Daniel Yergin on What Happened to the Energy Transition

A few years ago, governments and corporations were brimming with optimism about the prospect of getting to net-zero in the efforts against climate change. Today, you hear a lot less about that. And while there's renewables getting added to the mix all the time, one energy source that's really booming is natural gas. And coal is booming too. So what happened? And is there any prospect of the world getting back on track? On this episode, we speak with acclaimed energy historian Daniel Yergin, current Vice Chairman of S&P Global. He's also, of course, the author of the Pulitzer Prize-winning book The Prize, as well as, more recently, The New Map. We talk about all of the factors that changed the energy picture in recent years and the energy priorities of nations right now. Read more:Russia’s Crude Shipments Climb Close to a Post-Invasion HighTrump to Buy 1 Million Barrels to Help Refill Oil Reserve Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So, search Barclays Brief wherever you get your podcasts.

• 0:25Speaker 01

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• 1:27Speaker 03

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• 1:43Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 1:48Joe Weisenthal?

  And I'm Joe Weisenthal.

• 1:49Tracy Alloway?

  Joe, you know what's weird?

• 1:51Joe Weisenthal?

  Tell me. Tell me what's weird.

• 1:52Tracy Alloway?

  There's a lot that's weird, actually. But we seem to be living in this extremely high-tech world where you can get a chatbot to write you an essay or create a video.

• 2:03Joe Weisenthal?

  I don't do that, by the way.

• 2:04Tracy Alloway?

  Sure.

• 2:06Tracy Alloway?

  You could buy a robot dog to play with, all that stuff. And yet, we still seem to be struggling somewhat to provide cheap and affordable and abundant energy to power all these things. And in fact, because all this new technology guzzles so much energy, data centers use so much power, it feels like energy is becoming even more strategically important in many ways.

• 2:30Joe Weisenthal?

  It definitely feels like we're in an age of sort of people remembering the deep constraints that energy imposes, whether it's data center, all kinds of things. Energy is not a solved problem by any stretch, although I would say that in my limited sort of reading of the history of energy, it's never a solved problem.

• 2:49Tracy Alloway?

  I know, I know.

• 2:50Joe Weisenthal?

  And the moment we find we're in a period of energy surplus, we quickly find something to do with that energy. And once again, we are in a period of constraint, but it does feel like we're in some sort of period of constraint right now.

• 3:01Tracy Alloway?

  When Keynes was doing his whole abundance theory, did he mention energy at all? What did he say? Well, I'm just going to assume that Keynes promised us all abundant energy as well as everything else. And it's not here. So we're all upset. Okay. So even though we've had all these breakthroughs in alternative energy technologies, you know, things like solar and wind, we're still using more coal, more oil than ever. And in fact, there's sort of some old school energy behaviors going on with China, stockpiling massive amounts of oil.

• 3:31Joe Weisenthal?

  Yeah. As you said, coal is booming, China stockpiling oil, electricity prices in the US on the rise, maybe perhaps due to some of this AI data center demand. It feels like, I would say, pre-COVID at least, I don't know if people got a little bit naive or optimistic or Goldilocks, but there was this view, it's only a matter of time before energy is solved because we're going to have all this wind and solar, it's going to be cheap, it's going to be clean. We see all these cost curves coming down with like batteries and wind and so forth. It's only a matter of time before we don't need the dirty stuff. And right now, it doesn't feel like we're anywhere close to that. And I'm sort of curious what happened.

• 4:07Tracy Alloway?

  Yeah. Well, everyone talked about the energy transition, but so far, it's not really a transition. It's like a complement to existing sources. Anyway, we could keep talking, but why not go to our guest who is truly, truly the perfect guest. We're going to be speaking with someone I wanted to speak with on the podcast for a very long time, Dan Yergin. He is, of course, the author of the Pulitzer Prize winning The Prize, The Epic Quest for Oil, Money, and Power. He's also Vice Chairman of S&P Global, and he also has a new book out called The New Map: Energy, Climate, and the Clash of Nations. So, a lot to talk about. Dan, thank you so much for coming on Odd Lots.

• 4:44Speaker 05

  It's great to be on with you all.

• 4:46Tracy Alloway?

  So, does it feel like energy insecurity is still with us in many forms?

• 4:51Speaker 05

  Yes, it goes through cycles. You know, you mentioned COVID. I think during COVID, demand went down, prices went down, and people kind of forgot about energy. And there was a sense in 2021, the International Energy Agency did this scenario about getting to basically a renewable world by 2050. But now we're in 2025, going into 26, energy demand is going up, wind and solar, but also coal, oil, and natural gas. And the share of hydrocarbons in energy has gone from about 81% to about 80.5%, roughly.

• 5:26Joe Weisenthal?

  So it's going to take a while to get down to zero.

• 5:28Speaker 05

  Take a while. You know, you mentioned energy transition. I think it's time to do some rethinking about the energy transition.

• 5:35Joe Weisenthal?

  Well, good. That's what I was going to ask you about. So when people talk about the energy transition, this fantasy, or, you know, maybe fantasy is a little bit sneering.

• 5:42Speaker 05

  Scenario.

• 5:43Joe Weisenthal?

  Scenario of, okay, we're going to get to net zero, et cetera. Is this just a matter of the timeline has been pushed back, or is there a fundamental flaw with the premise?

• 5:53Speaker 05

  I think certainly the timeline has been pushed back. The notion by 2050, the closer we get to 2050, the farther away it seems the goal of net zero by 2050 is there. And what Tracy said before, energy transition has been energy addition.

• 6:08Joe Weisenthal?

  And what happened?

• 6:09Speaker 05

  What happened is, I think, the reality came back in that we live in a world that rests on an energy foundation, and that you just can't overnight take a $115 trillion world economy and change it from one thing to another.

• 6:24Tracy Alloway?

  Are there any scenarios you could see where I guess new technologies like AI, the data centers that are getting built encourage new players to come in and provide capital for energy? So, you know, Google building their own gas plant or whatever.

• 6:38Speaker 05

  Well, exactly. What we have now is the tech world meeting the energy world. And these two worlds have very different cultures. Tech world, things go happen pretty fast. Energy, you know, and your software engineer come out with new software. In the energy world, an engineer takes seven years to build something. And these cultures have come together. And I think one of the reasons that we're seeing kind of this, call it the easy or simple notions, energy transition pushed out is what you've mentioned, it's going to take a lot more electricity. And some of that will come from wind and solar. But what's come back into the picture is natural gas as an electric generation. If you wanted to go out and buy a gas turbine today.

• 7:17Joe Weisenthal?

  Yeah.

• 7:17Speaker 05

  You could get it delivered in 2030. If we go back to 2022, I was talking to one of the big companies in the field. And the guy said that year, all over the world, exactly one gas turbine was sold. And it wasn't one of ours. So he said, our market share that year was zero. Now they're all sold out.

• 7:34Joe Weisenthal?

  Is there an increase in capacity? We talked about this recently, and this has come up, the shortage of gas turbines. Is the scarcity being addressed? Or is there still this phenomenon where no one really wants to do the initial upfront investment in a, say, factory that makes the gas turbines? Because there's still uncertainty about, say, 2032 or 2033.

• 7:55Speaker 05

  Well, I think that when I, you know, when I talk to the companies, those who are around in about two, two and a half decades ago, remember there was a huge rush turbines, and then it all collapsed. And they're worried about that.

• 8:07Joe Weisenthal?

  And that was coincidentally or incidentally, that boom was also at a time of massive tech investment, the late 90s.

• 8:12Speaker 05

  That's right.

• 8:12Joe Weisenthal?

  Which was another period of the sort of marriage of tech and energy at the time.

• 8:17Speaker 05

  Absolutely. That's right. And so I think they are expanding capacity, but they're not doing it helter skelter. Also, like so many other companies, there's a shortage of the talent that you need. I mean, these are not simple things to build.

• 8:30Tracy Alloway?

  One of the reasons we wanted to talk to you is because you do such a fantastic job of connecting the oil space with capital markets. And I have always maintained that oil is very much a capital markets story. Can you talk about the difference between how capital is sourced for something like oil or gas versus clean energy and whether attitudes towards the two have changed at all?

• 8:51Speaker 05

  Well, I mean, it was quite different with clean energy and a lot of it, you know, had tax credits and ability to, you know, to sell tax credits and things like that. And a lot of the oil and gas development may be funded by financial institutions, but a lot of it is funded by the companies themselves.

• 9:06Joe Weisenthal?

  What is it like, we see these lines on charts that show the collapsing price of solar production, or the collapsing price of wind production, or the improvements in battery technology?

• 9:18Speaker 05

  All true.

• 9:19Joe Weisenthal?

  All true. And yet, there is still so much public money that goes into these areas. And there's so many tax credits and subsidies, et cetera, to kind of accelerate them along. Why is it that you have these lines going down, and yet they don't undercut traditional sources in the way that maybe the tech mindset would expect?

• 9:37Speaker 05

  Yeah. So, well, first, remember, the renewables, wind and solar, really were not competing with oil until you started to have electric cars coming onto the scene. But, you know, it was interesting, I was talking to a company that's developing a big battery project in Europe, I probably shouldn't say which country, and they're very excited about it. It's really big. They said, oh, by the way, they couldn't do it on their own. They had to go to the government and get incentives, subsidies, whatever, or a partnership with it. So the costs are still up there. And I think we're seeing a testing now for wind and solar. Everybody's rushing right now to get steel into the ground so they can get the tax credits, which will expire in not very long time. So the testing

• 10:19Speaker 05

  will be, how competitive will they be? And I think we'll still see wind and solar, and particularly solar, being put in. But it won't be enough. And what they concern right now is about the reliability of the electric power system. And you see prognostications about this area that stretches from Illinois, you know, as far as New Jersey, that by the end of this decade, which is not so far away now, we'll be looking at very tight markets with really great pressure on it. And I'll tell you, the kind of regulators, the people looking at it, are starting to get pretty alarmed. And that's why you see a lot of, a lot of discussion and focus on, can we get permitting reform so you can actually get something built?

• 10:59Joe Weisenthal?

  Can you just, what is the source of alarm? Is it about the generation of electrons? Or is it about the transmission and with the grid capacity to balance and take in all these?

• 11:10Speaker 05

  Well, it's both. And certainly the transmission is a very key part of it. But what we have been doing has been retiring coal plants. We thought, you know, we weren't going to have any more gas and electric generation, but that's coming back. And now you see a kind of slowdown in closing these coal plants. And also, we see an election coming up in New Jersey where electricity prices are an issue. And suddenly, this whole issue, I was looking at our numbers and electricity prices have been going up at twice the rate of inflation in the United States.

• 11:41Tracy Alloway?

  Why can't clean energy seem to exist without subsidies? Given that electricity prices are going up and we all agree that energy is strategically important, why can't it, you know, fund itself?

• 11:54Speaker 05

  Well, it has to, you know, ultimately, it has to be that. But, you know, obviously, there's a lot of debate about what happened in this big, beautiful bill where they, you know, basically are cutting back and then eliminating the subsidies. And at least this administration says, well, wait, these were put in 32 years ago for infant industries and now the prices come down. Why are we doing it? So I think these industries are going to have to stand on their own right now.

• 12:20Tracy Alloway?

  Would they be economical in their current form?

• 12:22Speaker 05

  I think, you know, it depends on the circumstances and where they're built and whether they have access to transmission. Because of course, you can have solar, but then you need, you need to connect it to the grid and grid connection becomes a very important issue.

• 12:35Tracy Alloway?

  Right, that's the expensive thing. That's why with my solar panels on my farm, I mooch off of the entire Connecticut system grid.

• 12:42Speaker 05

  How is your solar panels working?

• 12:44Tracy Alloway?

  They're fantastic. Our energy bills are like maybe $20 a month. Sometimes we get paid.

• 12:50Speaker 05

  So you put electricity back in the system?

• 12:52Tracy Alloway?

  Yeah.

• 12:53Speaker 05

  You didn't get any tax credits or?

• 12:55Tracy Alloway?

  Well, the House had it when we bought it.

• 12:57Speaker 05

  Oh.

• 12:57Tracy Alloway?

  But I'm just very happy with the low electricity bill and not having to shoulder the costs of the grid.

• 13:02Speaker 05

  Yeah, and somebody else will take care of it.

• 13:04Tracy Alloway?

  That's right.

• 13:05Speaker 05

  Somebody else's problem.

• 13:22Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 13:48Speaker 01

  Running a business means keeping pace with the latest tech. You've put a lot into building your enterprise software stack and scrapping it to integrate AI is out of the question. That's why IBM technology works with all the apps, data, and models you need. It's another way IBM helps you build on the technology you rely on. Let's create smarter business. IBM. Visit ibm.com to learn more.

• 14:17Joe Weisenthal?

  I want to talk a little bit more about the return of natural gas or LNG. What do you think the prospects are for the US as an LNG export powerhouse? Can it continue to grow at the pace that it's been growing? Especially given some of the bottlenecks and constraints.

• 14:34Speaker 05

  Yeah, well, obviously you need pipes to get gas to the Gulf Coast or to the tidewater in order to ship the gas. And that ability to build pipes is really difficult or has been difficult. It's going to get easier now unless you're in Texas where you could build them anyway. But it's an amazing story. A decade ago, the US was not exporting any LNG. In fact, now it's the world's largest exporter of LNG. And our own numbers say that the next half decade or so, global capacity will increase by over 50%. Half of that increase will be in the United States. You know, and people don't think about it this way. But were it not for US LNG, Putin might well have succeeded using the energy weapon,

• 15:18Speaker 05

  cutting off gas to Europe and shattered the coalition supporting Ukraine. And what prevented him from doing that was US LNG, which he hadn't counted on. In the book, you mentioned the new map. I have this story about where I had this interaction with Putin in 2013. And it was at the St. Petersburg International Economic Forum, which was his version of Davos. It was before he annexed Crimea. And he was up there on the platform with Chancellor Merkel, and you could see the ice between them. And they said to me, oh, you get to ask the first question. So I thought I was just asking. No pressure. The question, yeah, exactly. No pressure. The normal question about, you know, what are you going to do? Your budget is over dependent on oil and gas.

• 16:02Speaker 05

  By accident, I mentioned shale, and he started shouting at me in front of all these people and said shale is barbaric, it's terrible, it'll poison people. He went on and on like that. And I can tell you, it was very unpleasant being shouted at by Vladimir Putin in front of 3,000 people.

• 16:15Joe Weisenthal?

  But it's a good story.

• 16:16Speaker 05

  Yeah, but it's a good story. You know, exactly. At the time, I didn't think it was a good story. At the time, I wanted to get out of there. But afterwards, I thought he was actually prescient. He saw that shale gas in the form of then LNG would augment US influence in the world, which it certainly has, and it would compete with his jewel, his crown jewel, gas problem, which has also happened because now Russian gas is being pushed out of Europe. So I think, you know, people don't connect, speak of connecting the dots that shale gas revolution there tied into the ability to support Ukraine in this war that's now gone on almost as long as World War I.

• 16:56Joe Weisenthal?

  It sounds like you're saying Aubrey McClendon was a great hero for the West and democracy and all this stuff.

• 17:02Speaker 05

  Well, I'd say a great entrepreneur.

• 17:04Joe Weisenthal?

  Okay, yes.

• 17:05Tracy Alloway?

  When it comes to old school energy sources, whether it's oil or gas.

• 17:09Speaker 05

  I like your term, old school.

• 17:11Tracy Alloway?

  Is there any low hanging fruit left in terms of making the technologies more efficient? I remember maybe like almost 10 years ago now, there was a big standard. Push and all these, you know, drills that used to have custom parts started to standardize them. And that actually brought down prices quite a bit, or helped ease some of the pressure at a time when oil prices were quite low. Is there anything like that on the horizon?

• 17:37Speaker 05

  Well, I think you're right. I mean, shale, the development of shale revolution is to kind of continue your memory. It really became a manufacturing process. It was a very repetitive manufacturing process. And, you know, no one back then, when days of, you mentioned Aubrey, McLennan was one of the pioneers, could have possibly envisioned the US being the world's largest oil producer, largest natural gas producer. I think right now, you know, about maybe 10% of the oil is recovered from shale. So one thing companies are working on, can we increase that output? Can we increase it? Be more efficient? But there is a sense now, which you wasn't even had a year ago, that maybe shale has peaked out. Peaked out at a very high number, but peaked out.

• 18:21Speaker 05

  And people I start to see are starting to talk about what's known as exploration, going out and finding new oil sources in parts of the world where nobody really looked for them.

• 18:30Tracy Alloway?

  Does it make you nervous to use the word peak in an oil conversation?

• 18:35Speaker 05

  Now that you mention it, it does.

• 18:38Speaker 05

  What should I say? Plateau. How's plateau?

• 18:40Tracy Alloway?

  Yeah, okay, there we go.

• 18:42Speaker 05

  Yeah, peak oil. I remember when, when people were talking about peak oil back in, you know, decade and a half ago, and that the world was going to run out of oil. I remember I said, I better go back and look in the prize. I went back and said, oh, the world has actually run out of oil five times. And every time it's what you pointed before, it's new technologies and new geographies that changed the game.

• 19:03Joe Weisenthal?

  Well, tell us a little bit more about some of those times where, so I guess probably the seventies. When else have there been fears of peak oil, running out?

• 19:12Speaker 05

  World War One turned out to be a war that really sort of elevated oil because it started with people on horses and cavalry. It ended up with tanks and airplanes and trucks and all of that. And there was this great fear after World War One that the US had, what was it? Nine years worth of supply left. And so what happened? And as American companies started to go out and they went out to the Middle East and of course, found lots of oil. So that was a period. Then after World War Two, there was that concern because oil had been so important. There'd been an oil war within the larger war. And then, of course, the seventies, but it even happened in the in the 19th century that, you know, people start ringing the bell saying, you know, it's it's all over and technology keeps expanding the frontier.

• 19:55Tracy Alloway?

  So, speaking of oil supplies and stockpiles, one of the big stories in energy markets has been China buying enormous amounts of oil and stockpiling them for reasons that we don't know for certain. How important has that dynamic been to, you know, fairly resilient oil price? Crude has come down a little bit, but it's still, you know, around $60 a barrel, I think. And why are they doing it, in your opinion?

• 20:21Speaker 05

  That is always the question of why are the Chinese stockpiling? I've been, we've been working on minerals too and looking, they stockpile minerals too. It's what they do. Is it because they think there may be a conflict? Or is there a problem? Are they worried about the South China Sea, which I write about in the new map? And they know that during World War Two, the US cut off the oil line to Japan. And so they want to be sure they have supplies. Or is it just because it's cheap and they're expecting it to go up? We don't know. I'll be there in a couple of months and I'll ask them again. I'm not sure I'll get an answer. But they're doing it. But the role of China's changed because for two decades, the growth in oil demand worldwide, half of it was in China. And now, the view, I won't use the

• 21:06Speaker 05

  word peak, I'll use the word plateau, that that demand in China is plateauing at a high level. But they're importing 75% of their oil and they don't want to continue to do that. That's why they've been pushing, one of the reasons they've been pushing electric cars. The other reason is because they see it as a way to an export market. So you don't have the growth engine of China. And so, you know, there's a fair amount of debate today at what rate oil demand will grow, but is it, how much will it grow? Will it be a million barrels a day, million and a half barrels a day? And that is a subject within oil circles of a great deal of vigorous debate.

• 21:44Joe Weisenthal?

  We obviously don't know what Xi Jinping's strategic plans are, potential military plans in the future. But for all of the EV adoption in China, which has of course been huge. Military conflict, whatever the source, but it's still be an incredibly oil-intensive process.

• 22:02Speaker 05

  Yes, I think exactly. I mean, that's right. All, you're not going to have battleships, you know, you know, solar-powered.

• 22:10Joe Weisenthal?

  Not anytime soon.

• 22:11Speaker 05

  Yeah, yeah, yeah. I mean, you do mention, I mean, what is, we know some things that are in Xi Jinping's mind because he said them.

• 22:17Joe Weisenthal?

  Okay, yeah.

• 22:17Speaker 05

  And he does talk about the dominated, the new industrial supply chains, which means EVs, which means solar panels, which means wind, and of increasingly critical importance, batteries, which is another issue that's going to actually is percolating up about, here we have regulations against batteries that come from foreign entities of concern. And you say, what's a foreign entity of concern? And it tends to be, I mean, parentheses, China in the energy discussion.

• 22:48Tracy Alloway?

  Could you ever envision a time where rare earths are more important strategically than oil?

• 22:54Speaker 05

  No, but I can tell you that they're really important. And I would say in the last six months, there has been, if you're here in Washington, a crisis mentality about them. Because I think that was a shock when, you know, Trump was rolling out all of his tariffs, and the country that they were going to be most aimed at, which was China, suddenly China said, well, you know, two can play this game. And, and then that is, of course, in recent days, has once, once again, come up, the Chinese, whether for strategic reasons, but again, new supply chains, you know, they produce, process 90% of the rare earths, and they know it. And when you hear an automobile maker saying, you know, we have a week and a half of supply, you realize how urgent it is. And so, you know, it's really come

• 23:38Speaker 05

  up, it's, and trying to grapple with it. And it's not something you can solve overnight, because it takes a long time to open a mine, put up a processing thing. And the Chinese have put not only controls on rare earths, they put controls on the machinery and equipment for processing rare earths.

• 23:56Tracy Alloway?

  Oh.

• 23:56Speaker 05

  And they put controls on the people who have the know-how, that they may not be able to have passports anymore.

• 24:02Joe Weisenthal?

  Let's talk about US energy policy. It seems a little unfocused, to me.

• 24:08Speaker 05

  Or we might say... Variable.

• 24:11Joe Weisenthal?

  Okay, go on. Like, how would you characterize it? Or like, when you say, right, let's say it's variable. How would you characterize like what's going on?

• 24:20Speaker 05

  I think there was.

• 24:21Joe Weisenthal?

  The way US energy security or energy policy.

• 24:23Speaker 05

  And under Biden, of course, it was all about basically renewables, climate change, the goal that have no gas, natural gas or coal and electric generation by 2035. Half the new cars in America were to be electric by 2030. That was then, this is now, when it's just pretty much in the opposite direction.

• 24:44Joe Weisenthal?

  Can the US, you know, I think Trump would like powerful dominant US energy industry.

• 24:54Speaker 05

  He uses that word.

• 24:55Joe Weisenthal?

  Yeah. Is that realistic? Can he get there? I mean, there's wanting to expand drilling, but with the price of oil. Actually, it's below 50, below 60 now. It's 58.75 today for like, can these things hang together? Can we have prices at these levels and booming domestic oil industry?

• 25:12Speaker 05

  No, I think that's one reason we get into not the peaking, but the plateauing for that reason. And, you know, you look at the survey from the Dallas Federal Reserve that came out and, you know, below 60, people don't, you know, they just pull back and they husband capital. And, you know, it certainly seemed that it was possible that we would see oil prices below 60 in the latter part of the year. And it's come, maybe it's come earlier than people might have expected and very much affected by the trade war between the US and China, among other things. But the US is the dominant player right now. And energy, you know, the new trade deal that you're supposed to have with the US,

• 25:56Speaker 05

  they're supposed to buy more natural gas from us and so forth. And they have, they set up something called the National Energy Dominance Council, which is, you know, kind of the view of the US in this position. But it is tough to both want to have a very vibrant domestic industry and have low prices at the same time.

• 26:16Tracy Alloway?

  I know you just mentioned that Europe is still going to be getting US oil, but. Do you foresee a more, I guess, autarkic energy future for the world? Because it does feel like, at least with manufacturing goods and some strategically important goods, people are stockpiling and people are focused on building out their own capacity. Is that going to be the case in energy? Or will it be that energy is just so geographically specific and expertise oriented that not everyone can do it?

• 26:45Speaker 05

  Well, we've already seen a partitioning of the global oil market in terms of Russian oil not going to its natural market, Europe, but going to China, which was a market before, and India, which was not a market before. We see that in natural gas. So I think, call it economic nationalism or economic sovereignty. I think that the U-- and in a sense, that's what all the tariff policies are about. I think Europe is in a very difficult position because they would like to continue to pursue net zero, as it's called, emissions by 2050. But now they have this other problem, which is called being competitive, or rather not being competitive and losing industry.

• 27:28Speaker 05

  And on the other hand, they're now supposed to spend not 1.5% but 5% of GDP on defense. So I think Europe is in a very tough position.

• 27:38Tracy Alloway?

  And I know you speak to a lot of experts in the energy industry, but what's your sense of the mood on the ground among, I guess, oil and gas workers specifically? Because on the one hand, Trump has been a friend of oil and gas and has said that he wants oil and gas to be dominant. But on the other hand, a lot of the policies that he's actually put in place, you see people in like the Dallas Fed survey complaining about them and the mood seems to be kind of bad.

• 28:06Speaker 05

  Yeah, well, I think it's both. I mean, I remember a CEO of one oil company saying he was actually, to surprise, was invited to, I don't know if he was joking or not, to the Biden White House, but he said he had to go in through the basement door. And now, of course, they're very, you know, accepted and, you know, and part of the dialogue. You know, I think it's a mixed message. They're glad to see a reduction in all these new Regulations that have been imposed and kind of just the general hostility to an important US industry. But on the other hand, they at low prices, you've seen, you know, layoffs in the industry. You see people putting down drilling rigs. You know, at this prices, I think if they persist, we'll see more of a negative impact.

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• 30:27Tracy Alloway?

  So the US is producing massive amounts of oil and gas. How does this sort of change the geography or the the energy industry?

• 30:36Speaker 05

  Well, it really has changed dramatically. It was really brought home in 2019 when the Iranians attacked the most important infrastructure in the entire world oil industry in Saudi Arabia. And the price went up for a day or two and then went down. And I think that's because of the existence of shale. And just that it kept growing and growing and it gave a sense of security that wasn't there before.

• 30:58Tracy Alloway?

  I totally forgot about that, but I think I was actually in the Middle East when that happened. Does OPEC matter anymore?

• 31:04Speaker 05

  Yes, well, it's really OPEC plus that matters right now. And they took a lot of oil off the market, basically giving room, market share to the US. They're now begun the process of taking back their market share. And that's partly what's reflected in price.

• 31:22Joe Weisenthal?

  One of the things that is a constant theme on the podcast, and it comes up in numerous industries, whether we're talking about housing or lumber or anything else, is that, you know, periods of surplus or periods of slack, you end up paying for it at the end. You end up maybe paying for it five, 10 years down the road because you get this decline in production. The talent leaves the industry, the labor moves the industry, the parts rust and you can't just like take them out of the warehouse, et cetera, and start drilling or whatever again. When you look at the declining price of oil today, are we going to pay for this at some point?

• 31:53Speaker 05

  Well, I think so, yeah. I think it's interesting because I, you know, I had to write this new epilogue for the new edition, 30th edition of the prize. And I was thinking about what are the lessons? And one of the lessons to me is among the hundreds of characters in the book, there are only two who really matter. One is supply and one is demand. And they're always fluctuating between the two of them. And I could see that today. Let me give you an example, because there's a natural decline that goes on in oil, which people are now saying, and gas, maybe it's 5% a year. So in 2021, you had the International Energy Agency come out with a scenario for net zero by 2050 in terms of emissions. And all these steps to get there made it look rather easy because demand was down and price was down. They just came out with a new study saying that we're

• 32:37Speaker 05

  Needs $540 billion of investment every year between now and 2050 just to kind of stay where we are with oil. So it is that cycle that people forget there's a whole decline there. And I think if you have a period of slack, you pay for it down the road in terms of the tight market because investment leaves. And I think you made a really important point. People leave too. They say, I don't want to be in this industry.

• 33:01Joe Weisenthal?

  Yeah, we did some episodes a couple of years ago, like actually when oil was much higher, about one of the constraints would be, well, a bunch of, like the petroleum schools, they didn't have the same pipeline of engineering talent because in 2019 or whatever those years were, who is going into majoring in petroleum engineering in those years?

• 33:17Speaker 05

  Exactly. Now it's actually looks like it's a more attractive industry, but it's also

• 33:23Tracy Alloway?

  Competition from geothermal as well. If you want to go drilling some rock somewhere, you now have options.

• 33:27Speaker 05

  Well, actually, we didn't talk about geothermal, but in fact, there is now the notion, can you apply shale technology drilling to geothermal?

• 33:35Joe Weisenthal?

  Are you optimistic about that?

• 33:37Speaker 05

  I don't go through optimism or pessimism, I'd just say, but it's promising. Let's see how it plays out.

• 33:43Joe Weisenthal?

  I want to talk more about Europe. You mentioned the industrial economy is getting clobbered. I mean, Germany, let's just talk about just Germany. Maybe they were able to substitute LNG imported from the US from some of its Russian sources, but the price is up and industrial production in Germany has been terrible. Do you think at some point European leaders will sort of cry uncle or cave on the net zero ambition? Because it feels like the politics of that have been running on fumes for a few years now.

• 34:12Speaker 05

  It's interesting because of course they're so entrenched that it's hard for them. I mean, you could say, okay, we're for net zero, but maybe not by 2050. But Europe continues to, you know, it's not just energy costs. It's this incredible weight and burden of regulations that are designed without any connection to the markets. I was talking to one company on Sunday and they said they just closed one facility plant in Europe. They had another one that was 80% built that they've decided not to go ahead with. Talking to another company that's also closing, I mean, They impose these policies with no connection to the marketplace or to technology, saying 70% of jet fuel has to be so-called sustainable aviation fuel.

• 34:58Speaker 05

  Well, it's less than 1% now. And so it's just if you say it, it's going to happen. So I think maybe in Germany, we're starting to see some of that easing up. But I think that those economic realities are weighing down with them. And if they don't step back, and as I say, it's not just climate policies, but it's this whole regulatory straitjacket that tells people, go invest in the United States.

• 35:23Tracy Alloway?

  I do feel like even before Russia invaded Ukraine, there was a sense that, I guess, ESG in general was kind of failing. You know, inflation started to pick up.

• 35:35Joe Weisenthal?

  Zerbiro phenomenon.

• 35:36Tracy Alloway?

  Yeah, well, inflation started to pick up. And suddenly there was what I thought was an inevitable backlash against ESG and targets at net zero and things like that. Do you think that ever comes back? Or how would you characterize, I guess, the helpfulness of ESG when it comes to building out clean energy?

• 35:57Speaker 05

  Well, I think it was clearly that all was a package together. I think now, really, the clean energy argument, the argument for solar now is less about that, and it's about that you can do it quickly and lay it down quickly and get those electrons into the grid. So it's more about less.

• 36:15Tracy Alloway?

  So the economics are kind of working.

• 36:16Speaker 05

  Economics rather than virtue. And ESG clearly has faded away. I can't see it coming back with the full force that it did because it has a built-in backlash, which we're seeing now. So I think it is means that these things have to be more market-driven.

• 36:34Joe Weisenthal?

  Does the boom in LNG exports from the US raise prices for American households?

• 36:39Speaker 05

  That is, of course, a very critical question, and it was raised at the end of the Biden administration. We did a study on that, you know, we being S and P in the commodity insight team there, and concluded that we have a lot of natural gas, so that it's not a threat in terms of prices. Natural gas is not as constrained as oil.

• 37:00Tracy Alloway?

  What about nuclear? We've gone this entire conversation without talking about nuclear, but nuclear, you know, could solve all these problems.

• 37:06Speaker 05

  Well, and it's also interesting because that circles back to one of the points we talked about before because you say, well, what's brought nuclear back? Partly it's, you know, just time, partly it's need. But I think it's also the entry of the tech companies from being just consumers, you know, for software to really worrying about data centers. And you look at it, last time I looked, there's had been $6 billion of venture capital in fusion. Nobody ever used to do venture capital in fusion. That was what the government did because it was 50 years away. And we had an event at our CERA conference in Houston this year where we had Commonwealth Fusion, which came out of MIT, the head of the largest, the main utility in Virginia,

• 37:50Speaker 05

  and the governor of Virginia saying, you know, we think we're going to have fusion here by 2032. So nuclear is definitely back. Small modular reactors are a hot topic. I think the first ones will be deployed around 2030.

• 38:04Joe Weisenthal?

  So you think they're actually going to happen? Because this seems like another technology that's always five or 10 years away.

• 38:08Speaker 05

  Well, I think it's going to happen, but I think the test will be then, can you bring down the cost? And is it a more flexible way to add nuclear? But it is, I think this, it's really the tech companies who, I mean, there you had Amazon investing in one of the SMR companies with the notion that they will then buy successive reactors with the idea that each one, the cost will come down. Now that will still be tested. It still has to go through a regulatory process at the Nuclear Regulatory Commission and all of that. But there's certainly, you have the sort of entrepreneurial Silicon Valley spirit now imbued into nuclear, which of course is not an overnight thing. But it is back on the agenda.

• 38:51Speaker 05

  And I think history will go back and say, in Germany, Chancellor Merkel's, one of her two biggest mistakes was shutting down the nuclear basically in a weekend.

• 39:00Joe Weisenthal?

  What was the other mistake?

• 39:01Speaker 05

  And that was 25% of her electricity.

• 39:04Joe Weisenthal?

  What was the other mistake?

• 39:05Speaker 05

  The other mistake was saying, you know, immigration, the door is open.

• 39:10Tracy Alloway?

  This might be a dumb question, but you know, if

• 39:13Speaker 05

  There's not such a thing. I better watch out now. Okay.

• 39:16Tracy Alloway?

  But if Amazon or someone invests in a small nuclear reactor or some other type of energy plant, how are those agreements actually structured in terms of the offtake? Because I assume they get priority and then does whatever is left over get sent into the grid?

• 39:33Speaker 05

  Well, I guess it depends if it is a reactor that's owned by a utility. Or is it possible that these would be like merchant nuclear reactors? You have seen examples already where some of the, I guess we used to call them big tech. Now we call them hyperscalers.

• 39:50Joe Weisenthal?

  When did that happen? We just all started using that term.

• 39:54Speaker 05

  Yeah, I think it's about a year. Don't you think? Yeah. Just, I mean, for the first time, you had to think, what's a hyperscale? Is it like an elephant? But it's a hyperscaler. But where they've signed, where they will take the entire offtake of nuclear power plant. So they are very, these companies are very concerned about power because it's so electricity intensive. The other day, there was a story saying that the two data centers that Elon Musk is building in Memphis will use more electricity than all the households. So this is a big issue for regulators of what are you, going back to the question you raised before about who pays for this? How do these costs get disaggregated?

• 40:34Joe Weisenthal?

  Right now, you mentioned electricity costs having gone up faster than inflation. Right now, can we draw a line between these prices and the data center boom? Or is this two things that happen to be happening at once? I've seen different views on how directly data centers right now are contributing.

• 40:52Speaker 05

  I think it's, it's part of it, but it's just the general increase of demand, including, you know, EVs, although not on the scale that had been envisioned. So all those things and just having, I mean, we had gone for 25 years with flat demand in electricity in the United States, then it, and now it's just recently that it started to grow again. And so you have a whole generation of utilities who've grown up in flat demand and now figuring, how do you get things built? How do you get through the regulatory process? And even when you get it approved and you're, end up in court because somebody challenges it.

• 41:28Tracy Alloway?

  Are we ever going to solve the energy problem?

• 41:30Speaker 05

  No, I think it will just, I mean, it will always be there as long as industrial society, it'll be one form or another. Maybe fusion, the dream of-

• 41:40Tracy Alloway?

  Ah, fusion, yes. I used to play SimCity and that was always the ultimate goal. You work up from the gas plant to nuclear and then to fusion.

• 41:48Speaker 05

  Fusion solves everything. But it's also striking to me, what I've noticed, you know, having studied the energy for, you know, some time, that you get a consensus about energy and it lasts about three years and then something new comes along and just changes the view.

• 42:05Joe Weisenthal?

  Are there any past periods, we actually talked, we talked a little bit about the late 90s, when there was the gas boom then. Are there any other past periods that people should study right now that might help them form the current environment?

• 42:18Speaker 05

  Well, I think that what we have to remember, which to me is absolutely critical, is energy security and that it gets forgotten. And for me, I have this story in The Prize about Winston Churchill converting the Royal Navy from coal to oil before the First World War, which to me is, that is what made oil a strategic commodity, that transition.

• 42:42Joe Weisenthal?

  Why did he do that?

• 42:43Speaker 05

  He did it because he gained speed, flexibility, you didn't need to have all these guys shoving coal on board and you gained 30% extra cargo space.

• 42:53Tracy Alloway?

  That's the very start of the book, right? That's the opening anecdote.

• 42:55Speaker 05

  Exactly. And I always thought that phrase, he said, "Safety in oil, but we could say in energy lies in variety and variety alone," that you don't want to be over-dependent on anything. You want variety, whether in terms of your suppliers, in terms of your sources.

• 43:09Joe Weisenthal?

  We ever going to bring whale oil back?

• 43:11Speaker 05

  You know, I said, "There's not a single energy source that has not increased, even wood has increased. The only one that hasn't increased is whale oil."

• 43:22Tracy Alloway?

  All right, joke and dream, I guess. Dan Yergin, author of the, probably, I'm pretty sure, the best book on the oil market ever. Thank you so much for coming on Odd Lots.

• 43:32Speaker 05

  Thank you. It's great.

• 43:45Tracy Alloway?

  Joe, that was so much fun. I'm so glad we finally got to do that.

• 43:48Joe Weisenthal?

  I can't believe it took us that long to talk to Dan, but that was great.

• 43:51Tracy Alloway?

  I know. Well, fortuitous meeting in Washington DC. I gotta say, his point about the sort of interconnection between energy and technology, definitely, it does seem to be a driving force, right? And as soon as you get new advancements in weaponry, or transport, or in this case, software,

• 44:13Joe Weisenthal?

  Yeah.

• 44:14Tracy Alloway?

  you do tend to get a sudden, like, rethinking of what your energy needs actually are, or some sort of transition.

• 44:21Joe Weisenthal?

  And then, on the flip side, like, if you ever are in an era of energy surplus, you're gonna find something to do with it, right? Like, you're never just sit around and it's like, here's a bunch of cheap energy, let's not do anything with it.

• 44:33Tracy Alloway?

  Although, China is stockpiling successfully, right?

• 44:36Joe Weisenthal?

  Well, they are stockpiling, we don't know for what exactly, but yes.

• 44:39Tracy Alloway?

  They haven't spent it yet.

• 44:40Joe Weisenthal?

  They haven't spent it yet, although they're spending, I guess, in a sense, to acquire all the oil. It does feel to me, and I, it's not like this is that new, but there was a phase in probably the US and Europe in the late 2010s, and maybe it extended through 2020. Magical thinking with respect to energy being solved, we're go, you know, that there is just like this, like, clear path towards cheap, clean, abundant, energy. And some sort of realities clearly smacked a lot of policymakers in the face, and I guess the question is, how locked into current plans are they? What has to give? It does feel like, in Europe specifically,

• 45:21Joe Weisenthal?

  the constraints when it comes to industry, energy, climate, security are pretty real.

• 45:26Tracy Alloway?

  It seems to me like the big problem is the cyclicality of the industry. Like, you're constantly going through booms and busts. And as soon as you get a boom in oil production, it inevitably leads to a collapse in oil prices. And then you struggle to build out capacity for years and years, and then there's not enough oil, and then prices start to rise, and everyone goes back in again. If we could find some way to moderate that, I don't know how you would do it, but that might be a way forward.

• 45:53Joe Weisenthal?

  I feel like an underrated element of the Chinese economic story over the last however many decades has just been this like sustained boom without major downturn, et cetera. And so then you don't get these like big periods of people leaving an industry or whatever that are really hard to escape out of. It's like, I sort of think the cure for the boom bust cycle is just perpetual boom. Like, that's the answer. Just always be booming.

• 46:20Tracy Alloway?

  Always be booming.

• 46:20Joe Weisenthal?

  Always be booming.

• 46:21Tracy Alloway?

  I like that. But I also have to say, China as a source of energy demand, you know, they're buying for stockpiles right now, but they're using so many electric vehicles that their gas consumption is actually going down gasoline.

• 46:34Joe Weisenthal?

  Very impressive.

• 46:34Tracy Alloway?

  All right. Uh, shall we leave it there?

• 46:36Joe Weisenthal?

  Let's leave it there.

• 46:37Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 46:42Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our producers, Kermit Rodriguez at Kermit Armin Dashel Bennett at Dashbot and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 47:03Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about the future landscape of the energy industry, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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