No. 4, 2012
GLOBAL ENERGY VECTOR
Oil of Russia magazine talks to Daniel Yergin, Vice Chairman of Cambridge Energy Research Associates (IHS CERA)
The world energy demand is rapidly growing despite the difficulties faced by the EU economy. Shale revolution that significantly affected the gas market has the potential to spread to the oil sector. Thanks to the development of oil shale resources, the United States can become not only the main consumer of hydrocarbons but also one of the largest exporters of them. Germany has become a "pilot site" for the transition to renewable and non-nuclear energy. Energy efficiency is becoming the "fifth element" of the global energy mix. These are major developments that will influence the development of the global energy in the near future according to Daniel Yergin, one of the leading authorities on global energy, economics and politics, and a recipient of the United States Energy Award for "lifelong achievements in energy and the promotion of international understanding."
Q: What is your vision of the future of the energy industry?
A: The view of future resources has changed a lot from a few years ago. The revolution in unconventional energy resources - shale gas and what is called "tight oil" - are providing a new view on the adequacy of resources. This is something that has emerged in just the last few years. Yet, when one looks at future growth from emerging market countries, you see the need for a wide variety of resources and consistent investment - and increased emphasis on energy efficiency.
Q: What is your assessment of the impact of the development of non-conventional hydrocarbons (shale gas) on the US and European gas markets?
A: Shale gas is transforming the US energy marketplace. The US has gone from a very tight gas market to an oversupplied one. The large abundance of inexpensive natural gas makes it a formidable competitor against all other energy sources, and it is taking market share even from coal - at least for now. Shale gas certainly makes the economics of renewable more difficult. New electric-generating capacity will most likely be fuelled by natural gas over anything else. That is the United States. In Europe, at this point, shale gas is not even a factor. Exploration is just beginning. Europe will need more imports of natural gas.
Q: How will the global LNG market progress? What are the prospects for LNG export from the United States in view of the U.S. shale gas production? Who will be potential customers?
A: A great deal of investment is pouring into new LNG development. Australia is the scene of the biggest activity. Rising costs are a real problem there. The United States will probably become an LNG exporter. Europe will be one market for US gas. I think there will be at least one new LNG facility on the west coast of North America, which will supply Japan, which really needs more gas because of the shutdown of its nuclear capacity. It will be based on shale gas - but at this point it is not clear whether the country of origin will be the United States or Canada.
Q: How do you see the future of Russian oil production?
A: Russia has had the benefit of the huge oil and gas development from the Soviet period. The industry has now regained the highest oil production levels of the Soviet era and is a bulwark in terms of global energy security as an exporter. With that said, the industry faces the big challenge of developing greenfield projects. One target is the Arctic. Another is East Siberia. But there is now considerable interest in "tight oil", which has the advantage of relying upon existing infrastructure in West Siberia. But it still will require a considerable technology roll-out.
Q: In your view, how efficient can the partnership of Rosneft and ExxonMobil be in offshore projects?
A: Rosneft has signed three major Arctic deals. The biggest and most far-reaching is with ExxonMobil, and it is very big indeed. It will be measured in terms of many hundreds of billions of dollars. It will be a classic of a long-term, large-scale oil development, requiring major technological advances and a long time horizon. But both parties indicate that they are very hopeful of very major commercial discoveries. It will just take time.
Q: What are the prospects for the development of hydrocarbon reserves in the Arctic region?
A: Some estimates say that as much as 25% of undiscovered hydrocarbons are in the Arctic. But it will require extensive drilling to provide the actual answer, and that will take years. But no question, the Arctic is the new frontier for both the Russian oil industry and the world oil and gas industry. One of the most immediate areas of development is the work that Shell is beginning in the Chukchi and Beaufort Seas, off of Alaska. This has been in development for several years.
Q: What is your opinion on the potential growth of renewable energy sources and its share in the world energy balance?
A: Over the last decade, we have seen what I call a "rebirth of renewable". They are more technologically-mature business, with much greater scale - and international in scope. Renewables - wind and solar - are a small part of over all energy demand - about 1.5%. In a few countries, they are higher. Germany, which has poured a great deal of money into them, is at about 7.5%. I think that they will continue to grow, and will continue to be a focus of development. The challenge is to bring down cost in order to be competitive at scale. Although they will grow, so will conventional energy sources, and so their share of the overall energy market may not grow as fast as some think. And austerity in European countries and the United States will reduce some of the financial support. But they are definitely an established part of the energy mix now. And Chinese manufacturing is likely to continue driving down the cost of solar.
Government policies in many countries will continue to promote renewables. That is particularly true of Germany, which wants to phase out nuclear power by 2022, and Japan, which after the accident at Fukushima is caught up in a great debate about nuclear power. The energy source that I think will continue to gain market share is natural gas. The innovations in unconventional oil and natural gas are just beginning to make their impact felt. And I think there is great potential in the "fifth fuel" - energy efficiency or conservation. That needs to be a high priority, whether in Russia or China or the United States or anywhere else in the world. The returns are very large and it needs to be an essential part of the energy mix for a growing world economy.
