The Economy, Technology, and Politics are Redrawing the World’s Energy Map

By Helima Croft
Published October 30, 2020 | 58 min watch

In a virtual conversation hosted by The Trilateral Commission, Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets, interviewed Daniel Yergin, Vice Chairman of IHS Markit, Pulitzer Prize Winner, and Author of The New Map, for a discussion on the economy, technology, and politics.

Our Key Points

  • The shale “revolution” introduced an era of U.S. energy independence that transformed the American economy
  • Our energy policy gives the U.S. flexibility to interact with other oil-producing countries in “unimaginable” ways
  • Oil reserves have initiated a new “cold war” between the U.S. and China, and the South China Sea could be the setting for a potential conflict
  • As China projects its power in many directions, Vladimir Putin and Xi Jinping are converging on energy and challenging American leadership
  • The lack of a coordinated international effort to tackle the pandemic will present serious global policy challenges for the next administration 
  • As the world population and incomes increase, the world may reach peak energy demand in 2030

Required Conflicts Disclosures

At one time, the world’s energy map was “accidentally” influenced by geology. Today, Daniel Yergin, energy expert and the Pulitzer Prize-winning author of the New Map: Energy, Climate, and the Clash of Nations, says the new energy map is determined by technological, economic, and political policy decisions.

Yergin describes the “shale revolution” in oil and gas as a pivotal event for the U.S. and global energy markets. He believes it ended the “era of shortage,” and transformed the American economy, generating millions of jobs and $200B in new investments.

But this year, the double impact of COVID-19 and oil price supply wars have generated an unprecedented crisis for the shale industry. Even if prices recover by 2022, the reverberations of the pandemic will likely extend beyond shale to the global oil and gas industry. How these aftershocks play out largely depends on how the next administration navigates energy diplomacy and geopolitical risks.

Although we expect more of the same energy policies under a second Trump administration, a Biden presidency may usher vast changes in regulation, infrastructure, and clean energy transition that will have far reaching implications for the shale, oil, and gas industries, as well as for our national security.

Here are the highlights from our discussion:

Energy “flexibility” will drive foreign policy

 

According to Yergin, our energy flexibility will allow us to be a key player in a way that would have been unimaginable in the past.

For example, our energy policy gave us the flexibility to address Iranian oil exports, and allowed the U.S. to broker a deal between Saudi Arabia and Russia over oil price wars, a process akin to “marriage counseling,” says Yergin.

“Our energy flexibility allows us to be a key player in a way that would have been unimaginable in the past.”

- Daniel Yergin, Vice Chairman of IHS Markit, Pulitzer Prize Winner, and Author of The New Map

China power struggle unites both Democrats and Republicans

 

Yergin believes oil reserves have advanced a new “cold war” between China and the U.S. As a result, he believes both Biden and Trump will place China’s territorial claims at the top of their foreign policy agendas.

China’s aggressive territorial claims in the South China Sea have arisen in part from Beijing’s concerns about the security of its energy supply chains, he explains. This territory, claimed by China in 1936, is the world’s most critical trade route and could eventually become the arena where the U.S. and China collide, he warns.  

Russia’s gas reserves create endless conflict with the U.S. and Europe

 

Yergin questioned the rationale behind our 70-year old policy of preventing Russia’s oil and gas exports through sanctions. He believes Russia’s strategy to control these exports is less of a threat because the European gas market is ample and competitively priced.

Instead, he believes the U.S. should focus on Russia’s influence on China. As China projects its power in all directions, Vladimir Putin and Xi Jinping are converging on energy and challenging American leadership, he explains.

For example, a week before Trump signed legislation for Russian sanctions to block the Nord Stream 2 pipeline, Yergin says that China and Russia collectively pulled the power on the massive Siberian pipeline. “I find it interesting that we want to prevent Russia’s efforts to control European energy, but we haven’t focused at all on the Russia/China relationship,” he notes.

Lack of coordinated global effort derails pandemic response

 

Yergin describes the pandemic as “a fragmentation of globalization,” and that it will continue to impact markets, trade, and global travel. He notes that the lack of a coordinated international effort to stem the pandemic, as well as tensions with China, will present serious global policy challenges for the next administration.

Although he notes that the U.S. and China still have “deep connections” as far as manufacturing and trade, he believes the relationship will become more contentious over barriers and China’s push toward nationalism and protectionism.

It’s about demand, not supply

 

Ten years ago, Yergin says that most experts erroneously predicted that peak oil production was imminent, and that it would be followed by a slippery slope of declining supply. But, he believes the real issue is demand, and he believes energy demand may recover to pre-pandemic levels by mid 2022.

Energy suppliers are divided about when we will reach peak energy demand. But Yergin insists that their forecasts fail to account for the anticipated rise in population and income levels beginning in the early 2030s. “If we can avoid a very poor economic situation, we should expect peak demand to occur about a decade for now,” he says.


Helima Croft


Commodity StrategyEnergyOil