INTERVIEW: Daniel Yergin — in search of the next prize in testing times

Illustration by Luis Grañena
Updated 06 October 2019

INTERVIEW: Daniel Yergin — in search of the next prize in testing times

  • ‘Dan the Man’, the doyen of the oil industry, explains the new psychology of the energy sector — and why the shale boom may slow
  • Yergin warns that the danger of further attacks on Gulf oil facilities was ever present

The world does not stand still, but that just makes it more interesting, said Daniel Yergin in the VIP room at the Russian Energy Week forum in Moscow last week, and it seemed an appropriate metaphor for the career and lifestyle of the 72-year-old doyen of the global energy industry.

Yergin was ubiquitous at the Moscow event — one moment orchestrating a 10-man panel of energy big hitters under the bright lights of the plenary stage, the next posing happily for selfies with admirers, before heading off to private meetings with the most important policymakers in the energy world.

He has devoted his life to understanding the energy industry — not just as a business activity but as a force that affects the lives of everyone on the planet — and explaining it to the rest of the world.

An academic and journalist by training, he is probably best known for his 1991 book “The Prize: The Epic Quest for Oil, Money, and Power” — a Pulitzer Prize-winning history of the oil industry that established him as the foremost oil expert in the world. The book is the go-to source for anybody interested in energy, written as a sweeping historical narrative that one reviewer called “homeric.”

“The Prize” cemented a career that has made Yergin a successful businessman, policy adviser and in-demand speaker and moderator on the global energy circuit. Everybody in the world wants to hear the views of “Dan the Man.”

At the moment, his view on the oil market is decidedly wary, as he explained in a conversation in between sessions at the Moscow event.

“One has to take a cautious attitude. Demand for 2019 will be about tied with 2012 as the lowest since the great recession. All of this reflects a weakening global economy and contracting world trade, combined with all the political uncertainty,” he said.

IHS Markit, the information consulting firm that acquired Yergin’s Cambridge Energy Research Associates in 2004, produces regular statistics on business sentiment and commodities, which helps explain the reason for his caution.

“The figures show manufacturing slowing around the world. I was just looking at the materials index, and all 10 commodities we track are down. Ending trade wars would be very good medicine for the health of the world economy, and that would be good for oil demand,” he said.

 

What have been called black swans is now turning into a flock of black swans. 

 

Much of the Moscow conference focused on the question of whether the oil market was entering a new psychological phase in which traditional factors — like the security situation in the Arabian Gulf — no longer apply.

Many speakers noted that the recent attacks on Saudi Aramco oil facilities in Abqaiq and Khurais had led only to a temporary spike in the global price of crude, which is now trading below where it was before the attacks.

Russian Energy Minister Alexander Novak told Moscow delegates that “black swans” — events outside the normal control of the oil industry — were playing a more important role than traditional supply and demand.

Yergin agreed. “What have been called black swans is now turning into a flock of black swans. This is sobering. It reflects the global impact of the trade wars and political uncertainty — especially in the US and Britain — and the slowing of the world economy. There has been an actual contraction in global trade,” he said.

Faced with this change in sentiment in the oil industry, the leading producers — led by Saudi Arabia and Russia — have combined in the Opec+ alliance to limit oil output in the face of surging production and questionable demand. “The Saudi Arabia-Russia alliance was part of the response and has clearly deepened over the last three years and has become more extensive,” he added.

Another reason the oil market did not react more violently to the Abqaiq attacks was that Saudi Arabia moved swiftly to mitigate the damage. Abdul Aziz bin Salman, the Saudi energy minister, told delegates in Moscow that capacity was back at pre-attack levels, with production not very far behind, after a heroic effort to repair the crude treatment facilities.

Yergin praised the Saudi effort, but warned that the danger of further attacks was ever present. “The recovery from the Abqaiq attack has been swift and a real testament to the capabilities of Saudi Aramco. The attack also demonstrated that what had been a worry is now a reality — the risk from drones and low-level attacks. Governments and companies around the world are now focusing on developing the ability to deal with such dangers,” he said.


BIO

Born - Los Angeles, California, 1947.

Education

  • Beverly Hills High School.
  • Yale University, Bachelor of Arts.
  • Cambridge University, Doctor of Philosophy (Marshall Scholar).

Career

  • Contributing editor, New York Magazine.
  • Lecturer, Harvard Business School and Kennedy School of Government.
  • Founder (with James Rosenfeld) of Cambridge Energy Research Associates.
  • Vice charman IHS Markit.
  • Chairman CERAWeek by IHS Markit — annual conference in Houston, Texas.
  • Adviser on energy policy to the past four presidents of the US.

The big reason for the “new psychology” of the oil industry has been the surging production of the American shale industry. The shale fields of Texas, New Mexico and elsewhere in the US have made the country an energy exporter for the first time in decades, with a self-reliant domestic market no longer dependent on supplies from the Middle East. America has overtaken Saudi Arabia as a producer and is vying with Russia as the biggest global crude pumper.

But there are signs that the US surge may be beginning to slow. It will hit 13 million barrels a day next year, but after that shale could hit financial constraints that will reduce growth, Yergin said.

“We see a slowdown in the growth coming. Investors are requiring a return on capital, and our new data shows a flattening in terms of productivity. So next year will see growth, but the pace of growth in the next few years will not be as intense as the last few years.

“Productivity improvement in shale seems to have flattened out, and capital discipline has become a mantra. In the financial work by Herolds (part of the IHS information group), we observe that the compensation plans for senior executives in the large independent companies have been shifted to highlight return to shareholders,” he explained.

In other words, the shale boom may be running out of steam, and could face other problems as America gears up for a presidential election year. “Politics always offers up new black swans,” Yergin said.

Some Democratic candidates have been openly critical of the shale industry, especially for its environmental impact. Leading contenders Bernie Sanders and Elizabeth Warren have called for an outright ban on the fracking process that enables shale production, as part of a costly program driven by environmental concerns. “In the 2016 election, ‘climate’ was not an issue. In 2020, it will be a big issue, with all the Democratic candidates issuing climate plans — the most expensive being that of Bernie Sanders, at $16 trillion. There are also pledges by some candidates to stop fracking. But the reality is that the growth of shale has been one of the major positives in the US economy since 2008 — including in terms of jobs across the country, and very important for the manufacturing industry,” Yergin said.

He sees the “dash for gas” — the global trend toward increasing production of “cleaner” natural gas products — as a sensible trend.

“While oil demand worldwide will grow by one percent, natural gas will grow by 2 percent — and LNG by 4 percent. So gas will be a growth fuel, and by 2050 could have about the same global market share of total energy as oil. Of course, gas will be going into a different market — electricity generation — which means it is competing both with coal and renewables,” he said.

Some years ago, Yergin got involved in a heated debate about “peak oil” — the idea that the world will not want any more fossil fuels, particularly crude oil, to power its cars, plane and ships. He is sticking to his guns.

“We continue to see peak demand for oil coming in the 2035-2040 period. In our work on mobility called ‘Reinventing the Wheel,’ we see the number of cars growing from 1.4 billion to 2 billion by 2050, and a quarter of them will be electric vehicles. So three-quarters of cars will be conventional (petrol driven internal combustion engines) — but more efficient,” he said.

Indefatigable Yergin will be making his own contribution to global mobility with his usual punishing schedule of meetings, speaking engagements and forum appearances. “The energy world is more connected and global than ever. That creates the need to be around the world,” he said.

In between travels, he will be busy at his desk in Washington DC. “My most immediate task is to finish my new book on energy and geopolitics, which will be published in September 2020,” he said — just in time to help frame the US presidential election debate.

 


Crown prince highlights key ways Saudi budget 2020 will contribute to Vision 2030

Updated 10 December 2019

Crown prince highlights key ways Saudi budget 2020 will contribute to Vision 2030

  • The budget for the coming year reflects and reinforces the commitment to implement the reforms

RIYADH: After King Salman announced Saudi Arabia’s budget for 2020 on Monday, Crown Prince Mohammed bin Salman highlighted some of its key elements and their implications, along with his thoughts on the ongoing implementation of economic reforms in the Kingdom.

He said that the government’s economic transformation of the country is progressing steadily in accordance with Vision 2030. The budget for the coming year reflects and reinforces the commitment to implement the reforms, plans and programs designed to help achieve this, he noted, and sets specific goals in a number of areas to help create a vibrant society, a prosperous economy and an ambitious homeland.

The crown prince added that the government is working to improve the quality of life in the Kingdom by developing and diversifying the economy, improving job opportunities and enhancing government services in terms of financial and economic stability, which is the main pillar of sustainable economic growth.

He also pointed out that the economic and structural reforms implemented during the past three years are having positive effects on the country’s financial and economic performance. The Kingdom has recently achieved remarkable increases in real GDP growth rates in the non-oil sector, and the government has encouraged the private sector play an important role in the economy, the positive results of which include significant growth in the business sector, the crown prince added. The government has also implemented a number major projects in vital sectors and launched activities that will help to achieve economic growth goals and create job opportunities, he said.

Crown Prince Mohammed stressed the importance of engaging with the private sector as a major and vital partner for the development of the Kingdom. He also noted the continuing program of reforms by the government designed to develop the business sector and create an attractive environment for investors to contribute to economic growth. This has helped to greatly boost the Kingdom’s ranking on international indexes that measure competitiveness and ease of doing business, he added.

“We aim to create an attractive investment environment that contributes to directing the national economy toward broad prospects of diversification, growth and prosperity,” the crown prince said. “The government will continue to move forward with implementing the stages of economic transformation and will progress with diversifying the economy’s productive base while maintaining financial sustainability and providing wider opportunities for a better future for the current and future generations.”

He stated that the government has a clear vision, fixed goals and explicit plans, and is working on implementing them while maintaining financial and economic stability as an essential pillar of sustainable economic growth.

“Financial and economic results and indicators confirm that we are progressing positively,” he said. “We constantly review and update the policies, procedures and programs implemented to ensure their effectiveness and to rectify their course whenever the need arises, in order to achieve the goals of the Kingdom’s Vision 2030, taking into account the global financial and economic conditions and what is in the interest of our homeland and citizens.”

The 2020 Saudi budget has been prepared in light of a global economic atmosphere characterized by challenges, risks and protectionist policies, said Crown Prince Mohammed, which require flexibility in the management of public finances and strengthening the ability of the economy to face the challenges and risks.

“We aim, through this budget, to benefit from the programs that were achieved and rely on them to maintain a balance between economic growth and the sustainable financial stability that guarantees this growth,” he said.

The crown prince noted that financial-control policies and the development of public financial management and its efficiency have contributed to the continued reduction of the budget deficit. This is expected to fall to about 4.7 percent of GDP in 2019, compared with 5.9 percent in 2018 and 9.3 percent in 2017. This confirms the success of ongoing efforts to ensure financial sustainability, and progress in implementing projects to improve the private sector, he added.

He also confirmed that the 2020 budget continues to support programs that contribute to achieving Vision 2030. This includes the financing of major projects, helping to develop medium, small and micro enterprises, and supporting entrepreneurs. These are some of the most important engines for economic growth, which will help to diversify the economy and open up new fields for investment and employment, he added

The budget includes reviews of some of these programs and schedules to ensure they reach their goals, Crown Prince Mohammed said, and the continued development and modernization of government infrastructure and services. He also stressed the government’s focus on improving the efficiency and quality of spending, to make the best use of state resources to achieve the highest possible social and economic income.

He highlighted the recent launch of oil company Saudi Aramco as a major step forward for the Kingdom, and his support for enhancing the role and participation of the private sector in the nation’s economy. He noted that opportunities for the private sector will continue to increase, enhancing its role in the growth and diversification of the economy and in creating job opportunities in the medium and long terms.

The crown prince also pointed out the part played by the Public Investment Fund and the National Development Fund in achieving Vision 2030, as the local and external investment mechanisms and the growth arm of the local economy, which are also contributing to the diversification of the economy and income sources. These are among the most important strategic goals of Vision 2030, he said.