Embargo fallout: Europe may get away clean by dumping Iran’s oil
RT: Right now what we are seeing on the energy market is a downward trend over the years of economic turmoil. What do you make of it?
Daniel Yergin: It’s quite remarkable, because just three months ago oil was almost a $130 a barrel, and people thought it was going to $150. And now it has been on this downward trend, in a sense taking people by surprise. I think what it reflects is the reality of supply and demand on the market, how it has changed.And also what is really quite remarkable is a kind of relaxation, almost calm, about these very powerful sanctions that are going into place on Iranian oil, because I think right now the kind of sense in the market is that there is an alternative supply that will replace the Iranian oil.
RT: This embargo on imports from Iran is coming in at a very difficult time for Europe. We’ve got the European debt crisis, which is looming, and there is basically no light at the end of the tunnel so far. Do you think Europe is doing this at a very bad time; is it shooting itself in the leg?
DY: I would say there was much more worry about exactly that question three months ago, when it was thought the result of this could send the prices up rather than down. Frankly, I think that the Iranians thought that this was going to happen. But there seems to be such a supply cushion that unless some other surprising thing happens, there is enough oil out there in the market that’s going to replace it that this won’t necessarily be a penalty on Europe. In fact lower oil prices both for Europe and the United States is like a big tax cut. It actually puts money into the pockets of consumers. If anything, it’s a stimulus to recovery.
RT: The facts that Europe is stopping buying oil from Iran, and China has become a huge player on the energy market – this is going to bring Iran and China together. Do you think Europe might lose Iran to China?
DY: I think one of the major themes in “The Quest” is about how China has gone from being an oil exporter not so many years ago to being the world’s second-largest oil importer and not on the economic consequences but the geopolitical consequences that you are talking about. I think in general what we are seeing is a situation, where more and more the oil from the Middle East is going to flow east rather than west, because that’s where the growth market is.
And something else, which is very striking, that happened and just did not seem conceivable four years ago is the growth of production in the western hemisphere. That is one of the dominant themes in “The Quest”, because it’s this thing about unconventional oil. US oil production is up 25 per cent, Canadian oil production is increasing, Brazil’s is increasing. And you start to see a world, in which the western hemisphere in five or ten years will be trading more among itself. And again – what you are describing, more of a shift towards east for the Middle East.
RT: Let’s talk about these unconventional oil and gas technologies. Shale gas has become one of those, shifting the shape of the energy market. But Russia is not on that.
DY: Right. Obviously the birth of shale gas took a couple of decades to actually happen, but it probably is the biggest energy innovation since the beginning of this century. It is transforming the energy market in the United States. The US was going to be a big importer of LNG; in fact it was going to import LNG not only from the Middle East, not only from Australia, but from Russia. And now it’s self-sufficient, and now the debate in the United States is about being an LNG exporter. So, it’s a big impact there.
Russia is often said to be the Saudi Arabia of natural gas; it has so much conventional gas that shale gas is not relevant to it in the same way. Different political authorities have different attitudes towards shale gas.
But the other unconventional source that is having a big impact is what is called tight oil that uses similar technologies. Everyone thought US production would continue to go down, imports would go up. But US now has increased oil production by 25 per cent. I noticed in Russia now there is a lot of discussion about tight oil, particularly going back to places like West Siberia, to the established oil fields, and using these technologies, because for Russia maintaining and increasing its oil production is also a national objective.
RT: Oil and gas are obviously non-renewable resources, and for many years of the 20th century and 21st century people have been saying that one day there will be a crisis of production, that the world will run out of resources. When do you think this could happen?
DY: This is a very familiar question. In fact in the 1880s both in the United States and in the Russian Empire people were saying that the era of oil was about to come to an end, and of course we are still here. I think technology keeps opening doors, and now natural gas resources are so much larger than they looked to be five or seven years ego. And there have been amazing new natural gas discoveries off East Africa.
So for oil the questions are not only the resources underground but also what happens aboveground, what kind of decisions the governments take. And obviously the big challenge is the emerging markets, what we spoke about before – China, and meeting their demand. But it seems that physical resources are there. But at the same time we have to become much more efficient in how we use our energy. Much more efficient.
RT: On the energy market, let’s talk about other aspects that we have. We have renewable energy. We have nuclear energy, which has also been changing, especially after Fukushima. What is the future for nuclear energy?
DY: We should talk about nuclear and renewables. The Fukushima accident was a tremendously tragedy, obviously. Japan was headed towards being 50 per cent nuclear, now the question is – is it going to be 10 per cent nuclear, 15 per cent nuclear? Japan is in a real struggle over what it is going to do. The reason it went nuclear is that it doesn’t have many resources of its own. So now there is a really big debate, a crisis of confidence, about the energy future, about the whole system of governance.
We have seen different changes in the world. Germany after the Fukushima changed its mind and said “we’re going to shut down our nuclear”. Russia continues to go ahead. Nuclear continues to go ahead in the United States. It continues to go ahead in Finland. France is 75 per cent nuclear. So it depends country-to-country. You have South Korea building new nuclear power plants in Abu Dhabi. So it’s a very mixed picture and not what people talked about two years ago. They talked about a nuclear renaissance, now it’s a mixed picture.
Renewables are very interesting, and I had a lot of fun in “The Quest” trying to understand the rise and fall and rebirth of renewables. And I talk about the rebirth of renewables because this was an industry with much enthusiasm in the 1970s and 1980s, when it was very young, very small and tactically immature. Renewable industry today is a much more mature industry. Wind machines are much bigger. Solar costs are coming down.
But they are still more expensive and they still haven’t got to scale. So it’s going to be a further revolution before they really gain a bigger market share.