Frankly Speaking: Saudi role in OPEC+ contributed to ‘strong global economy recovery,’ says Daniel Yergin

DUBAI: Saudi Arabia’s leading role within the OPEC+ alliance of oil producers has been instrumental in rebalancing global markets, according to one of the world’s leading energy experts.

Daniel Yergin, the Pulitzer Prize-winning historian of the oil industry, told Arab News: “OPEC+ brought a kind of predictability and stability and caution to the market, and obviously Saudi Arabia has been at the forefront of that. It is a contribution to this incredible strong global economic recovery that we’re seeing right now.”

Yergin, who is also vice chairman of the IHS Markit consultancy, gave his views on Frankly Speaking, the series of video interviews with policy makers and business leaders.

He spoke of the prospects for a resurgence of the US shale industry, the challenge of climate change for the energy industry and the recent controversial “scenario” by the International Energy Agency (IEA) that suggested an end to all new investment in hydrocarbon fuels.

On the recovery in oil markets, which many experts put down to Saudi Arabia’s role as the biggest exporter in OPEC+, Yergin said: “Let’s not forget, it’s only a little over a year ago when the appalling collapse happened. Which was not only a shock for oil-producing and exporting countries, but you had countries like India and Japan, who were deeply concerned because they were fearful of the destruction, the undermining of the global oil industry and the gas industry on which their economies depend so heavily.”

The price of Brent crude has recovered to pre-pandemic levels, and many analysts are forecasting it might hit $100 by the end of this year as post-pandemic recovery accelerates demand for energy.

“OPEC+ has been a moderating force and a stabilizing force and really a mechanism for navigating a recovery from an appalling economic apocalypse,” Yergin said.

IHS Markit analysts see global economic growth at 6 percent in 2021, with the crucial US economy projected to grow by 7.4 percent, he added.

The relationship between the two biggest producers in OPEC+ — Saudi Arabia and Russia — has been crucial to the rebalancing and resumption of demand, Yergin said, adding that the US oil industry had become less significant for the dynamic of the global market.

“The US was part of the Big Three in April 2020. I think the US has stepped aside from that now as a governmental player, and so that means this relationship between Saudi Arabia and Russia is very significant and is the foundation for making OPEC+ work. I think it’s in the interest of both countries to continue,” he said.

A recent visit to the heartland of the US oil industry in Houston, Texas, has persuaded him that a revival of US shale could be under way. “Shale is facing a second revolution. It had to change its relationship with investors and return money to investors and that’s what it’s doing. There’s a mantra of capital discipline that wasn’t there before,” Yergin said.

“It’s stabilized and — as long as prices are in a reasonable range — we’ll see modest growth. What we won’t see is that explosive growth for which there was no precedent which contributed to a sudden oversupply in the oil market. So, you could say shale sort of settled down in a more mature state.”

The US oil industry is also facing a new situation of regulatory oversight and investor activism that has cast doubt on long-term prospects. Yergin agreed that the attitude of the Biden administration — in contrast to the Trump presidency’s approach — amounted to a new hostility to the hydrocarbon industry, and that there could be more environmental restrictions imposed. “We’ll see an effort to use regulatory machinery to constrain the industry. I think the regulatory challenges are still ahead,” he said.

But the administration also had to weigh the fact of US energy independence that has come about as part of the shale revolution. “The US spent $400 billion importing oil in 2008. It doesn’t spend anything now and I think Biden and some of the people around him see that energy dependence is a place they don’t want to be,” Yergin said.

The new alliance of environmental and financial activism in the oil industry, which has brought a surge in challenges to oil companies, was recently highlighted when the IEA controversially outlined a scenario in which all new investment in fossil fuels was immediately halted.

“It was very puzzling because only a few months earlier the IEA had been warning that not enough investment was going into oil and gas and that was going to lead to a supply crunch, high prices and turbulence,” he said.

“I think the oil and gas industry would look to the IEA to be a kind of independent objective source. They look at the IEA differently now and say what happened? Why did this come about? So, there’s been a kind of a shift from one side to the other.”

But Yergin was adamant that so-called fossil fuels would continue to play a vital part in global energy for a long time. “The energy mix is going to change. Oil and natural gas are going to share more and more space with renewables and alternatives. So, I think we’re going to have a mixed system. But in 2050 I think the world is still going to be using oil and gas, along with a lot of other things,” he said.

Yergin’s most recent book, “The New Map”, published last year, is an analysis of the interrelation between, energy, climate and geopolitics. John Kerry, the special presidential envoy on climate change, recently praised Saudi Arabia for its contribution to the global campaign against the effects of climate change and efforts to meet the goals of the Paris Agreement.

The Kingdom has announced plans to phase out oil from the domestic energy mix altogether by 2030, along with a big program of tree-planting to mitigate CO2 emissions.

“What Saudi Arabia is doing is in line with what you see around the world — a much bigger role for renewables. Obviously solar has a big role in Saudi Arabia. The notion of using gas to free up liquids for export and plans to plant trees are steps which of course are really about removing carbon from the atmosphere,” Yergin said.

“So, I think the direction Saudi Arabia is moving in is in line with what other countries are doing, and particularly in electric power.”

While the Kingdom’s strategy of a circular carbon economy, in which greenhouse gases are reduced and ultimately eliminated from the atmosphere, was a viable approach to the problem of climate change, Yergin cautioned: “Some in Europe don’t like carbon capture because they don’t like the hydrocarbon industry.”

He said renewable energy sources such as wind and solar were coming down in price to become viable options along with hydrocarbons, and new energy sources like hydrogen could also become part of the energy mix in the next 15 years.

In “The New Map,” Yergin explained how energy and climate change challenges could become big factors in what he called the “clash of nations,” replacing the “WTO consensus” that helped harmonize relations between, principally, the US and China.

“You’re seeing rhetoric today that you wouldn’t have heard five years ago and it is concerning. With all that said, you know by nature I’m an optimistic person,” he said.

“At the end of the book, I was trying to be realistic, but I’m also optimistic, because I believe that there are solutions.”

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Twitter: @frankkanedubai