transition of the energy industry, environmental matters, and geopolitics.
Free Enterprise.com: So what is The Quest all about?
Yergin: It starts with the fundamental point of how energy underpins our whole economy and how it is central for economic growth globally. We have a $65 trillion world economy today, and it could be $130 trillion in a couple decades. So the critical questions are, Will we have the energy? Where will it come from? And what will the mix be? That’s what The Questis all about. It’s our quest for energy that is affordable, reliable, environmentally sound, and abundant. And what The Quest tries to do is to give people a framework, a context, for seeing how all the energy pieces fit together, and do so in a narrative context with a lot of great characters.
Free Enterprise.com: I asked one of my colleagues, “If you were going to talk to one of the foremost experts on energy, what would you want to ask him?” And they said, “I would want to know when my electric bill is going to go down and by how much.”
Yergin: For consumers, it understandably always comes down to their electric bill and the price of gasoline at the pump. Even more fundamental is ensuring that there is gasoline at the pump and that there is electricity. But what that question really points to is how important energy prices are to the economy. It’s not only the price that you pay as a consumer, it’s not only the price you pay as a motorist, but it’s that cost of energy that flows into everything else in our society.
Free Enterprise.com: Talk about the job-creating potential of energy.
Yergin: The combination of the economic downturn and major breakthroughs that have occurred in the North American energy supply have come together to emphasize the job creation potential of energy, which is something that had not been focused on much. People focus on the price; they focus on balance of payments. But we (IHS CERA and IHS Global Insight) did a study on shale gas, and it turns out that just the shale gas revolution of the last few years has created something like 600,000 jobs in our economy. That’s a really big number. Very few other industries have done that.
Shale gas is the biggest innovation in energy in the last couple of decades. And like many innovations, it kind of snuck up without people really seeing it coming. It was 25 years in development before it had this impact. One of the great stories in The Quest is how this revolution in shale gas came about and how the convictions of one man drove it. Now it’s huge. It’s changing the economics of the energy marketplace and changing the perception of America’s role in the world in terms of energy. The United States was on a track to be spending upwards of $100 billion a year importing liquefied natural gas. Now, we’re fully supplied domestically.
Free Enterprise.com: There seem to be a lot of questions about the environmental impact of shale gas production.
Yergin: Shale gas has gone from being very small, just 2% of our natural gas production a decade ago, to more than a third of our production today and continuing to grow. Because it has grown so fast so quickly, there are all these questions surrounding it. Like any large, industrial enterprise, there are environmental issues to be managed that have to do with disposal of water, air quality, and community impact.
I was part of a committee selected by the Secretary of Energy that did a report for the Obama administration on the environmental questions. We said in the study that these issues are highly manageable and can be pragmatically addressed. They involve best practices, appropriate regulation, and, most importantly, technological innovation. The tools are all there. The benefit of this is jobs.
The other thing that we’re seeing is that it means lower electricity prices, which is very good for our economy. It also gives a major competitive boost to U.S. industry because for the first time you’re seeing companies that had not invested or that were not going to invest anymore in the United States announcing multibillion dollar investments because the United States is competitive. And that means a lot more job creation.
Free Enterprise: What role does innovation play in this new energy development?
Yergin: One of the themes of The Quest is that innovation doesn’t end; technological progress doesn’t end. If you look at the history of the energy industry, it’s really the story of one innovation after another, starting with Colonel Drake in oil and Thomas Edison with the light bulb, to shale gas today. That innovation is going to continue. Those who are pessimistic kind of assume that innovation is over. But people have been saying that for a long time. At the end of the 19th century, people talked about closing down the patent office because there was nothing more to invent.
The Quest is an optimistic book. It says that there are plenty of risks and dangers, including what’s unfolding with Iran right in front of our eyes today, but it’s optimistic about innovation in our country and around the world and what that means for ensuring the energy supplies that we need.
Free Enterprise: Does the United States have the right energy policy?
Yergin: Well, we have a lot of energy policies, many of them contradictory. What we need is an ecumenical energy policy—a big tent that doesn’t try to pick particular winners or losers and that is realistic about where we are, how important energy is to our economy, and how complex this system is that supplies energy to a $65 trillion global economy.
The overall energy mix over the next couple of decades probably won’t be too different from what it is today—nuclear, renewable, oil and gas, coal. There will certainly be more wind. It’s possible that in 2050 our energy system will look quite different, and there might be many surprises. I think one of the subthemes of the book is the role of surprise. Just when everybody’s confident as to where things are going, things change.
Free Enterprise: Why do you think the Keystone XL pipeline has become such a major issue?
Yergin: The global energy balance is changing because of what’s happening in the Western Hemisphere—what’s happening in offshore Brazil, what’s happening with what’s called tight oil developed in the United States, and what’s happening with the oil sands in Canada, which until the late 1990s were seen as a fringe resource. The output of oil sands today is greater than the entire output of Libya before its civil war.
It’s a major resource, and it’s the reason that Canada today supplies about 25% of our imports. Keystone is really a symbol for the oil sands and the major argument against it—carbon emissions. The numbers, however, have been misconstrued. Basically, a barrel of petroleum made from oil sands oil adds only about 6% more CO2 to the atmosphere than the petroleum made from an “average barrel” of oil. But as it turns out, we in the United States use other oils that also add about the same amount of extra CO2 to the atmosphere.
There’s a very important energy security aspect to Canadian oil sands. The throughput, or the volumes that the pipeline will carry, is equivalent to a third of Iran’s total exports. So at a time when our policy is very directly aimed at squeezing Iran’s ability to earn money from oil exports, this pipeline, which could be built in a couple of years, would be a very important development.
I hope one way or the other that this decision [to reject construction of the Keystone pipeline] will be reversed by the beginning of 2013, if not before then.
Free Enterprise: What do you say to critics who say that oil that comes into the United States from Canada U.S. is just going to be shipped to China, therefore doing little to lower prices here?
Yergin: The bulk of Canadian oil would be very well suited to our refinery system, and the main market for it would be the United States. Does it make sense to import more oil from other parts of the world, and not import oil from Canada, where the economics are better, the logistics are better, and the distance is a lot closer? That doesn’t really make sense.
Watch video of Daniel Yergin discussing his new best seller at an event hosted by the U.S. Chamber's Institute for 21st Century Energy.