Author gives encyclopedic view of energy transition

Courtesy of S&P Global Inc.
Daniel Yergin

It has been a little more than six months since Russia began its invasion of Ukraine. As sanctions against Russia continue, the situation of global energy supply and demand is becoming increasingly severe.

The environmental woes afflicting various parts of the world — heat, drought, floods and more — also show the urgent need for an energy transition in terms of managing climate change.

When asked for his outlook regarding the issue, Daniel Yergin, a world-renowned analyst of energy issues, gave us a clear answer: Despite the supply-demand crunch, countries will continue to make progress toward decarbonization. He also said he is paying attention to the efforts made by resource-poor Japan.

What is the nature of the fierce competition for energy unfolding in the world today? The following is excerpted from an email interview in which Yergin shared his views with us.

The Yomiuri Shimbun: How would you describe the impact of the war in Ukraine on the future of energy in terms of geopolitics and climate change?

Daniel Yergin: The world had already entered a global energy crisis in the second half of last year, well before the war began. With the war, the world now faces a combination of a global energy crisis and a global geopolitical crisis — made even more difficult by economies now struggling with inflation. The outcome of the war is uncertain, and the energy crisis seems likely to get worse over the next few months. The climate goals remain, but I think there’s a realization that achieving them will be more challenging than many had thought. Governments that had forgotten about energy security are now hastening to try to improve their energy security. Japan, of course, has never forgotten about energy security.

Yomiuri: Not so long ago the world was heading toward more decarbonization, shifting from fossil fuels to nuclear and renewables. Now that seems less certain. The West, decoupling from Russia’s natural resources, is becoming desperate for alternative sources of energy. Germany, despite advocating a green economy, is reintroducing coal-fired power plants. Ever since Russian President Vladimir Putin threatened military attacks on Ukraine’s nuclear power plants, the safety of nuclear power is in question again. Putin seems to be relying on China and India to purchase Russia’s natural gas, but they pay less than European buyers.

In such a world, what will the energy transformation look like in the next few years? When will the world get back on track toward decarbonization? Or can it?

Yergin: The drive for decarbonization will continue, and governments will continue to put a great deal of money into it, backed up by regulations. In “The New Map,” I investigated the history of energy transitions and concluded that the current one is different from all the preceding ones and is unprecedented in trying to accomplish an extraordinarily ambitious goal of entirely changing the energy mix of what is now an $88 trillion world economy in less than three decades. I think that is better understood now. As a result of the crises, there’s a new recognition that there has been underinvestment in conventional energy — hydrocarbons — which still supplies 80% of world energy. The administration of U.S. President Joe Biden came into office totally focused on the climate agenda, but it is now encouraging U.S. companies to produce more oil and gas. In Germany, there’s a widespread view now that it was a mistake to close down its nuclear power plants, which has resulted in greater dependence on Russian energy. The Europeans are now reaching out to North America and Africa for more oil and gas, and the European Union is promoting exports from Israel and Egypt’s huge new natural resources in the Eastern Mediterranean. Because of the urgency of the situation, Germany is restarting coal-fired power plants. The economics minister, Robert Habeck, said the decision is “bitter” but “essential,” and added that there is no “black and white” in energy – only different shades of gray. In short, the energy transition is not a simple linear process! It is complex.

Yomiuri: More immediately, what will Europe’s winter be like this year with less natural gas supply from Russia?

Yergin: There’s great worry in Europe about the coming winter, and with good reason. The Europeans are desperately trying to fill their gas storage for winter. Russia, however, is restricting supplies in order to drive up prices, generate economic hardship and political infighting, and create pressures that will undermine the coalition supporting Ukraine. The Europeans are working very hard to try to locate alternative supplies of liquified natural gas (LNG) and are making significant changes in their energy policies.

Yomiuri: Can China still emerge as a winner in the rivalry with the United States over energy hegemony? In “The New Map,” China was portrayed as investing in electric vehicles and other high-tech industries to prevail in a coming decarbonized world. But the country is inviting suspicion because of its unhidden ambition to conquer Taiwan, especially since backing Putin earlier this year and so far through the Ukraine war. What kind of future awaits China in the global rivalry over energy?

Yergin: China is certainly building a strong position in “new energies.” It realized that it could not compete with the U.S., Japan, Korea, and Europe on conventional cars. It was too late. That is one of the reasons it has focused on electric vehicles, not only for the domestic market but to compete in global markets. That competition is one of the key points in “The New Map.” Also, electric cars are strategically important for reducing the growth in its oil consumption. Altogether, China has built a strong position in minerals. Our new study on “the future supply of copper” demonstrates China’s position on the entire value chain. Just as semiconductors and telecommunications have been caught up in the global rivalry, so we can anticipate the minerals required for net zero emissions also being caught up in that rivalry. On the oil front, Putin’s war in Ukraine is refashioning global markets, and China will become a bigger market for Russian oil, which will create friction with the Middle Eastern countries losing market share in China.

Yomiuri: The United States has been seen as a potential dominant energy supplier ever since the shale revolution, but it is now in the middle of crisis over skyrocketing oil prices while Biden, who may have aspired to be a champion of both a green revolution and human rights, [went] to Saudi Arabia to ask for more oil production. Is there still a chance the U.S., with help from renewed ties with Saudi Arabia, can navigate the current energy crisis and come out ahead of China and Russia in the race for energy hegemony?

Yergin: Even with additional oil from Saudi Arabia, the global market remains very tight and is struggling with the dislocations in supply chains resulting from the Ukraine war. Only two things will reduce the pressure on the market. One is a global recession as a result of central banks’ raising interest rates because of inflation and thus reducing economic activity. And a recession is a very painful cure. The other is demand destruction — people using less oil because of the price. Russia will remain a significant oil producer but less significant than in the past, and it is in the process of losing its most important market — Europe. The United States is in a very good position compared to other countries, as it is the world’s largest producer of oil and natural gas. Europe now looks to the United States for energy security in the form of U.S. exports of LNG. China will continue to try to carve out leading position in the supply chains for new energy, and that is where the new competition will become more visible.

Yomiuri: What advice do you have for Japan, a resource-poor nation that is going through a hard time in energy imports this summer thanks to the depreciation of the yen? Renewable energy like solar and wind is not growing as hoped as the land available for such facilities is quickly reaching its limit. Is there still a chance for Japan to survive and become a meaningful player in the global energy transformation?

Yergin: As a resource-poor nation, Japan ever since the 1970s has maintained a strong focus on energy security, which has not been the case in Europe and the United States. For Japan, that means diversifying sources and facilitating investment in new energy production. There are limits on what wind and solar can do for Japan. A rethinking about nuclear energy is now occurring in Japan, spurred by the widespread recognition that Germany made a big mistake in shutting down its nuclear power plants and becoming overdependent on energy from Russia. Japan will inevitably be a major player in the energy transformation as a major industrial country and one of the world’s most important economies, supported by its great technical and engineering capabilities. For the energy transformation will not be implemented by PowerPoint presentations or ambitious statements. It is about engineering on a large scale, and Japan is very good at that. Also, in the last couple of years, tremendous focus has emerged on hydrogen as a major component of energy transformation, and Japan has been at the forefront on hydrogen.

— The interview was conducted by Yomiuri Research Institute Staff Writer Kazuo Nagata.

Daniel Yergin

Vice chairman of S&P Global Inc.

Born in Los Angeles in 1947, Yergin is an authority on the analysis of energy issues. He received the Pulitzer Prize for “The Prize: The Epic Quest for Oil, Money & Power” (1991), which chronicles the rise and fall of the oil industry. His other books include “The Quest: Energy, Security, and the Remaking of the Modern World.” The Japanese edition of his latest title, “The New Map: Energy, Climate, and the Clash of Nations,” was released in January.