Daniel Yergin Interview: “We certainly are moving past the era of cheap oil”

“The harnessing of energy is what makes possible the world as we know it. But can we bet on that for the future?”

That’s the question Pulitzer-Prize winning author Daniel Yergin asks and attempts to answer in his new book The Quest: Energy, Security and the Remaking of the Modern World.

Yergin is “cautiously optimistic” about the future of energy, despite myriad risks, including geopolitics, terrorism, environmental change, rising demand from emerging economies and the rate of global investment in new supplies and new technologies.

Two of those issues – geopolitics and terrorism – are in focus today after the U.S. foiled an alleged plot by Iran to both kill the Saudi Ambassador and bomb Saudi and Israeli embassies. “As Iran continues to move down the path of nuclear weapons, it’s going to raise anxiety and tension,” Yergin says. “News of an Iranian plot to assassinate the Saudi ambassador highlights the fundamental conflicts and regional tensions that are there. If Iran continues to move in the direction it’s going…at the very least you’ll get a nuclear arms race in the region.”

Peak Oil Theory: Fact or Fiction?

In the accompanying video, Yergin addresses the Iranian threat as well as the debate over whether the world is approaching peak oil. Contrary to popular misconception, peak oil does not mean the world is ‘running out of oil’ but that “the oil that’s left is progressively expensive, difficult, risky, marginal and fraught with secondary effects,” as Chris Nelder and Gregor Macdonald write onHarvard Business Review’s web site — a post written in response to Yergin’s recent WSJ op-ed There Will Be Oil.

“We certainly are moving past the era of cheap oil,” Yergin concedes. “[But] we do have major new supplies opening up,” including offshore Brazil, and the U.S. and Canadian oil sands as examples. “None of them can be considered ‘cheap oil’,” he continues. “That’s partly why we see higher floor under the price” of oil.

Whereas peak oil devotees consider Yergin wildly optimistic, the author and chairman of IHS Cambridge Energy Research Associates calls himself “realistically confident.” Citing two-and-half centuries of innovation in energy development, “the one thing we’re not going to run short of is ingenuity and creativity,” Yergin says. “I think that’s the basis of our energy future.”

In addition, Yergin is confident in the power of the “feedbacks” from higher energy prices: “Price itself is important piece of information,” he says. “When prices [are] zooming up, demand goes down, people find alternatives, technology gets stimulated, and you get greater efficiency. ”

China, for example, has made energy efficiency a top priority as it seeks to slake its fast-growing thirst for oil, Yergin notes, an issue we’ll address in part two of this interview. Stay tuned.