SINGAPORE: On Sep 14, 2019, the world’s largest oil processing facility in Saudi Arabia was struck by an unprecedented series of drone attacks.
“It’s the most important facility in the whole global oil industry,” Daniel Yergin recounted on an episode of CNA’s podcast, The Climate Conversations, published on Friday (Jan 8).
“In the past, it would have created a panic in the market. But it didn’t. And a big reason was because a very large amount of US oil is not dependent (on other countries),” said Mr Yergin.
“I can feel a palpable difference in the United States, not having the sense of being so dependent or vulnerable to events happening in the Middle East,” he said.
And it isn’t just the US that’s recalculating its relationships with others, Mr Yergin points out. Other key players like China, India and Russia are also contributing to the rewiring of how figurative “maps” are changing because of energy.
THE NEW MAP OF ENERGY AND GEOPOLITICS
If anyone has a front row seat to these unfolding developments and can interpret the implications, it is Mr Yergin.
An internationally renowned energy expert, he has served on the US Secretary of Energy Advisory Board under the last four US presidents, and is Vice Chairman of IHS Markit, a leading information and research firm.
He is best known for winning a Pulitzer Prize for his 1990 book, The Prize: The Epic Quest For Oil, Money And Power.
On the podcast, Mr Yergin spoke to Chief Editor of CNA Digital Jaime Ho about his recently published book, The New Map, which explores how new developments and technology in energy have transformed geopolitics.
The New Map focuses on four major players: The US, Russia, China and the Middle East. It also discusses how the electrification of transport and the urgency of the climate crisis feature in the mix.
“The old map (was when energy) trade flowed from the Middle East to the US. Now, the US is exporting energy,” said Mr Yergin.
CHINA’S ‘STRATEGIC PROBLEM’ OF ENERGY IMPORTS
When asked about the US and China, Mr Yergin said the relationship has “changed quite dramatically over the last five or six years”.
A key component of this is energy which he describes as one of the “positives” in an otherwise fraught few years.
“For China, it's a way to balance the trading relationship with the United States. And for the United States, China's turned out, for instance, to be a very important market for US liquefied natural gas (LNG),” he said.
As China’s economy and its subsequent demand for energy grow, it “sees its dependence on imported oil as a strategic problem”, Mr Yergin said.
That explains the country’s push for electric cars. “It’s not just because of climate, it’s not just because of pollution. It’s very much strategic,” he said.
Mr Yergin gave two reasons behind China’s foray into electric vehicles: First, to reduce its imports of oil. The other is to leapfrog the global automobile market with electric cars, since Beijing recognises it cannot compete with the global internal combustion engine vehicle market.
China’s concern about its oil imports spills over into territorial spats. “It's no secret that the tensions between the United States and China over the South China Sea have grown,” said Mr Yergin, citing near collisions of Chinese and US naval ships.
He said the Chinese worry about interruption to shipments through the Malacca Strait, “a narrow strait that sees a large part of the world’s oil and LNG flow through it”.
As the Malacca Strait connects the South China Sea to the Indian Ocean, “the Chinese are very concerned (over protecting) the route,” said Mr Yergin.
“They see it as, again, a strategic issue. It’s not just a trade issue,” he added.
READ: Commentary: Trump’s playbook on China in the South China Sea has some lessons for the Biden administration
WHAT A LESS ENGAGED AMERICA MEANS
The US reaching energy independence has other implications for the world too – particularly for the Middle East.
By being less dependent on Middle Eastern oil exports, “the US may just be less engaged in the region,” said Mr Yergin.
He explained the peace deal between the United Arab Emirates and Israel in August 2020 was reached against that backdrop.
“(The UAE thought) they need to make an arrangement with the regional military power. That happens to be Israel, which has common interests vis-a-vis Iran,” said Mr Yergin.
When asked about the US no longer having to frame its national and global interests in terms of oil, Mr Yergin said “it means the Middle East and Asia are more tightly tied together by oil and gas than they were in the past”.
“You can see the focus of Gulf countries has shifted more to Asia as their future market,” he said.
His take is that nations are also now more careful about picking sides. “You hear countries saying that we don't want to have to choose between our relationship with China and our relationship with the United States. Energy is part of that reason,” Mr Yergin said.
THE TRANSITION AWAY FROM OIL AND GAS
Naturally, the central question for Mr Yergin is how climate change fits into the energy and geopolitical narrative. He says it is “remarkable” how 190 countries agreed on an objective and how the movement to net-zero carbon emissions is widely adopted.
Yet, he says, there’s complexity to ensuring everyone will get to their goals by 2050.
“I think sometimes people don’t realise how challenging that is, given that 80 per cent of the world’s energy today supporting a US$90 trillion economy is fossil fuels. It doesn’t just change overnight,” said Mr Yergin.
Despite such complications, his prediction is that global demand for oil will ebb and that peak oil demand – when global oil consumption reaches its highest before declining – will arrive in 2030 “whether because of electric cars, government policies, or a whole host of reasons”.
An energy transition is underway too in some countries. For countries such as the Netherlands and Germany, that means wind and solar, said Mr Yergin adding that solar costs have come down dramatically, which bodes well for investment in the power industry.
Yet, not every country can meet these targets equally. He points to developing countries such as India which will face more challenges in making the transition.
They may have big ambitions to move towards wind and solar – but they also need to address poverty and the health impacts of pollution, said Mr Yergin.
Is the world on track to reach net-zero emissions by 2050?
Mr Yergin admitted it would be “challenging”.
“Directionally, we know where we’re going. The speed with which we get there is another question,” Mr Yergin said.
“Part of the challenge now for a lot of countries is the extra financial burden of recovering from COVID-19,” he added.
Listen to the full interview with Daniel Yergin on The Climate Conversations: