“I started asking a question, I mentioned the word ‘shale,'” he recalls, referring to a once unconventional source of oil and natural gas that was then flowing freely in the United States due to advances in production techniques. “And he started yelling at me, saying shale is barbaric.”
Yergin, vice president of S&P Global, discussed the incident on the latest episode of the “What Goes Up” podcast, along with other insights from his book “The New Map: Energy, Climate, and the Clash of Nation”. Shale oil and gas in the United States has had a far greater geopolitical impact than people realize, Yergin says. He posed a threat to Putin in several ways, especially since American natural gas would compete with Russia’s in Europe.
Below are the slightly edited and condensed highlights of the conversation.
Q: How did the United States become a major oil and gas producer?
A: It was a revolution. We’ve had eight presidents in a row, from Richard Nixon to Barack Obama, who have said, “We want to be energy independent. And it sounded like a joke, it would never happen. But there was this technology called shale, which actually involves hydraulic fracturing, as it’s called, combined with horizontal drilling. And there was a really obsessed individual — it’s so interesting, the role of obsessed individuals in economic change — by the name of George P. Mitchell, who was convinced that if you somehow worked another, even though the textbooks said it was impossible, you could make it work. And for 20 years, 25 years, people laughed, but then it worked. And even his own business, people told him not to spend money on it. But if he hadn’t spent that money, I’m not sure we would have been where we were.
And then in the early 2000s, you started to see wildcatters — independents, as they’re called — small companies starting to adapt this technology. And then people said, “Oh, the natural gas supply in the United States, instead of going down, it’s going up.” And then they said, well, if it works for gas, maybe it works for oil as well — around 2008, 2009. So all of this really happened in this period from around 2008, this is where it all really started, the shale revolution. And that just moved the United States from a totally different position. What if you told people in 2002 that the United States was going to be the world’s largest producer of oil, bigger than Russia, bigger than Saudi Arabia, the world’s largest producer of natural gas, and this year, the world’s largest exporter of LNG, they would have said that you live in a fantasy world.
Q: It occurred to me while reading your book that the United States, which has gone from being the world’s largest consumer of energy to that of a major producer, is almost aggravating geopolitical tensions. Does that make America’s influence different in this environment?
A: That is absolutely correct. I cover a lot of things from Ukraine to climate in the book, but I start with shale because shale has really had a much bigger impact on geopolitics than people recognize. The story I tell in the book is when I was in St. Petersburg at a conference where Putin was speaking – 3,000 people there – I was told to ask the first question. I started asking a question, I mentioned the word ‘shale.’ And he started yelling at me saying it was barbaric. He knew that the American shale was a threat to him in two ways. First, because it meant that American natural gas would compete with its natural gas in Europe, and that’s what we see today. And two, it would really increase America’s position in the world and give it a kind of flexibility that it didn’t have when it imported 60% of its oil.
The question started innocently. I was going to ask him a normal question about diversifying your economy. And I said “shale”, and being yelled at by him in front of 3,000 people, a really unpleasant experience. The other person on stage was Chancellor Merkel, who served as Chancellor of Germany for 16 years. And you can see the enmity between the two. But Merkel is now being criticized for policies such as the nuclear shutdown that have made Germany more dependent on Russian gas. And the judgment of the story changes a little.
Q: How did everyone get Russia wrong?
A: Now there is a kind of revisionism that the world shouldn’t have traded with Russia, shouldn’t have tried to integrate Russia into the global economy, especially since Putin has become increasingly authoritarian. But, you say, well, what was the alternative? To leave it to rot there? The best thing was to anchor it in the world. Putin, he has been in power almost as long as Joseph Stalin. And I think he was getting more and more bossy and people who knew him over the years said Covid changed him. He was isolated for two years. He did not meet Western businessmen. He didn’t meet with Western government officials and so on. So I don’t think there was an alternative to not trying to integrate Russia into the world, but obviously what’s happening now is that the world, at least the western world, is slamming the door on Russia.
Q: Can Europe just go on without succumbing to Russia and its demands when it gets colder again?
This is the question that really weighs now because in terms of oil, there is enough crude oil in the world. You have to move it, but between strategic stocks, between falling demand in China, you can manage that. When you get into things like diesel, it gets more difficult. And then you go to the hardest part with natural gas, and that’s exactly how you go into winter. So the big question now is whether they can fill the storage so they can get through the winter and, by the way, not only stay warm, but keep the industry going. And I think we can say that Putin made a series of decisions that were sort of irrational — that his army was really good, that Ukraine wouldn’t be able to resist, that the United States had just left Afghanistan and that they were deeply divided, that Europe was so dependent on its energy that they said: “OK, it’s terrible, but life goes on”. And none of that happened. But I think he’s still calculating. And he said that ultimately this energy disruption – and we’re in for a huge disruption in the energy markets – would be such a threat to the European economy that the coalition that exists now would crumble. I think that’s his bet right now. And the Achilles heel is what you pointed out: what happens when Europe enters autumn and winter. And we had at least one prominent German industrialist who said, “It’s too dangerous for the European economy. We should negotiate something with Putin.