Will Putin’s Energy Strategy Backfire?

Guest

Dr. Daniel Yergin

Vice Chairman, S&P Global

Winter is coming. The energy crisis that is afflicting Europe and other parts of the world is worsening as Russia weaponizes natural gas.

After Putin turned off supply of Russian gas through the Nord Stream pipeline earlier this month, prices across Europe soared – causing severe pain for manufacturers and consumers, and pushing the region closer to recession. European countries are weighing emergency measures, like price caps and rationing.

In addition to the immediate energy crisis, key questions remain about what all of this means for the clean energy transition. The supply of critical materials for clean energy technologies – such as copper, lithium, and cobalt – will also present challenges. A recent report by S&P Global predicted that demand for copper will double by 2035 as a consequence of the energy transition, and it is unclear if the existing supply chains can sustain such an increase.

How can governments and companies address the energy crisis without sacrificing progress on climate? And how might current and future supply shortages change the geopolitical landscape?

This week, Jason Bordoff talks with Dr. Dan Yergin, an internationally known authority on energy, geopolitics, and economics. He sits on the boards of numerous institutions – including Columbia’s Center of Global Energy Policy.

Dr. Yergin is the Pulitzer Prize winning author of “The Prize: The Epic Quest for Oil, Money & Power.” And his most recent book, “The New Map: Energy, Climate, and the Clash of Nations,” illustrates the greatest issues of geopolitics and energy today.

He is the Vice Chairman of S&P Global, and was the project Chairman for the report, “The Future of Copper: Will the looming supply gap short-circuit the energy transition?”

Jason spoke with Dr. Yergin about the ongoing energy crisis, the supply of critical materials, and the future of energy superpowers.

Transcript

Jason Bordoff: [00:00:03] Winter is coming and the energy crisis that is afflicting Europe and other parts of the world is worsening in the wake of Russia’s invasion of Ukraine. After Putin turned off supply of Russian gas through the Nord Stream pipeline earlier this month, prices across Europe soared, causing severe pain for manufacturers and consumers and pushing the region closer to recession. European countries are now weighing emergency measures like price caps and energy rationing, in addition to the immediate energy crisis. Key questions remain about what this crisis will mean for the clean energy transition in the longer term, and whether the transition may be challenged by other constraints, like the supply of critical minerals for clean energy technologies such as copper, lithium and cobalt. A recent report by S&P Global predicted demand for copper will double by 2035 as a consequence of the energy transition. And it’s unclear if the existing supply chains can sustain such an increase. How can governments and companies address the energy crisis without sacrificing progress on climate? And how might current and future supply shortages change the geopolitical landscape? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. I’m Jason Bordoff. Today on the show, Dr. Daniel Yergin. Dr. Juergens, an internationally known authority on energy, geopolitics and economics. He sits on the board of numerous institutions, including our own here at the Center on Global Energy Policy. Dr. Juergens, a Pulitzer Prize winning author with his book The Prize The Epic Quest for Oil, Money and Power, and his most recent book, The New Map Energy, Climate and the Clash of Nations, illustrates the greatest issues of geopolitics and energy today. He’s the vice chairman of S&P Global. And he was the project chairman for the report. The Future of Copper. Will the Looming Supply Gap Short Circuit The Energy Transition? I spoke with Dr. Yergin about the ongoing energy crisis, supply of critical minerals and the future of energy superpowers. I hope you enjoy. Dan Yergin, welcome to Columbia Energy Exchange. It’s just a thrill to have you here and really looking forward to this conversation. [00:02:21][138.3]

Dan Yergin: [00:02:22] I’m very glad to be back. So much has changed since I was here last time. [00:02:26][3.5]

Jason Bordoff: [00:02:26] That’s right. This is audio, not video. So people can’t see all the little notes I’ve scribbled down in preparation on a yellow legal pad, which is an inspiration from you. I recall you writing the praise on yellow legal pads, if I remember correctly. [00:02:39][13.1]

Dan Yergin: [00:02:40] You know, and all books since then. [00:02:41][1.2]

Jason Bordoff: [00:02:42] Is that right? [00:02:42][0.2]

Dan Yergin: [00:02:43] Yes. Including through the new map. The only problem is the handwriting gets worse as time goes on. [00:02:47][4.5]

Jason Bordoff: [00:02:50] You think a little more slowly when you’re forcing yourself to write rather than type. Maybe that’s maybe that’s what you learned with yellow legal pads. So enough about how you write books. We can come to that later and talk about it. I want to talk about what’s happening in the energy world today, which it seems is in crisis. I want to start by asking you what that word means. Everyone talks about an energy crisis. Our friend Fatih Birol has talked about this as the first global energy crisis. Few people have studied the history of energy and past energy crises as you have. So I presume you agree we’re in an energy crisis, but just put it into some historical context. When you think about times of war, times of the Arab oil embargo, what what is this moment we’re in? How does it compare? How is it similar? Has a different to what we’ve seen before. [00:03:35][44.9]

Dan Yergin: [00:03:36] It is a very big disruption in the energy markets. And in a sense, it’s global or maybe we can even say all encompassing because it involves not only oil as previous crises, but natural gas and coal. In fact, it really started with coal with the economic rebound coming out of COVID in in the early autumn of 2021. This is I mean, people often ask me, is this like other energy crises in the one that they always cite, even if they were not born at the time, like many of the listeners and this is the seventies, because what it really means is a really big energy crisis where it interacts with and is reinforced by a global geopolitical crisis. And in that sense, we haven’t seen anything like this for many decades. And the similarities actually, although there are many differences, that one was only about oil, but it started with markets being very tight and this started with markets being very tight. And then it’s an intersection with this global geopolitical crisis. And as then and when this is over and we already can see it, the world afterwards is going to be different than the world before. [00:04:46][69.7]

Jason Bordoff: [00:04:48] Yeah. I want to talk about how it’s going to be different than the one before. But but I think one of the things you just said that’s interesting and important to focus on is we’ve had this horrible aggression, unjustified aggression of Russia in Ukraine, and now we’re in an energy crisis. And I think for many people, it’s cause and effect. We are in an energy crisis because of Russia’s behavior. I’m hearing you say that there are other factors which are at play here that have made it a worse, that Russia clearly exacerbated it, or that maybe made it a more opportune moment for Putin to think about using energy as a weapon. Is that right? Is this about more than Russia? [00:05:27][39.3]

Dan Yergin: [00:05:28] Yeah. Let’s come back to the opportune in a moment, because I think that’s kind of what the evidence suggests. But yes, it’s this started, you know, gas natural gas prices in Europe, gasoline prices in the United States, prices around the world were high last November and December. In fact, while the COP26 was taking place, this crisis was already unfolding. And there was economic basically because it was tight, very tight balance between demand and supply, what kind of what I’ve called preemptive underinvestment in new supply. During COVID, people thought, oh, energy demand is peaked in 2019, it’s going down. But instead it has been coming out of this. It was going up again. And so it was driven by economics primarily. But I think there is something else to be said, which is Russia began to actually not behave in the European gas market in the autumn of last year. In the way they had before. Was prices going up before they would have put more gas into it? They didn’t. And in fact, one point in January before the crisis, the U.S. LNG was supplying more natural gas to Europe than Russian pipeline gas. And was it economic or was Russia laying the groundwork for the war by making the markets tight already? So to add to the cards in their hand and one thing about Putin is that he really understands energy markets. Over the years people have dealt with him said it was like dealing with like almost like the CEO of Russian in. And, you know, one of the natural gas negotiations in 2009 when there was a crisis over much smaller crisis over Ukraine, Russian gas going through Ukraine. Putin spent 6 hours in a natural gas negotiation. So kind of this wasn’t just people telling him what to do. He had pretty clear ideas. So I think that set the stage for then what happened on February 24th. And it led to one of his really big miscalculations. [00:07:32][123.4]

Jason Bordoff: [00:07:33] Say more about that. Why is it a miscalculation? [00:07:34][1.2]

Dan Yergin: [00:07:35] Well, I think there were four big miscalculations that he made. Number one, he overestimated the capability of his own military, totally underestimated the Ukrainians. He thought that the you looked at the U.S. and he looked at Afghanistan and he looked at January 6th, the capital said the U.S. can’t get its act together. And then he figured the Europeans were so dependent on Russian energy that they would just kind of wave things on. And the degree of miscalculation is reflecting the fact that it’s pretty well-established now that Russian military officers carried ceremonial uniforms in their pack, in their kit under what they thought was the march to Kiev to where in the in the parade that was going to occur when they conquered Kiev. But, you know, a war that was supposed to be over in three or four days, by the way, the West thought it would be over pretty quickly to is now well over six months. [00:08:27][51.1]

Jason Bordoff: [00:08:28] So is that when you say and you laid out many dimensions of the miscalculation, one is what the consequence would be of how dependent Europe is on Russian energy. Again, I mentioned 40 below before he had an op ed in the Financial Times a few days ago saying It’s wrong to say that Russia’s winning the energy war. They are not. But Europe is and is in crisis because they have seen a reduction of 80 90% in Russian gas flows. So in what way was it a miscalculation? [00:08:58][30.8]

Dan Yergin: [00:09:00] Yeah, I think that the war is not over. What’s basically happened, Jason, is that a second front has been opened in the Ukraine war and it’s been the gas market in Europe. And this is the point at which Putin has the maximum leverage to to act upon it. So and he has a strategy he laid it out at St Petersburg in June. He said high energy prices create economic hardship, create social turmoil, will lead to the rise of populist parties. And and as he put it, and the change of elites, I mean, a very you know, what does it mean? A change of governments. And that the idea was to crack the coalition. And so, you know, we’re kind of already seeing some direct movement in that direction in Italy, with Mario Draghi on his way out as prime minister and the populist right wing populist party of he pulled him down. You know, so I think he’s calculating that for Europeans, the economic cost, the pain of this will lead them to step back from the coalition so far. You know, we don’t know about the new government in Italy so far. Governments are not doing that. So Putin, from his point of view, has to win. And from the West point of view and people supporting Ukraine, he has to lose. And so he’ll do whatever he needs to do on gas. And as you know, Jason, we may be soon seeing that on oil as well. [00:10:27][87.6]

Jason Bordoff: [00:10:28] Yeah, we’ll come to oil in a second. And so that what I hear you saying is whether this strategy, from his standpoint, has any is effective in the near-term. Maybe we will talk about the long term in a moment. Has Russia really destroyed its position as a dominant energy supplier in the long term? But in the near term, what I hear you saying is the question for the coming winter in particular is whether European unity holds in the face of what is the potential for an even worse energy crisis. Will they continue to cooperate to help one another, or is Putin going to prove effective at splintering and driving wedges between countries where they look out for themselves? [00:11:06][38.0]

Dan Yergin: [00:11:07] Yeah, look at the change in the economics. Typically, the European wholesale electric power costs are 100 $250 billion. This year, they’ll be over $1,000,000,000,000. We saw natural gas, at least for a point, trading at close to the energy equivalent of $600 a barrel. So the stresses are enormous. There was you know, none of the countries were prepared for this. A lot will depend upon whether it’s a cold winter or not. But even when the gas storage is filled, you still need gas. LNG has gone from has become a strategic resource. It’s become kind of almost it’s LNG is replacing Russian gas as the bedrock of European energy security. [00:11:52][45.8]

Jason Bordoff: [00:11:53] The United States is a very important player, and that’s obviously a big shift from just five or ten years ago. Talk about the role the United States is playing in global energy markets today and in response, what it means for a crisis like that. [00:12:05][12.1]

Dan Yergin: [00:12:06] Well, of course, you you know this very well, Jason, and you have been very close observer on and engaged in how this has happened. But I think, you know, it’s amazing to think it was only in 2016 that the first cargo of LNG left the United States. And today the US is or is close to being the world’s largest exporter of LNG. And you know, you just see the Europeans are just keep showing up in the U.S. wanting to meet with potential suppliers and tie up supplies because they really have to fill fill that gap. Obviously, LNG is coming from other places too, but it’s a very tight global market. In a way, the COVID shut down in China is been one slight relief valve because it’s brought down Chinese oil and gas demand. In fact, Chinese companies recently have sold cargoes of LNG that they had purchased from other people to the Europeans that are at a higher price. If China ever came and came out of its lockdown, that would add to the pressure in the markets. [00:13:09][63.1]

Jason Bordoff: [00:13:10] Yeah, the and you know, we talked about Europe’s in a gas crisis. It’s in an electricity crisis. And that’s partly. But tell me if you agree not entirely about the gas crisis, you see nuclear power down, hydropower is down. Other issues with the regulatory structure of of of the European electricity market and many governments are rethinking how they price and structure their electricity markets in response to this. Is that right? And what should we infer? What does that mean for the longer term? [00:13:38][27.8]

Dan Yergin: [00:13:38] I mean, the electricity price has been driven by the marginal price and that has been the price of gas. But Europe is going to go you know, is going to look at restructuring its markets. One hopes they don’t do it on a crisis basis because if they do, they’ll they’ll screw it up. I mean, usually when you do major reforms, if something as fundamental as your electric power system and you do it in the middle of a crisis, you’re going to make, you’re going to build in mistakes. So they need to deal with the short term crisis and then rethink their overall markets. But, you know, the heart of all of this goes back really to the end of the the way the Cold War ended and the way the Soviet Union collapsed. And the basic point was that, you know, Putin did not accept it outcome. He did not accept the settlement. He did not accept Ukraine as an independent country. And, you know, in the new map, I have that sentence there saying that Ukraine was going to blow up is the issue for all of those reasons between Russia and the West. And that’s happened, although I think nobody and nobody could have imagined this scenario as it is right now and the kind of repercussions that you’re just was not prepared at all to deal with this. And, you know, Germany was particularly unprepared. [00:14:55][76.9]

Jason Bordoff: [00:14:57] Yeah. The new map for those who haven’t read it being your wonderful recent, most recent book and people should read it, you sort of talk in it about the how the world looks in America and Russia and China in the Middle East if if it needed an EPILOG. Now, maybe it does as a result of Russia’s invasion of Ukraine. How is that shifting the new map that you describe? [00:15:17][20.5]

Dan Yergin: [00:15:18] Well. Well, you know, I started off this the way the new map came about was just looking at how the maps of trade flows were changing. And then it went from looking at literal maps to a metaphor of the world changing. But now we’d have to redraw the literal maps as well, because literally, you know, Russia was supplying 38 to 40% of Europe’s gas. Half of Russia’s oil exports went to Europe. Europe said, no, we don’t want them anymore. Now, timing, they can’t say no completely. It’s going to take time to get out of it. So we’re going to see China. Russia used to supply 1% of India’s oil. Now it’s supplying 20% of India’s oil. But the biggest change, I think, is going to be that Russia that Putin has thrown away 22 years of what he’s built with Russia’s integration with the global economy. That door is now shot, at least with the OECD nations and China. Russia, I think, becomes an energy, an economic dependency of China in an answer to the, you know, response to previous point you made. There’s no question that today Russia isn’t an energy superpower. I think it’s still going to be a very important supplier of oil and gas, but the like being cut off from technology will show up over three or four years and it will have lost its most important market. So I don’t think it’s going to be an energy superpower in the way that it’s been in the past. And it’s going to be very dependent on China and it’s going to be the junior partner in that relationship. [00:16:55][96.9]

Jason Bordoff: [00:16:56] Yeah, so much of what Putin is doing, aside from being horrific in the humanitarian sense, seems self-defeating. It sounds like you’re saying that in your view that’s true for energy in the long run. As well. [00:17:05][9.5]

Dan Yergin: [00:17:06] Yeah. And for his overall economy. And he wanted to be you know, he wanted a seat at the table as a great power. Well, that chair, he he sort of pulled away his own chair. [00:17:16][9.6]

Jason Bordoff: [00:17:17] What do you think about the policy response across Europe? We have a new government, new a new prime minister in the U.K. immediately moving to just cap energy prices, where the government’s going to subsidize the difference and control energy prices for people. And and governments are responding in different ways to try to subsidize energy. Cap energy prices, restructure markets. What what’s working well and what’s not? [00:17:39][22.3]

Dan Yergin: [00:17:40] Well, I think it’s too soon. I think there’s no there’s no really good thing to do here. I mean, people are going to do. Governments are going to do what they do to deal with the fact that there is great economic hardship on people and that, you know, these consumers are also voters. So a cap is one way. It doesn’t necessarily send the message that you should, you know, be more efficient. I mean, what you do want to do is, you know, bring down demand by ten or 15%, which is really quite doable, actually, and you really improve the situation a lot. But the other thing is that the new Prime Minister of England, Liz Truss, her model is definitely Margaret Thatcher and she’s moving with Thatcher like speed, including reversing British policy to really substantially start leasing again, oil and gas development in the North Sea and even to give a go ahead to drilling for shale. And it’s just to you know but but you see the German economic minister who’s so influential right now, Robert, that, you know, people are attacking him for more using more coal, you know, saving the last couple of nuclear power plants. And he made this come. He said there’s no black and white on energy. There’s only shades of gray. And so governments are all basically dealing with, which is not perceived the United States or other parts of the world, but is or Canada but is dealing with a really grave emergency that guarantees that Europe is going into a recession. [00:19:06][85.8]

Jason Bordoff: [00:19:07] Not a bleak outlook. Coming back to that point about opening up the North Sea, of course, many countries in Europe, Germany building new LNG import facilities, even in the U.S., the president saying, I want I want to see more production, more refining in the near term. But but many are also simultaneously saying and we’re also going to try to accelerate the plans. We had to use less of all of this oil and gas in the long term. Your sense of how this plays out near term, long term, what this conflict means for the transition? And how do you reconcile these steps today with a longer term goal to decarbonize? [00:19:40][33.4]

Dan Yergin: [00:19:41] Yeah, I don’t think they’re necessarily totally irreconcilable, actually. You saw the the strangely named Inflation Reduction Act. I don’t know why it’s only called inflation has very little to do with inflation. Reduction, in fact, may actually increase costs of inputs. But boy, I mean, I was just at a meeting listening to a group of investors and they were just so excited by the amount of tax credits that are available. Tax credits on top of tax credits, five times the tax credits if you use union rather than nonunion labor. So this is going to be, you know, pouring money is seeking to supercharge the energy transition. But I think their constraints, which will come, too. But I think that at the same time, you know, a de facto recognition that maybe energy transition is not as easy as people have thought. There are going to be more bumps along the road. There’s a very prominent French economist, Macron advisor found at the leading French think tank, energy economics think tank, European think tank Jean Pisani Ferrand. He wrote a paper last August saying when you do the numbers, in fact, trying to do a very fast transition, trying to put 2050 goals into 2030 is going to be very turbulent economically in a sense. That’s what I think we started to see last autumn. So I think the path may be just bumpier in managing, keeping seatbelts on. It’s going to be important. [00:21:12][91.0]

Jason Bordoff: [00:21:13] Yeah. As you know, that’s kind of what our friend Meghan O’Sullivan and I wrote in Foreign Affairs last year. Green Upheaval. This transition is going to be risks being bumpier than we realize. And that’s not just bad economically and geopolitically. It could be bad for the transition itself. You said something to things a minute ago. I want to maybe bring together, if you agree there connected the tax credits upon tax credits. You said if you use union labor just as one example and then you talked about the new map, how the map is being re shifted in a literal way today because of changing energy trade flows. I’m wondering if coming out of a pandemic, coming out of this energy crisis, the map is being re shifted in in many ways in terms of global trade and supply chains beyond just energy. And you can see in the U.S., in the Inflation Reduction Act, what seems like industrial policy. And if you want the. Tax credits. A lot of that stuff needs to be done in the U.S. or in free trade partners. People are thinking differently about a broad, multi-decade process of economic openness and globalization. What does that mean? For what? What? How we think about security of supply for energy, but other things, too, and for kind of economic global trends moving forward? [00:22:27][73.7]

Dan Yergin: [00:22:28] Well, let me say that five times for union labor, this is what I was told by a tax lawyer who very carefully read all of the tax provisions. So I’m not a tax lawyer. So but this is, you know, what somebody who is planning to invest on that basis said, I think the you know, I wrote this book called Commanding Heights, which was about globalization and bust. I said two things that balance of confidence, not values, shifts, balance between state and market, and that the pendulum would swing and the pendulum is certainly swinging. I think this is, as you said, this is really the Industrial Policy Act of 2022. It’s also chastened the Chinese Competition Act of 2022, as was the infrastructure bill. So much of this is written about trying to reduce dependance on supply chains that involve China. And that’s the same with the Chips Act that has come through. And, you know, this is one of the big trends that I’ve you know, in the new map was the geopolitical map that I came up with the phrase the WTO consensus to describe. The world. The globalizing world started in 1992, accelerated by China’s joining the WTO that we’re all in this together. China China is a responsible stakeholder in a global economy, highly integrated, and we all benefit from it. Well, that’s gone. That is gone. It is now the era of great power competition. And that’s the U.S. versus China. Europe’s in there as a player as well. And it has its geostrategic, its military, its economic and all these supply chains that have been built. Now companies are having to rethink them. They’re having to think about resilience in their supply chains. They have to think about, you know, I mean, we’ve already seen various strands of business that people thought were fine to do because they were based on efficiency. You can’t you’re you’re backing out of them. And where this ties into energy specifically, because on the one hand, who’s a big importer, importer of U.S. energy is China. And, you know, and that’s was part of the way of addressing the trade imbalance between the two countries. But now the other side is the new supply chains for net zero. So many of them flow through China because of its dominance of solar panel manufacturing, its dominance of lithium ion batteries, etc.. And so you can look at a lot of that legislation is trying to kind of reshore them. Now, if you had a different government in Mexico, you’d see a lot of reshoring going on in Mexico, but not with the governments that’s there now because it’s not friendly to foreign investment. So it’s an effort to bring it back to the United States and it will come back to the United States. But it’s probably you know, it’s going to cost more, not less. [00:25:23][175.8]

Jason Bordoff: [00:25:25] What does that mean for whether it’s it’s energy or it’s, you know, semiconductors coming from TSMC, Taiwan Semiconductor or almost anything else? It is such such an integrated global economy, not just the stuff we import as and buy as consumers, but the myriad levels of inputs into those products, the supply chains. As people start to think differently about this. What does all of that mean? And one thing I’m thinking about is how do you think about where where security of supply comes from, what what delivers that to companies or to nations? You’ve said that this crisis awoke, woke us up from a collective complacency about energy security. We just forgot about energy security in the last ten or 15 years. So where does it end? What is energy security? Where does it come from? Does it mean you have to make everything at home? Does it mean you have to have big strategic stockpiles lying around? How do we get it? [00:26:20][55.1]

Dan Yergin: [00:26:20] Well, I think it’s a manifold thing. I think stockpiles are part of it. Certainly, we’re seeing the Strategic Petroleum Reserve, which often people say, why do we have it now? We see why we have it that stockpiles are, you know, a way of protecting. And you think about that more in a kind of wartime situation in peacetime. But we’ve seen it on aspects of COVID that we didn’t have the stockpiles of medical supplies that we needed. But I think the dominant theme of energy security, I think, always goes back to what Winston Churchill said when he converted the Royal Navy from coal to oil on the eve of the First World War. Safety said lies in variety and variety alone. In other words, diversification is a very important part of it. And and and that costs money. I mean, Germany should have had some LNG report importing stations in place, but it would have cost money. And so therefore, you know, because we’ve had a world economy that’s largely just run on the principle of economic efficiency, and you build in security that, you know, just like insurance, it adds a cost. [00:27:28][67.2]

Jason Bordoff: [00:27:28] There’s a premium to pay for it and a role for for government there. And as you said, you look at China, for example, and I think you’d be hard pressed to find them importing more than roughly 20% of their oil supply from any one country because they’re trying to do what Churchill said, I think, and diversify. [00:27:42][13.6]

Dan Yergin: [00:27:43] You know, it’s interesting to see since this crisis began there there there are up to was 2 million barrels a day on of Russian oil now. Yeah. And you know, before they were kind of keeping it at a million barrels a day, I guess. [00:27:58][15.1]

Jason Bordoff: [00:27:59] I guess if you get a big enough discount, you’ll give up. [00:28:01][2.3]

Dan Yergin: [00:28:01] I going to say, I mean, if you if you know, if you’re going to the bargain basement, you know, stock up. And by the way, they do do that whenever, you know, if prices are low, they’ve used it to fill inventories. [00:28:13][11.4]

Jason Bordoff: [00:28:14] So we haven’t really talked about oil markets yet. And in a sense, there’s less conversation about them because prices have come down. There was a there were high prices earlier, $5 gasoline. Biden administration very concerned prices have eased off for a variety of reasons, including an expectation that Russian supply would be disrupted. That really hasn’t played out. Russian supply is not disrupted yet. [00:28:35][21.3]

Dan Yergin: [00:28:36] I think there are two other, you know, couple of other. Reasons. One, of course, is that COVID lockdowns in China have repressed, repressed activity in China. So Chinese demand is is down from what it would normally be. And the other thing is the Federal Reserve, you know, the decision that, oh, inflation’s not transitory, it’s in danger of becoming embedded. And, you know, the other central banks, too, you’ve got to come in with their heavy artillery, which means big rate hikes. And so I think certainly Europe’s going into recession and a pretty high expectation that the U.S. will be in a recession. And that’s now permeating the oil price. But there’s still, as you know, Jason, plenty of room for disruption to come in the next three months. [00:29:22][46.1]

Jason Bordoff: [00:29:23] Yeah, lots of uncertainty about OPEC, what OPEC might do, what will happen with the Iran deal, what will happen with Chinese demand, and also this policy that goes into effect in December and then for refined petroleum products next year, where the Europeans were say we will what? We won’t buy most of the Russian oil. And, by the way, we won’t finance or insure the shipping of it to other participants in the world. There seems to be a lot of disconnect between some people who think that’s going to be massively disruptive, to lose millions of barrels of Russian oil because you can’t insure these tankers and move them to China, India or anywhere else. And others who think there’s a lot of ways you can get oil into the market. We shouldn’t be too worried about it. I’m wondering what you think is right. [00:30:06][42.6]

Dan Yergin: [00:30:07] Well, I think we can see that the US government is in the first camp very worried about an oil shock and so have come up with this ingenious idea of doing price controls. But price controls only on Russian oil. And I can’t. [00:30:24][17.3]

Jason Bordoff: [00:30:24] Tell if ingenious was slightly sarcastic. [00:30:26][2.4]

Dan Yergin: [00:30:28] Well, we don’t know yet. I mean, it is you know, it’s the it’s it tries to solve two problems that need to be solved. One is the fact that Russia is making more money out of energy this year than it did last year. And secondly, not having a hole in the market that sends a crisis and sends prices spiking up again because in a way, the European ban, which is in European law, is probably ill considered given. So. [00:30:56][28.6]

Jason Bordoff: [00:30:57] And just to be clear, for people listening, so you’re talking about the idea the U.S. Treasury has put forth and the G-7 recently endorsed, which says if for countries that agree to pay below a certain amount per barrel, they will have access to Western insurance and finance that would not otherwise be available. The idea being, say, let’s see if we can separate revenue from the actual supply. There’s a lot of reasons why people are skeptical that will work. But that’s the idea you’re talking about. And I guess I’m wondering which camp you fall into. Is this ingenious or is this something. Well, I think. [00:31:30][32.6]

Dan Yergin: [00:31:30] You have to do you know, you have to do something because otherwise India is not going to get oil. It probably was ill consider the Europeans to do this. But I think it’s just it’s going to be how it’s executed. And, by the way, what price they decide. I mean, now the Russians will respond hours after I believe the G7 adopted this notion. Russia announced, oh, we’re not going to be able to send any more gas through through the Nord Stream two pipeline at all. And I think, you know, they will respond to this. The question is, how will they respond if they cut supply? They could still create you know, if they take 2 million barrels a day out of the market, send prices up in the system comes crumbling down. So one key question is to set the price at a level. You know, maybe there be a convergence between what recession concerns do the price and the price level that’s going to be set. I mean, because in a sense, the Federal Reserve is also doing the same thing. I don’t know. Jason, what do you think at this point? [00:32:30][59.8]

Jason Bordoff: [00:32:32] Look, I think I understand what what Treasury is trying to do and there may be no harm in trying. I think there is. I think there’s reason to. I mean, it doesn’t seem like China and India are aren’t have sent signals. They’re going to go along with this. The argument from the U.S. officials would be that even if they don’t, they can negotiate a steeper discount because they have the option of doing this. And maybe that’s right. I think, you know, the only risk really then is immediately after the G7 did this, Russia said we’re shutting down Nord Stream one. Maybe they would have done that anyway. But of course, there is a risk of of they have a pretty powerful weapon if they want to retaliate and they want to impose pain not only on Europe but on everyone else, which is to announce there’s been some problem at a pipeline somewhere and a million barrels a day of oil is going offline and they can probably get just as much revenue because they sell the rest of the oil at an inflated price. [00:33:23][51.5]

Dan Yergin: [00:33:24] I think that, you know, I guess the Treasury would say, well, we don’t need India and China to agree because because actually they’re not going to be the people who. Act on this price is somehow the shippers agreeing to it, attesting that they were doing it. You know, price controls are complicated in our situation. This is very difficult. And I think I mean, the Russians will clearly respond. I mean, Putin said that at Vladivostok recently. You know, we’re going to we’re not going to accept this. So it’s high stakes all around. So but it’s but but on the other hand, I suppose I think the if you don’t do something, then this ban goes into place and India doesn’t get oil and India imports 85% of its oil. [00:34:13][48.9]

Jason Bordoff: [00:34:14] Yeah. And that is the question of how how much teeth the ban on ship Western shipping insurance has. And again, I, I’m surprised at how many how much variance there is in the views about that. Some feeling like you just can’t move oil without Western ships and insurance and others who kind of say there’s there’s a lot of ways you can have Russian insurance and Indian insurance and different ways to to move oil into the market. So I guess I think it will it may well prove helpful to have this mechanism in place, even if some are skeptical of it today. If it turns out that things are much more in crisis in oil markets after December 5th, this may be a mechanism people can turn to. [00:34:51][36.9]

Dan Yergin: [00:34:51] I mean, there’s one other thing. It just did not go on too long about this. But as I understand, the tankers in the Russian tankers in the Baltic have to go through the Danish Strait. [00:35:00][9.3]

Jason Bordoff: [00:35:01] That’s right. [00:35:01][0.2]

Dan Yergin: [00:35:01] And they have to have a Danish captain on board. So, okay. If the Danes say we won’t provide the captain. Yeah. Do the Russians sail through anyway? And do you have a side door crisis actually with a narrow country suddenly emerge? Yeah. So, you know, we’re dealing with a world of unexpected or unintended or an anticipated consequences. [00:35:24][22.6]

Jason Bordoff: [00:35:25] Yeah. And then, you know, if it again, the goal of trying to reduce Russia’s the pain on Russia by taking away Putin’s revenue, but not impose pain on ourselves by allowing the oil to still flow. That’s a worthy goal. It’s hard to achieve. And if it can’t be achieved, then the question is, which is more important, the pain on Putin? And are we willing to accept, you know, much higher oil prices as the price price to pay for that? Well, I guess we’ll learn the answer to that. [00:35:50][25.0]

Dan Yergin: [00:35:51] Yes. [00:35:51][0.0]

Jason Bordoff: [00:35:52] You mentioned price controls a moment ago. They’re hard to implement. I’m just wondering, as the student of history you are, people will remember, you know, price controls in the US at the time of the Arab oil embargo. What what lessons can we learn from the history of how past energy prices have been dealt with that would inform how we should approach this one? [00:36:09][17.6]

Dan Yergin: [00:36:10] Well, I think the lessons of those price controls were that they were completely counterproductive. They did not send a message about demand, and they hindered the development of supply. And they were incredibly the one group that really benefited from lawyers, because there was so much litigation that occurred from it. And it was, you know, it was like an industry. You had four or five different tier gas prices and which tier is it and so forth. And, you know, the lesson I think they take away is that to the degree possible, having markets adjust is a more efficient and and leads to better outcomes rather than trying to take over the market and manage it. [00:36:52][41.7]

Jason Bordoff: [00:36:53] You know, we’ve talked a lot about the U.S. and Europe, a little bit about China and India. But this is, as you said in the beginning, a global crisis. And it’s playing out around the world and lower income countries, emerging market countries in South Asia, they’re struggling to afford energy any any energy at all, whether it’s coal, oil, gas, not yet in a place to do without those fuels, with clean energy. I just sometimes I think we don’t talk enough about the ripple effects that this crisis has to push oil prices up to push coal prices up, to push LNG prices up, and how that plays out and in parts of the world that can’t afford this. [00:37:26][33.6]

Dan Yergin: [00:37:27] Well, there are two things to say. One is we’ve seen it that countries that were counting on LNG in Asia, for instance, developing it, can’t afford it. So what do they do? They burn coal or they have blackouts and it imposes huge economic costs to those countries, which is not getting the same degree of attention and great pain. And certainly, as I say, burning more coal. I think there’s the other side of that is something that I wrote about in the new map that I think bears more attention, which is that there’s generally a North-South divide on energy transition, which is, you know, there was a North-South divide decades ago between emerging developing well, developing countries and developed countries about sort of sharing economic growth. And it sort of faded away with the rise of emerging markets instead of developing countries. But it’s back now because the developing countries are you know, India has 1/20 the per capita income of Belgium. And there’s a kind of resentment of people in Brussels telling the Indians what they need to do with. They also have a lot of poor people. They needed health issues. They have to raise incomes and so forth. And, you know, they were an African country saying we can’t get finance to build a gas pipeline so people could stop burning wood and waste in their indoor air pollution. And then the irony, I heard that from the minister of Senegal saying that and you know, it’s like she said, it’s like taking the ladder away. What do they do? One is to jump or fly. And yet there is the chair, the chancellor of Germany, flying to Senegal saying, oh, by the way, can you build some LNG for us? So I think there is a divide that has not been recognized so much. But it’s a different view, as the former Energy and Petroleum Minister of India said, it’s not an energy transition. Their energy transitions. [00:39:25][118.2]

Jason Bordoff: [00:39:27] Yeah, that’s that’s I think that’s a really important point. Do you think we talked about some of the response to this in the near term, building LNG terminals, China’s increasing the number of coal plants, increasing its coal production targets. But but there is a view that in the longer term, this does actually accelerate a transition. There’s a recognition that if you’re. Do you think that’s right? [00:39:46][18.4]

Dan Yergin: [00:39:46] Yeah, I think that’s right. But then that gets to the issue of the supply chains for net zero. And that’s, you know, in in in the new map, the way I phrased it is you go from big oil to big shovels because you’re going to be so much more mining. And the volume of mining, I think, is just just not really recognized. I mean, the IEA, the World Bank, the IMF, the U.S. government, the EU have all put out reports saying, well, we’re moving from a fuel intensive to mineral intensive, and that could be a big problem. Well, in this new copper study we’ve done, you know, the future of copper will supply, you know, what was it? Supply shortages, short circuit, the energy transition said, okay, well, if you take the Biden goals or you take the EU goals, what does that mean in two technologies? What does it mean in terms of sub technologies? What does that mean in terms of copper usage? Because copper is the metal of electrification and it looks like demand has to double. I mean, California just passed a law saying that all cars sold in California in 2035 have to have two and a half times more copper than cars that are now on the road. Now, they didn’t actually say that. They said they had to be electric cars, but electric cars are two and a half times more copper. And you just you look at mining 16 years, the IEA says, to open a new mine. You look at where the mines are. And 38% of copper comes from Chile and Peru. Are you going to be able to get that growth? So I think that there and so that’s why that’s why that Inflation Reduction Act could be an inflation increase act, because the the income the cost of these inputs is going to go up. It’s already going up. Look at lithium costs. [00:41:37][110.3]

Jason Bordoff: [00:41:37] Yeah. And you’re referring to this great study that S&P, your company just did on on copper, which I recommend to people, was incredibly interesting. And so just tell us what the answer is. Are you mapped out in there, how much copper we will need and how when you really grapple with how big those numbers are, is that possible? Is there enough resource when you look at technological innovations in battery chemistry or recycling, or are there ways to reduce how much is needed? [00:42:05][27.2]

Dan Yergin: [00:42:06] Well, I think that even with what we said, wildly optimistic assumptions, you don’t get there. And if you continue at the rate we are in terms of mine development, efficiency of mines and recycling, you end up with quite a big shortage, which would be a real constraint. So what happens to our prices, prices, this stimulus to innovation? So is it going to be you know, is it going to be the kind of recycling that JP Straubel who gave I describe in the new map, the lunch in 23, where JP suggested to Musk that instead of an electric airplane, maybe we should do a electric car. And JP was the head of the chief technology officer of of for 15 years of Tesla, and now he’s focused on battery recycling. And so maybe recycling on a massive scale will be the answer. But it’s certainly people are going to try and innovate around this problem. But it’s a fairly short time horizon if your goal is 2050. But I think, you know, during World War Two, we had this terrible problem. We didn’t have rubber anymore because the Japanese captured Southeast Asia invented synthetic rubber. So people will try and innovate around the problem. But meanwhile, the problem is pretty stark and it’s geopolitical in two ways. One, the countries that produce it. And two, guess what? We’re back to China, where 42% of world copper is smelted. [00:43:32][85.9]

Jason Bordoff: [00:43:33] And the and the history of the oil industry, which you know better than. Anyone is is one of every, what, roughly 30 years fearing we are running out and then the technological improvements mean we’re able to extract it economically in ways we didn’t anticipate. Is it why is that the answer to this problem of critical minerals? [00:43:52][19.0]

Dan Yergin: [00:43:53] Well, I think that will be it has to be the answer. Technology innovation has to be the answer. The question is, you know, timing at scale. You know, shale was. What was it about? It was about two decades before actually it was recognized as a technology. And even then it was thought to be quite small. I expect to see in the next round of spending that there’ll be a stepped up effort on recycling as the as part of the answer. The issue is you won’t have that many electric car batteries to recycle in the timeframe because you know, you’re going to we’re in 2022 now, you know, going into 2023 and you’re looking at 2035, that’s 12 years. [00:44:40][46.9]

Jason Bordoff: [00:44:41] And you talked you talked in the report about copper. Copper could be a destabilizing threat to international security. Tell us what you’re concerned about. [00:44:50][9.5]

Dan Yergin: [00:44:51] Well, I think is that it’s also geopolitical. It’s also involves, you know, you have a new government in Chile that that wants to you know, as the price goes up, particularly governments want to increase their take and permitting not only the U.S., which is a very big problem for everything, but is the problem in these other countries, too, about, you know, actionable opportunities. And then you get into this competition with China. And it really is a competition because China is determined to be a major exporter of electric cars to the world. It’s already started. So it’s going to be competing pretty darn hard for that copper. [00:45:30][39.0]

Jason Bordoff: [00:45:31] And what I’m one of and there’s a lot we can talk about, we have a whole separate podcast just obviously on copper or on critical minerals. Broadly, the a lot of concern as as you would appreciate in the environmental community about the environmental impacts of large scale mining, as there is with extraction of oil, gas and coal. I’m curious what you found in terms of how big those are and to what extent can they be addressed? Is it possible to scale up in a significant way, mining, but do it in a sustainable, responsible way? [00:46:01][29.4]

Dan Yergin: [00:46:02] Well, I think it is. But there is so difficult to get permits. I mean, US copper production has gone down by half their mines, you know, people five, 15, 20 years trying to get permits. So I think, you know, and there is a you know, there was, I think, a lithium project in Nevada that has been stymied by I think it’s a wildflower that’s the concern that. So it’s very and this is you know, whether you’re talking about oil, gas pipelines, mining siting, wind, solar permitting is just a huge difficulty in the United States is ceraweek we had a session on how difficult it is to get permitting for offshore wind. So and you know, supposed to be at the end of the year, by the end of the year, a separate bill on permit to facilitate permitting. But the the U.S.. Legal system and federal system provides enormous opportunity to prevent things from happening. You know, it’s sort of, you know, the pipelines that were critical for World War Two in terms of building getting oil from the Gulf Coast to the East Coast to avoid beans. Tankers being sunk by German U-boats were built in a year. You know, getting them, you would not be able to get them permitted today. So I think permitting whatever perspective you have on energy, energy transition, the issue of permitting is is going to prove critical to, you know, to meet the needs of the future. [00:47:36][94.6]

Jason Bordoff: [00:47:37] Yeah, I think it’s an incredibly important point. And what I’m concerned about, I think there’s understandable concern about permitting reform because of what it might mean to make things easier for the oil and gas industry or something. But even if you’re just looking at clean energy, if you want to have an energy transition on the scale and speed people are talking about and the science is telling us we need the that the amount of infrastructure we have to build so fast is so enormous. We do have to figure out a system that works more effectively to build things. [00:48:05][27.6]

Dan Yergin: [00:48:05] Well, and Jason, I think that is a very central point about energy that people get lost sight of. It’s not that you can do this with that, but it’s the scale of what’s involved. For an eight or $9 trillion world economy, I don’t know what the US $23 trillion U.S. economy, the scale that whatever the energy is, whether it’s conventional or whether it’s renewable, the scale has to be really large in order to use a cliche, move the needle. [00:48:34][28.8]

Jason Bordoff: [00:48:34] Yeah, that’s good advice. So much more to talk about. But will will defer future conversations to another podcast because this is a rapidly changing and dynamic situation. But it’s such an interesting conversation and we covered a lot of ground geopolitically with the clean energy transition, with today’s oil and gas markets, and really a privilege to have the chance to spend time with you. Dan Yergin, thank you. Thanks for so much for joining us. [00:49:00][25.3]

Dan Yergin: [00:49:00] Thank you, Jason. And I think this podcast series is such an important way of communicating all the different viewpoints on energy. And of course, that very much reflects the work that’s done on the center, which is making such a significant contribution to understanding the issues of today and and, of course, the issues of tomorrow. So thank you for the invitation. [00:49:20][20.0]

Jason Bordoff: [00:49:27] Thank you again, Dan Yergin. Thanks to all of your listeners for joining us on this episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia School of International and Public Affairs. The show is hosted by me, Jason Bordoff and by Bill Loveless. The show is produced by Stephen Lacey, Cecily Mazer Martinez and Aaron Hardwick from Script Media. Additional support from Dan Prop, Natalie Vogt Kewley, Tom Moore and Lily Lee Koushik, Deb and Abby Rajendran. Sean Marquand engineered the show. For more information about the podcast or the Center on Global Energy Policy, visit us online at Energy Policy, dot Columbia, dot edu or follow us on social media at Columbia U energy. And please, if you feel inclined, give us a rating on Apple Podcasts. It really helps us out. Thanks again for listening. We’ll see you next week. [00:49:27][0.0]

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