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The surprising world of energy

“In many ways, Lehigh is connected to the energy world,” said global energy expert Daniel Yergin during his opening remarks on Wednesday at Baker Hall in the Zoellner Arts Center.

Yergin was referring to the Lehigh alumni mentioned in his 1992 Pulitzer Prize-winning book The Prize: The Epic Quest for Oil, Money and Power. One of them is Ali al-Naimi ‘62, Saudi Minister of Petroleum and Mineral Resources; the other is Monroe “Jack” Rathbone ‘21, CEO and Chairman of Standard Oil.

His most recent book, The Quest: Energy, Security, and the Remaking of the Modern World, made it into Bill Gates' Top Reads list for 2012, with the Microsoft founder saying that the book “changed his worldview.” The book, and the lecture at Lehigh, explores the recent changes in the global map of energy and how unexpected factors are driving these changes.

“One of the lessons that I carry away from my books is to be prepared for surprises,” says Yergin. “They may come from politics, economic or technologies.”

Yergin told the hundreds who attended the event in Baker Hall that the world is living through a period of dramatic changes in energy” and that what’s happening in energy “has critical importance to the world economy and for geopolitics.”

The lecture was sponsored by Jeanne and Herbert J. Siegel ’50.

The Demand Surprise

The first major shock in the energy market, Yergin said, was a change in demand. In 2000, about two-thirds of world oil was consumed in the developed world. Today, over half of the world’s oil is consumed by emerging markets, and he says that consumption will only increase.

“In terms of energy, we can see that the world is almost divided into two,” he said. “There is the developed world, where our consumption is not going to go up, [and] it may very well go down; and then there is the developing world or emerging markets, where the great growth is going to be.”

This growth is being driven, in part, by the half a billion people that have been raised out of poverty in China, according to numbers provided by the World Bank. Yergin explains that the impact of this in terms of energy can be calculated by looking at auto sales. In 2000, there were 17 million new cars sold in the U.S. and 2 million in China. In 2010, 17 million were sold in China and only 12 million is the U.S. This trend will continue, he says.

The Supply Surprise

In terms of supply, the biggest stunner has been shale gas (gas trapped in shale formations), which Yergin calls “the biggest innovation in energy so far in this century.” He explained that what began just a decade ago as a new way to produce natural gas has now turned into an “unconventional revolution.” Basically, the U.S. went from “a position of scarcity to a position of abundance.”

George P. Mitchell, who is known as the father of natural gas shale drilling, made this revolution possible. “I knew George P. Mitchell,” says Yergin, “and the one thing I knew about him is that he was a very stubborn man.” Although Mitchell was told for years that he was wasting his time, he never gave up, which led to his breakthrough in hydraulic fracturing that enabled shale gas drilling once it was combined with another technology called horizontal drilling.

This breakthrough has had a miraculous impact. “Five or six years ago, we were going to spend as a country $100 million a year to import Liquefied Natural Gas (LNG) because we were short of it. Now President Obama says we have a 100-year supply here in this country and we are getting ready to export it.”

Some have said we should export our LNG to Ukraine, but Yergin points out two problems with that idea: The U.S. is not ready to export LNG, and Ukraine does not have the infrastructure to receive it. He called it an example of putting “the ship before the port.” By 2015 or 2016, the U.S. will be ready to export LNG, and by 2020 or 2021, the U.S. will be one of the world’s three largest exporters of LNG, along with Qatar and Australia, he says.

Jobs and Political Power

A welcome effect of this revolution has been what Yergin calls a “manufacturing renaissance” in the U.S. Since natural gas in the U.S. is one-third the cost of what it is in Europe and one-fifth of the cost in Asia, the States have become “a very attractive place to manufacture in a way that was not the case three or four years ago.” This translates into a lot of new jobs in the U.S.: over 2 million jobs have been created in the U.S. and, in Pennsylvania alone, 103,000 jobs were added in 2012. By 2020, that number will increase to 220,000.

But energy is not only a commodity, it can also be a weapon, explains Yergin. When Russia exports gas to Europe, it’s a commodity. “But there’s obviously no question that when Mr. Putin and his colleagues look at Ukraine, their natural gas exports are being used as a political tool to achieve Russian objectives.”

But, he adds, the reality of the U.S. as an energy exporter is already filtering into political thinking and this change “gives a new dimension to American influence in the world.”

What the Future Holds

Yergin predicts that we will continue to become more energy efficient, but with predictions that the world’s economy will double in the next 20 or 25 years, consumption will still grow by about 30 or 40 percent.

What will be the energy mix of the future? Renewables such as wind and solar are definitely growing: In 2000, $5 million was spent on renewable electricity around the world. Last year, it was $200 billion. This change is being driven, in part, by China’s new focus on improving its air quality.

“Based upon what we know today—and we always have to be modest because things change and they can change dramatically—the expectation is that 20 years from now everything will grow,” he said. “Renewables will grow, but so will conventional energy, because a lot more coal is used in China and India.”

Another factor coming into play, says Yergin, is security. In the last few years, some modern concerns have become apparent, such as cyber security that could disrupt the electric grid, the physical security of energy facilities and “integrated energy shocks” or natural disasters. Yergin says we need to learn the lessons now so that we are prepared for future threats.

One thing Yergin is certain about is that the future will hold more surprises, especially in technologies, perhaps in the form of “electricity storage or Second Generation Biofuels.”

“Technology will be critical,” he said.

Photo by Christa Neu

Rosa Rojas
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