Energy Prospectus

Mentioned in Dan's latest update

https://www.cnbc.com/2021/12/30/us-oil- ... ergin.html

thanks !

INTERVIEW January 3, 2022
Daniel Yergin: Shale 'revolution' to challenge Saudis, Russia on oil
Underinvesting in conventional energy may trigger crisis again, warns IHS Markit vice chairman

Daniel Yergin, the vice chairman of IHS Markit, said in a recent written interview that the U.S. shale industry is experiencing the "second shale revolution," in which companies stay within cash flows and return money to investors.

January 3, 2022 10:34 JST
TOKYO -- The "second shale revolution" in the U.S. will change the current picture of the world oil market, whose sole determinant is OPEC+, led by Saudi Arabia and Russia, energy expert Daniel Yergin says.

Yergin, the vice chairman of IHS Markit, said in a recent written interview that the U.S. shale industry is experiencing a new revolution in which companies focus on "capital discipline," staying within cash flows and returning money to investors.

The U.S. became the world's largest oil producer in 2018 for the first time in 45 years thanks to brisk shale production. The pandemic dealt a blow to global oil demand in 2020, however, and shale oil production remains sluggish, hovering well below the pre-pandemic level.

"U.S. shale is coming back," Yergin said, adding that the industry has consolidated and brought down costs. "But public companies are still being cautious and moderate in increasing activity. ... The step-up in activity will not be the way it was a few years ago, where 'growth' was the only objective."

The industry now has national backing, in a big change from the beginning of the current administration. U.S. President Joe Biden is now focused on oil and is calling for increased U.S. production. This was "buttressed," Yergin said, by an unprecedently large release from the Strategic Petroleum Reserve.

Oil prices hit a seven-year-high in October as the Organization of the Petroleum Exporting Countries maintained a relatively moderate increase in production. The benchmark West Texas Intermediate was at $71 per barrel in late December, up 50% from January 2021.

For the coming year, a range of $65 to $85 is a reasonable expectation as long as the global economy grows, said Yergin.

But there are upside risks for the price. Yergin said that as OPEC+ brings back production on a monthly basis, the spare capacity will shrink. Moreover, some OPEC and non-OPEC countries are not able to meet even their quota increases due to a lack of investment and maintenance. "We may well see periods of tight markets and shortages," he added.

On top of the conventional oil producers in the Middle East, the world energy market has seen the growing influence of a new energy giant: Russia.

"Russia is an energy superpower in terms of oil, natural gas and coal," Yergin said, adding that the relationship between Russia and Saudi Arabia as leaders of OPEC+ is a "major development" for the world oil market.

"Their aim is to stabilize the oil market -- of great importance to countries that depend on oil export revenues," he said.

The year 2021 saw a serious energy shortage globally as the world recovered from the worst period of the pandemic. Coal and natural gas prices soared to record highs, and China suffered from a power crunch.

Yergin warned that underinvesting in conventional energy amid the global push for decarbonization may trigger an energy crisis again in the future.

"Preemptive underinvestment," in which investment in conventional energy is shrinking significantly even though demand has not yet started sloping down, will lead to a mismatch between available supply and growing demand, he warned.

"The result would be not only economic difficulties and shocks but also a political backlash," Yergin said.

He argued that policies in major countries need to be realistic about the scale and complexity of the energy system and not discourage the investment that will be needed in the years ahead even as they continue to promote renewables and the objective of lower carbon.

While uncertainty remains about the pandemic and the economy, Yergin argued that the biggest risks around energy are geopolitical including tensions between Russia and Ukraine, and China and Taiwan.

"Crises around either of these will affect not just energy markets but the global economy -- and much else," Yergin added.