Yergin: $100 oil ‘tells a lot of what’s going on in the world’

CALGARY — As one of the world’s foremost experts on energy, particularly oil and gas, along with geopolitics, Daniel Yergin is sought out for his insight on the dynamics of world crude and natural-gas markets and their impact on the economic and political sphere. Yergin is the chairman and a co-founder of Cambridge Energy Research Associates, arguably the world’s leading energy consultancy.

During his career, Cambridge, Mass.-based Yergin has been the recipient of the Pulitzer Prize for his 1990 No. 1 bestselling book, The Prize: The Epic Quest for Oil, Money and Power. The work was subsequently made into an eight-hour PBS/BBC series viewed by more than 20 million people and translated into 12 languages. His 1998 followup book, Commanding Heights: The Battle for the World Economy, co-written with CERA colleague Joseph Stanislaw, received a similar treatment.


In an interview, Yergin talks about the recent breaching of the $100 US-a-barrel level for crude oil, which he described as “a very strong psychological measure.”

Q: What does $100 oil mean?

A: At one level it’s a record and it’s a score, but really, if you dissected that price, it tells a lot of what’s going on in the world. It’s telling us about the strength of the global economy, in particular Asia and particularly in China. It’s telling us about mounting geopolitical fear of risk of disruption, in terms of particularly Iran and Iraq. It’s certainly telling a story about the weakening of the (U.S.) dollar… . It’s telling us that there are a series of small disruptions, interruptions.

The other thing that it’s telling us, that I think is important that gets overlooked, is how rapidly costs have gone up in oil-and-gas development. That’s maybe the great overlooked factor here, because the public and politicians focus of course on the price, but what the industry deals with is the reality of these costs that have gone up so dramatically. In a way, $100 oil tells a pretty dramatic story of how much things have changed in just three or four years.

Q: Does it stand out less when one considers it in the context of sharply increased, and rising, costs?

A: I suppose. The $100 is really part of a trend and imbedded in it is how rapidly costs have risen. … We created this thing that’s called the IHS/CERA upstream capital cost index, and the newest one shows that costs continue to go up dramatically. Basically, since 2000, costs have doubled and most of that doubling has been in the past three years. Among other things, what that has done is lead to delays and postponements and scaling back and re-prioritizing projects, so all of that means that there is a noticeable lag in responding to this, what is really a global commodity boom.

CanWest News Service