Daniel Yergin on Why Energy Prices Didn’t Soar Higher

Supply chain thinking has shifted from 2019-2020 onward from being purely efficiency-focused to incorporating security and resilience considerations, a transformation accelerated by COVID-19 and US-China tensions.

“the kind of shifting view of supply chains that began about 2019-2020 was accentuated by the COVID crisis and then by the rising tension between the US and China where supply chains used to just be about efficiency and you didn't think much about security. You didn't pay a security premium. You just wanted the quickest, most efficient. Now it's it's shifted to got to think about security, got to think about resilience.”

Approximately 70% of the cost of food on consumer tables is energy-related, including fertilizer, diesel for tractors, and transportation from farm to destination and processing, making food price inflation highly sensitive to energy disruptions.

“our team at S&P Global did a calculation once that about 70% of the food on your table is actually energy cost from fertilizer to diesel for your tractor to uh getting it to uh transporting it from farm to destination, processing, and so forth.”

Energy transition requires large quantities of minerals like copper—electric cars use three times as much copper as conventional cars—but new copper mine development takes 17 years, creating a supply bottleneck that has been underestimated in transition planning.

“Energy transition is mineral intensive. An electric car uses three times as much copper as a conventional car. How long does it take to bring a new copper mine on? 17 years. And that gets you into China.”

The concept of energy transition needs fundamental rethinking because it was very ambitious, divorced from previous experience of energy transitions, and the scale of changing a $120 trillion world economy overnight is extremely ambitious.

“the concept of energy transition really needs a big rethink because it it was very ambitious. Uh it was divorced from any previous experience of energy transitions. Uh I you know, I think the scale of changing a $120 trillion world economy overnight uh pretty ambitious.”

China was able to reduce oil imports by approximately 5 million barrels per day during the Iran war by raising domestic prices (which reduced demand by a couple million barrels daily), stopping refinery exports, and drawing down strategic petroleum reserves estimated at 1.5 to 2 billion barrels.

“China's demand was around 16 17 million barrels a day. It was importing around you know maybe around 12 million barrels a day...about maybe its imports by five million barrels a day. How did they do that? Partly they drew The Chinese do not like to buy oil when price is high. They like to fill inventories when prices are low. And so, they really pay very close attention to the market. So, they raised domestic prices, which affected demand and demand went down a couple million barrels a day. They stopped their refineries also export oil. They said, 'No exports.' Uh and then they drew on their inventories.”

Geothermal energy has historically been marginal but is emerging as significant due to entrepreneurs adapting shale gas and shale oil drilling techniques to create 'shale geothermal' with horizontal drilling and greater heat contact for improved efficiency, with major projects underway in Utah and elsewhere.

“what has happened entrepreneurs partly with the support of hyper scalers adapting the techniques of shale gas and shale oil to call it shale geothermal with drilling down and then having uh, horizontal drilling, and then uh, much more contact with heat, much greater efficiency. So, there's some big projects going on right now uh, in Utah and other places.”

US natural gas wholesale prices have actually declined since the Iran war started, giving US manufacturers a competitive cost advantage over European manufacturers who face higher energy costs.

“natural gas prices in the United States uh wholesale prices have actually gone down since this war started. And this these low prices give the US an economic advantage as a manufacturer over Europe and other parts of the world.”

Europe, despite being a wealthy region, had forgotten about energy security and must now reassess its energy independence, particularly after previously relying on Russian natural gas.

“frankly, Europe forgot about energy security. And they're rich, you know, it's a rich region, but they're going to have to do it, too.”

The United States has shifted from being the world's largest oil importer to the largest producer and largest exporter of natural gas, positioning it with unique geopolitical and economic advantage compared to other developed nations.

“The US went from being the world's largest importer to being the largest producer of oil, the largest exporter of natural gas. So, you talked about the impacts on Asia, where you know, really hit people's incomes and livelihoods and and led to rationing and shortages. In the US, it's been mainly measured in terms of what happens at the gasoline pump.”

Shale development differed from conventional oil exploration in that companies could produce without major exploration programs, but now that shale growth is maturing, traditional exploration will need to resume.

“you didn't have to explore with shale. It was just a different business”

Global South development matters more for global emissions than developed nation unilateral policies because the Global South's energy demand is growing rapidly as populations increase incomes and consumption, and their policy choices will dominate future emissions.

“What matters is what happens going back to where you started before in the big countries in the global south and in how they develop and how they find the balance.”

80% of oil flowing through the Strait of Hormuz goes to Asia, and 90% of LNG flowing through the Strait goes to Asia, making Asia disproportionately vulnerable to disruptions at this chokepoint.

“the Strait of Hormuz in economic terms flows east. 80% of the oil that went through the Strait of Hormuz goes to Asia. Uh 90% of the LNG liquefied natural gas uh that goes through the Strait of Hormuz normally goes to Asia.”

Resilience and energy diversification strategies disproportionately advantage wealthy countries like Japan that can afford large strategic stocks and less developed countries that cannot, creating an unequal capacity to weather energy crises.

“if you can afford it, if you're Japan, you can afford to have large strategic stocks. If you're a less you know developing a South country, you don't have that same uh uh uh ability.”

The US possesses 40 years of known certified natural gas reserves, allowing for continued LNG export expansion while maintaining domestic supply, maintaining wholesale natural gas prices below pre-crisis levels despite global disruptions.

“we basically have a 40 years of of known certified natural gas reserves. So, that means that we can uh build up that yeah, exports of LNG, but our volumes of actually we still have more gas every that we that even though we're exporting LNG. And so, that means natural gas prices in the United States uh wholesale prices have actually gone down since this war started.”

Energy industry capital investments operate on 5-7 year timelines, meaning that even major geopolitical shocks like the Iran war take considerable time to change corporate plans, limiting the immediate disruption to energy sector strategy.

“it's funny you'd say after 6 months people would have remarkably changed their plans. It just doesn't happen that fast in the energy industry because you're talking about investments that take 5 or 7 years.”

Forest management, not only climate change, contributes to wildfire severity; US policy changes around 1990 reduced controlled burning and forest management, leading California governor Jerry Brown to acknowledge forests had turned into 'carbon bombs' from poor management.

“from about 1990 onward, we stopped managing they they changed the way they managed forest fires. Um, and even Governor Jerry Brown, Democrat, liberal Democrat of California, said, 'We haven't been managing our forests right. We're allowing them to turn into carbon bombs because we're not having controlled firing, we're not cleaning underbrush.'”

England's emissions represent only 3% of China's total emissions, making any unilateral UK climate policy unable to move the global emissions needle, yet England claims to want to 'set an example' through policy.

“England's emissions like are 3% of China's. So, what they do in England you know, looks good for them. Not going to move the needle. Yeah. Yeah, I mean, they say they they want to set an example, but it doesn't move the needle.”

Malaysia's Prime Minister stated that Malaysia is concerned about climate but will not be dictated to by Berlin, Brussels, or other Northwest European and North American cities because Malaysia must prioritize economic growth, health, and poverty reduction.

“Prime Minister of uh Malaysia saying, you know, he said we're concerned about climate, but we're not going to be dictated to by Berlin, Brussels, and other countries and other cities in Northwest Europe...cuz we have to worry about economic growth. We have to worry about uh health. We have to worry about poverty.”

Crude oil prices peaked around $120 per barrel in 2008, and adjusting for inflation that represents a higher price than current levels, meaning the Iran war's impact on oil prices has been less severe than the 2008 crisis despite structural differences.

“Well, first of all, you're you're right. We had the oil hit $120 a barrel roughly in 2008. And if you adjust for inflation, that's a higher price.”

Energy security was neglected in energy transition planning until the Iran crisis and other supply disruptions 'hit people in the face,' revealing that security considerations must be integrated into transition strategies rather than treated as separate concerns.

“Energy security was forgotten about until it came back and hit people in the face.”

Diesel and jet fuel prices are more significant than crude oil prices in terms of real economic impact because they affect farmers, transportation, and agriculture more directly than gasoline prices.

“more severe is not the price of crude oil, more significant but is that price of diesel, it's the price of jet fuel and so forth. And and what it means for of farmers and fertilizer.”

Energy transition has not proceeded as expected because it is both analytically complex and involves theological/ideological disagreements about development paths, renewables rollout has been slower than projected with many challenges, and it has functioned as energy addition rather than substitution.

“the arguments about energy demand are both analytical and theological, uh depending upon various points of view. Um what we've seen so far uh we is that energy transition is not going the way people thought it would go. Uh it's been slower or there are many challenges to it and it's really been energy addition. As if you look at the numbers, you see wind and solar have become since 2010 have been commercial growing a lot but conventional energy has been growing a lot, too.”

Energy demand projections are being revised downward based on new population growth models showing declining fertility rates in places like India and Nigeria, with the world expected to peak at 9-10 billion rather than the previously projected 14 billion people.

“some of the projections about climate and things like that were dependent upon the notion of a 14 billion person world. And it sure doesn't look like we're going to be a 14 billion person world. And uh is it 9 or 10 billion people?”

China's EV adoption has accelerated dramatically during the Iran crisis, with EV sales growing from 36% of new car sales in the first few months of the year to 60% currently, suggesting energy crises drive rapid technology adoption.

“for China it accentuates their drive for electrification particularly uh in vehicles and I think uh we've seen a you know, at the uh first couple of months of this year, electric car sales in China were running about 36%. Now they're running at 60%”

Bangladesh experienced closure of four out of five government-owned fertilizer plants due to supply shortages, and India experienced propane shortages that had depended on Gulf supplies for a cooking fuel program launched by Prime Minister Modi, leading to restaurant closures and business failures.

“in Bangladesh I think four out of the five government-owned fertilizer plants shut down cuz they couldn't get supplies and India which had come to depend very much on propane for cooking and it was a huge program that went back. I remember I was in India 10 years ago when Prime Minister Modi launched this program to send propane so people would stop burning wood and waste for cooking. That was very dependent on the Gulf and they ran short and as you know, restaurants in India shut down and so a lot of hardship there. Businesses failed, rationing of supplies”

Companies are announcing major pipeline investments despite geopolitical risk, including US companies championing an Iraq-Syria pipeline and US investment firms investing in Kuwaiti pipeline systems, suggesting confidence in maintaining partnerships.

“the Iraqi uh, Syria pipeline is in uh, in partnership with a US companies actually championing it. Um, uh, big US investment firms have announced major investment in pipeline systems within Kuwait”

Nuclear power has experienced a resurgence in the last 3-4 years with renewed support for small modular reactors, shutdown US nuclear plants being brought back online, and approximately $7-8 billion in venture capital infusing the sector—investment that would have been unheard of 10 years ago.

“nuclear has already had, really for about the last three or four years, a new energy to it that it's really been embraced of you know, small modular reactors you know, nuclear power plants that were shut down in the United States are being going to be brought back to life...What is it? Seven or eight billion dollars of venture capital money infusion? That would have been unheard of 10 years ago.”

The Iran war represents the biggest energy crisis since the Second World War because 20% of world oil and 20% of LNG flow through the Strait of Hormuz, and the disruption affects not only energy but also helium, fertilizer, and agricultural products globally.

“it's the biggest crisis since the Second World War, which was actually also, among many other crises, an energy crisis, but certainly in modern times. And the reason is because this Middle East is so central, because 20% of world oil, 20% of LNG flow through the Strait of Hormuz. And it turns out it's not just an energy crisis. It's also involves helium. It involves fertilizer.”

Gulf countries will seek to diversify away from dependence on the Strait of Hormuz through pipeline development to the Red Sea and other alternatives, despite new security challenges like Houthi attacks.

“I think the the Gulf countries for their sin are going to seek to to diversify basically from dependence upon the Gulf and that does mean pipelines. Now in case of Saudi Arabia means pipelines going to the Red Sea and you have there the issues of the Houthis, but I think that's very much on the agenda.”

Energy companies initially prioritized the security of their personnel and systems during the Iran crisis, then began reconsidering their regional portfolios, with many looking toward diversification to the Western Hemisphere, Africa, and the Eastern Mediterranean for future investment.

“their first thing, of course, was the security of their people, the security of their systems, and the partners that they work with uh in the region and trying to, you know, do you keep your people there or not? And I think it's varied from country from company to company uh whether you withdrew some or not. But I think what it does is it means that uh they will look at other regions. They'll look at the Western Hemisphere. Uh even before the crisis, the Western Hemisphere is actually producing more oil than the Middle East”

Far-right parties in Europe are gaining support driven by high energy costs alongside immigration concerns, demonstrating that energy policy has profound political consequences.

“if you look at the far-right parties in Europe, obviously immigration's their number one issue, but very much also about high energy costs.”

Hyperscale technology companies (big tech) are very interested in nuclear power because they require large amounts of reliable electricity for data center operations, creating new demand for nuclear capacity.

“I think hyper scalers are very interested the big tech companies in it for that reason because they need electricity.”

Choke points have now become part of geopolitical vocabulary among a broad audience, whereas before only a limited number of specialists discussed them, representing a shift in how countries conceptualize energy security infrastructure.

“Certainly, choke points has now become part of the geopolitical vocabulary. Before, it was a very limited number of people who talked about choke points.”

Germany's single focus on renewables has undermined European economic competitiveness, leading to deindustrialization and high costs, with German economic minister stating that a second pillar (backup capacity) is needed to deal with renewables volatility.

“for Europe, it was very interesting having the German economic minister, Serowe. She talked about that the single focus on renewables had really undermined the competitiveness of the European economy. She said leading to deindustrialization. Obviously, having a big impact in terms of parties on the far right and far left. Uh costs much higher than they should have been. Uh uh that uh that yes, you can build renewables, but you have to build a second system. As she put it, a second pillar to deal with the volatility.”

The shale revolution and US LNG exports prevented Russia from using natural gas as a weapon against European support for Ukraine, as US LNG supply alongside Norwegian and Qatari supplies provided Europe with alternatives to Russian gas during the conflict.

“The shale revolution saved Europe from Vladimir Putin because we wouldn't you know, because if they're our ability to send LNG to them meant that Putin thought he could use the gas weapon and shatter the coalition supporting Ukraine. It failed at some cost, but because of US LNG right at the forefront of it.”