Daniel Yergin: The TT Interview

Daniel Yergin, the Pulitzer-prize winning author and a leading authority on energy, recently published a new book, The Quest, examining today’s energy challenges. The book includes a look at recent technological advancements in hydraulic fracturing — advancements pioneered in Texas — as well as the rise of Texas wind power, which happened subsequent to his 1990 landmark work, The Prize.

Yergin visited Dallas last week to speak at the World Affairs Council. Before his speech, he answered questions about Texas oil interests in Libya, the state’s energy future and the national debate over how to spell “fracking.” This interview has been edited and condensed.

TT: What are the major energy challenges facing Texas right now, and how do they differ from those facing other states?

Yergin: Texas is endowed with resources — oil and gas and wind. A lot of states don’t have that kind of advantage. And, of course, energy is Texas’ global industry — Texas is a hub for the global energy industry.

TT: Texas essentially pioneered hydraulic fracturing in the Barnett Shale, but even here there are concerns about the impact on the environment. Were you surprised at the onset of environmental worries related to fracking in the last few years?

Yergin: One of the things that’s most interesting about hydraulic fracturing — well, about shale gas, is that it only burst onto the national scene in 2008, and it wasn’t until the autumn of 2009 that it was even recognized in Washington, but it had been under development for under a quarter century in Texas, and built upon technologies that went back another 40 years or so. Once you got to 2008, the buildup was very fast and the environmental questions have come along pretty fast, too, particularly in regions that are not accustomed to oil and gas development, like Pennsylvania. Clearly there were local issues in Texas, but the national footprint came out of Pennsylvania.

TT: Which environmental concerns do you think have the most merit? Water contamination? Water supply? Air quality? 

Yergin: I’m on [a Department of Energy advisory board subcommittee on shale gas]. We did one report for President Obama and it’s advising Secretary Chu, and our second report is due in a couple of weeks. There are three sets of issues. One is the produced wastewater and to ensure that it’s properly disposed of or treated, the second is to ensure there are not air pollution impacts, and third is community impacts. Those are the three big issues we looked at in our report. We did our first report in August, and came up with a set of recommendations that we thought, if followed, would provide a platform so this resource could be developed in the environment in a responsible way, and of great benefit. If we hadn’t developed shale gas, we’d be spending $100 billion importing liquefied natural gas from the Mideast and West Africa. 

TT: But is there one concern that stands out?

Yergin: All these concerns have to be managed and addressed in terms of best practices and in terms of technology.

TT: How important is the Eagle Ford Shale?

Yergin: The Eagle Ford Shale is one of the most important new oil developments in the United States. It’s really been a laboratory, along with North Dakota, for the emergence of what we call tight oil, which is really changing the U.S. energy balance.

TT: Tight oil?

Yergin: We don’t call it shale oil because it comes from rocks, but it’s embedded in the rock. Before they applied these modern technologies to it, shale gas had another name, which was uneconomic gas. 

TT: What is the future of natural gas prices — will they stay low for the foreseeable future?

Yergin: I don’t think they’ll stay this low. Industries are coming back to the United States that had left the U.S., like the petrochemical industry, there will be new demand in electric power, there will be new demand in manufacturing industries, and maybe in other markets — so markets may pull up the price. Also, if we’re not in an economic recession, we’re in an economic slump, so these prices also reflect that.

TT: Is the Texas wind boom a good thing or a bad thing? Is it replicable in other states? 

Yergin: Texas is endowed with a great wind resource. The challenge for the state is transmission and getting it to markets. Texas has been an oil and gas capital to the United States, and it’s now kind of a wind capital, too. 

TT: Does it fit into the wildcatter narrative?

Yergin: Clearly there is a strong entrepreneurial tradition in the energy business. One reason we had a shale boom in the United States is because [of] the role of independents, because [of] the political culture, the social culture, the legal regime, ownership of resources. All these things facilitate entrepreneurship. A lot of other countries don’t have that.

TT: What was your perception of Texas before you became devoted to energy? How has it changed? 

Yergin: It was interesting coming from Cambridge, Massachusetts, as we were, to Texas and we started pretty early — we established the company in 1982 — and in the early '80s, we started to come down, I was a member of this Dallas Morning News board of energy experts, and met a lot of people, and then we started having our conferences in Houston early on. I think we found we had a perspective, it was a different perspective, because we lived in a different world that people found useful. From the beginning we tried to do our own work.

I’d had a post-doctoral fellowship at Harvard, and I was supposed to be working on another subject, and then I became obsessed with energy and started working on it. I was teaching both at the Kennedy School and the Harvard Business School, and at the Harvard Business School ... we did this report on energy, and I found I really loved doing research on energy. It covers everything from geopolitics to technological innovation, it’s just this whole range.  It took me a long time to write [The Prize], and I was creating a company at the same time. What kept me so motivated were the stories. When I write narrative, I tend to see it like a movie. I’m writing what I’m seeing and writing what I’m hearing.

I found that there’s a lot of human energy around the energy business and it actually involves a lot of imagination. You’re really visualizing what’s happening two miles or three miles beneath the ground.

TT: How badly did the moratorium on new Gulf offshore drilling hurt businesses? Was the moratorium an overreaction, or a smart move?

Yergin: I think it was an inevitable move after the accident — there was inevitably going to be a period of reassessment. It’s happened in other countries, too, a reshaping of the regulatory system. There was a huge failure in terms of the tragic loss of life and the degree of the spill. The unthinkable had happened. But in the meantime it did mean that a lot of people were not working and a loss of economic value was created, and not just in the Gulf states because it turns out the [that the] services, the skills and the equipment, it affects jobs in Ohio and California too. There’s a big employment aspect directly, indirectly, to that kind of activity. 

TT: What do you think about the future of solar power, in Texas and elsewhere? 

Yergin: Let’s just say in general, I found writing a chapter on solar — well, one of the things I just love about doing this book is that I just learned so much doing it. There was so much to find out, like how solar developed. And what you see is solar has made huge progress, but what you see is that cost has to come down. That’s where the battle and the focus is now. In some settings, if you have expensive power and a lot of sun, then solar can be competitive, but on a mass scale, it’s not reached that point yet. It’s certainly come down as a much bigger business than it was 10 years ago. I see this whole rebirth of the renewable industry ... [but] the challenge is to make it competitive on a large scale. 

TT: Any thoughts on the energy policies floating around in the Republican presidential race — especially Gov. Perry's energy plan, which involves dismantling of regulations and more drilling?

Yergin: It’s always a challenge to get the right balance between markets and regulation. I hope, however, that all candidates for president will read my book. 

TT: How will recent developments in Libya affect the world oil market, and specifically Texas oil interests?

Yergin: First, the civil war disrupted supply and that had an impact on price. It wasn’t a big disruption, it was on the same scale as the disruptions from the hurricanes Rita and Katrina, but it did add to upward price pressure for oil. Libya had opened up in 2003 and 2004, and companies went in, the terms were very tough. So people still found it hard to operate in Libya. Now, no one knows. Clearly Libya will come back as an oil exporter, some of its output will come back quickly, some will take time, but what will determine its future is what the political system is, and that’s completely unknown.

During the 42-year Qaddafi regime, an enormous amount of money was squandered. Qaddafi wasted so much money, just wasted it — on foreign adventures, on weaponry, on grandiose projects. So the country has no institutions, its infrastructure is in poor shape, [and] reconstruction will be a big challenge, but it also has no political institutions, so it’s very uncertain what it will look like. The new government will presumably be able to guarantee security, but it has to decide if it wants investment and how much oil it wants to produce. 

TT: But its possible it will be a more efficient operation?

Yergin: It won’t be the strange, shadowy political system that controlled things. Libya is an extreme example, but the consequences of the Arab spring are going to take years to be clarified. 

TT: What is special about Libyan oil?

Yergin: Libya is the largest producer of in North Africa. Its oil is of a very high quality, but [oil companies] were able to find replacements. It’s a problem but not a very vast problem. [Another advantage]: Its proximity to Europe makes transportation very easy. Its natural market, is just across the Mediterranean.

TT: Anything else you want to mention, related to Texas energy?

Yergin: Well, you know Texas was the true laboratory for natural gas. This revival of U.S. oil and gas production is something that is beneficial to Texas not only in terms of revenues and employment within in the state, but also beneficial to Texas as the hub of the oil and gas industry.

TT: Did it really ever falter?

Yergin: I can remember coming in 2003 to a meeting of [a petroleum industry group] and there was a conviction that the natural gas resource was not responding to prices, and that the days of the U.S. as a gas producer were numbered, and the U.S. was going to be more and more integrated into a global gas market as an importer.

TT: And that cast a gloom over things?

Yergin: The large companies were leaving the U.S. because there was no opportunity here, oil production was destined to go down. Go back six or eight years and there was a [believe that the industry's future lay] outside the United States. Now you’ve had this shift back into the United States, and Texas is clearly a beneficiary of that. ... The whole thing was to leave to seek opportunity, and now the sense is the opportunity is here.

TT: Was that pessimism misplaced?

Yergin: It was accurate based on what you knew at the time. Then unecomonic gas turned into shale gas, and inaccessible oil turned into tight oil. It was only in 2008 that the larger companies woke up to it. Between 2003 and 2008, shale gas was the kind of thing independents did. The bell rang when people saw that U.S. production was going up, not down. It all happened so quickly.

It hit me last year when in Washington, you’d meet all these people in Congress and the policy community who talked about fracking like they’d talked about it all their lives, rather than for six months.

Although I do have this big issue, I think there’s a bitter disagreement in this country about how to spell fracking. Is it f-r-a-c-k-i-n-g, f-r-a-c-c-i-n-g, or f-r-a-c-i-n-g? “Ck” is the most common one, but purists still think it’s “cc" [which is how Yergin spells it in his book]. I think if we’re going to go forward and debate [fracking] as a country we’re going to have to decide how to spell it.