Daniel Yergin has long been known for his astute thoughts about the oil industry. His consulting firm -- Cambridge Energy Research Associates, which was bought by IHS Inc. in 2004 -- has become the pre-eminent purveyor of information on all things energy, and his annual conference in Houston -- CERAWeek -- is a must-attend among energy bigwigs.
In 1991 he did the unimaginable: He encapsulated 140 years of the oil industry in an 800-page tome called "The Prize: The Epic Quest for Oil, Money & Power." While it was criticized in some circles for painting a too-glowing portrait of the industry, it was hailed as the best book ever written on oil. It became a bestseller, was translated into 14 languages and went on to win the Pulitzer Prize for nonfiction in 1992.
While Yergin added an epilogue in 2008, some were clamoring for a new book that would cover the new face of energy, from China's rise to climate change to renewables. So he put together "The Quest: Energy, Security, and the Remaking of the Modern World," which was released in September by Penguin Press. One New York Times reviewer said it's a better book than "The Prize" because it's "searching, impartial and alarmingly up to date" (including references to the Fukushima meltdown, the political upheavals in Egypt and Libya and the killing of Osama bin Laden), although another said it "lacks the drama and compulsive readability" of "The Prize" but is a "valuable primer on the basic issues that define energy today."
The Deal magazine's energy writer, Claire Poole, recently caught up with the 64-year-old Yergin to talk about the book before one of his many speaking engagements, this time at the Free Library of Philadelphia.
The Deal magazine: What did you try to do with "The Quest," and how is it different from "The Prize"?
Daniel Yergin: It was a more challenging book because it covers a wider spectrum. It tries to capture the whole energy field and how these pieces fit together to give the readers a picture of where we are in energy today. I do write it with a similar voice, however.
You seem to conclude that we are not running out of either oil or natural gas and that through technology, we'll be able to keep producing both. Is that correct?
Yes, through technology and new horizons, new terrains. Whenever people say the end is in sight, technology comes along. If you draw a line from the Brazilian pre-salt to the Marcellus Shale to the oil sands of Canada, what they all have in common is the code is broken, that reserves that were uneconomic are now accessible. In terms of gas, what's happened with shale gas, it's still early days, when you have a resource of this magnitude entering the marketplace.
Has it happened before, and are there any parallels we can draw from it?
When the Middle East opened up after World War II, you had a vast source of oil, and that changed the economics of energy. It's not a perfect analogy, but it was a potential massive resource that was now part of the competitive landscape.
What about nuclear energy?
People forget or don't know that nuclear is 20% of our supply. It was 20% in the 1980s, but plants run much more efficiently now. People were talking about a renaissance, but then we had Fukushima, and now it's a patchwork. Some [countries] will move more rapidly than we thought, and others will shut it down. Japan itself hasn't decided. It's a rethinking, but it reinforces the message that [Exelon Corp. CEO] John Rowe had: "Don't bet against cheap gas."
You titled one chapter "The Rebirth of
Renewables." Talk about that.
There was a lot of hoopla around [renewables], and you needed hoopla to get it going, and that's where we are today. Renewables will become a significant business. There's been $120 billion invested in renewable generation, so it's already a big business. But when you measure it against the overall energy business, it's small.
There have been significant technology advances. In the book there's a graphic of a wind turbine in the 1980s and today, and the one today is so much bigger. Competition will continue to drive down costs. It will be part of the mix, but it has a long lead time to scale. Twenty years from now, oil will still be dominant, but we'll see some change after 2030.
How about global warming? The New York Times Book Review nicked you for being noncommittal on the issue.
The Wall Street Journal came at me for being too committal [laughs]. The scientists simply don't agree, so I wanted to address it in a different, more narrative way. How has this become such a big issue? I'm not a climate scientist, but it's clear that carbon is increasing in the atmosphere.
There are obsessed individuals like Charles David Keeling who started measuring carbon, the data, and how fast it's evaporating in the environment. Prudency is certainly part of it. I addressed it, but I didn't want to argue it.
How does efficiency figure into the overall energy picture?
That's a big theme in the book. If you say it's an energy resource, that strikes some people as funny. The incremental BTU energy that's saved is a hard subject to get your arms around. The U.S. is twice as energy efficient as it was in the 1970s. What strikes me is that there is becoming a global consensus about efficiency. China puts energy efficiency at the top of the list.
How have deals and dealmaking changed since you wrote "The Prize"?
It's changed a lot. You have all these information-gathering tools that you didn't have back then. Secondly, the way things are sold has become so much more globalized, and many of the major players are coming from the emerging markets. There's clearly been a globalization of economic clout around the world and the significance of China particularly, but also India, as players.
The players are truly global, so you have on the one hand consolidation of the majors and disappearance of companies, but on the other hand you have the emergence of players that were never part of the game before. The Chinese are big players, but so are the Indians and the Russians. That's a major change.
Do you think we'll still see a further consolidation of larger oil companies?
I have no particular knowledge, and none seem evident. But the reason the supermajors have come into shale gas is that they need capital-hungry activity, and that becomes harder to find when you become bigger.
So where is the energy business headed?
There's a real challenge of economic growth. Once we get out of this trough, supplying that energy and making sure it's there and not constrained is going to be a very big job. We have to be more efficient and find more sources of energy. The other is a question of security and the environment.
But sometime around the middle of the century, we'll see a plateau of world oil production and liquids. Will that be because of restraints of physical resources, or because we're seeing less demand because of renewables and efficiency and we've reached a certain level of economic growth? The next three decades are going to be explosive, going from 1 billion to 2 billion cars on the road. Let's hope they are all very efficient.
How long did it take you to actually write "The Quest"?
Five years. "The Prize" was seven years. I was covering a much wider landscape with this book.
Books take a lot of time, but it's become much easier with the Internet.
How did you find the time along with your consulting business and your mammoth energy conference every year?
It was challenging. It was probably the hardest thing I've ever done. The way other people feel relaxed hitting golf balls, I find the process very enjoyable and trancelike. It's a challenge to get my arms around how to figure out the narrative, but while I do that, I love shaping it. It's like working with clay.