Note: This transcript is auto generated and lightly edited.
DAN: If you stopped US LNG exports, about 85% of the demand for energy that would go into electric generation would be replaced by fossil fuels produced in other parts of the world.
MONICA: Welcome to Policy for the Planet, a new bimonthly podcast exploring the global response to the climate crisis.
I'm Monica de Bolle, a best-selling author and senior fellow at the Peterson Institute for International Economics, based in Washington, D.C. My work bridges the fields of economics, science, public policy, and public health–all under an international lens.
In each episode, I speak in-depth with experts to understand how governments are responding to the monumental challenges of the climate emergency. We'll unravel the complex tradeoffs of different policy choices to steer us toward sustainable practices and public well-being.
Welcome to the conversation!
Exports of liquified natural gas, or LNG, have grown dramatically in the last several years. President Donald Trump wants to deregulate the energy sector to unleash even more LNG production to meet US and foreign energy needs. The effect of these actions on climate change is a matter of some debate? Will LNG exports harm the green transition, as the Biden administration warned? Or will LNG exports benefit that transition by providing cleaner energy to foreign countries?
Joining us today is Daniel Yergin, vice chairman of S&P Global. Dan is a leading authority on energy, geopolitics, and the global economy. He is a bestselling author, and winner of the Pulitzer Prize. His newest book is The New Map: Energy Climate and the Clash of Nations.
Hi, Dan. It's great to have you on the show. And if I may, I'd like to start with sort of a bit of a personal question and ask you, why did you focus your career on energy?
DAN: I think I did it because originally it was a very big geopolitical issue that sort of came from left field. And then it totally fascinated me because it's everything from geopolitics to technology and markets in between. And it never stands still. It's always changing.
MONICA: It never stands still. And to get into the basics of LNG and to understand a bit what happened in the US, how did the US become this massive shale oil, shale gas powerhouse that it is now, which is a story that you tell at length in many of your books, but in particular, most recent one, the new map. I'd like for you to tell us a story of how it all began.
DAN: Liquefied natural gas, it began originally with research during the First World War to see really as a wartime necessity how to store natural gas. It really began for the Japanese at the end of the 1960s and early 1970s when they wanted to want a cleaner air and that they actually contracted with a small LNG facility in Alaska.
And then it really got going with the oil shock because it was really the Japanese who drove the business and created the business because they wanted to diversify away from depending upon oil and diversifying away from coal. And so they financially supported the development of the LNG industry. The US was a relatively late comer. As early as 2000, it was thought that the US was going to end up being the world's biggest importer of LNG. Because we were running out of natural gas. But that's not what happened.
MONICA: Exactly. No, much the opposite. And in fact, one of the things that I find fascinating and that I found fascinating in your book is how it all came, how the whole shale and natural gas revolution came from a place of environmental concern, and namely environmental concern towards coal and the use of coal. So LNG as a substitute for coal.
DAN: There was a man named George Mitchell and he was an entrepreneur, a wildcatter, as they say. He was a poor kid who had worked his way through Texas A but had set up his own company. But he had become very interested in environmental questions and after the Club of Rome book and all the talk about the world was going to run out of resources in the early 1970s, he began to look to natural gas as an alternative to coal, as a cleaner fuel. But he also had an economic problem. In the 1980s, he had a big contract to supply natural gas to Chicago, but his fields were running down. And he read some scholarly articles, and he became convinced that you could do something that all the petroleum engineering textbooks said you couldn't, which was to create commercial natural gas out of this very dense shale rock.
And people said to George, you're wasting your time, you're wasting your money, but it was basically his company, because there were two classes of stock, and he said, well, buy money, I'll waste it. But it took about 15 years to actually prove the concept. It wasn't until the end of the 1990s the basic concept was proved, and then in the early 2000s a second technology, one for opening up the rocks so the gas would flow, and the second technology, was horizontal drilling so that you could get a much wider footprint.
And those two things came together in the summer of 2003 at the exact same time that US government authorities were saying we were about to become a really big importer of natural gas. People just didn't see this coming or thought it was something that just kind of these independents did off on the side, but they thought was not going to amount to much.
MONICA: That's quite an incredible story. So to dive a little deeper into basics, can you explain what exactly is liquefied natural gas, so very, very basic, and how it differs from other fossil fuels?
DAN: LNG is a fossil fuel. It's natural gas that is compressed and chilled to minus 260 degrees Fahrenheit. So it's basically turned into a liquid that you can ship over oceans rather than what gas normally travels like within the United States or other countries by pipeline.
And so it's a, think of it as a giant process of refrigeration. And the ships that carry it from one port to another are basically giant refrigerators.
MONICA: Yeah, that was exactly my next question. So these are not container ships. These are different kinds of ships that have been made precisely for this purpose.
DAN: They're custom built.
MONICA: So how is LNG extracted? And can you talk a little bit about the many challenges that have popped up in the whole discussion about extraction because we know that fracking has been a problem from an environmental standpoint, but things have evolved from where we were in the early 2000s to now. So can you talk a little bit about these issues?
DAN: There was a lot of froth and concern and agitation about what's called fracking, which is actually known as hydraulic fracturing, shortened to fracking. And the view was that there was a lot of agitation about water and everything. It turns out that it's an industrial activity and it's pretty heavily regulated. And all those environmental fears that were there have dissipated in the face of what's actually happened, which is that this is a very big industry. People are surprised when you tell them that 75% of our oil is a result of fracturing, of fracking, and 85% of our natural gas.
So it's now just become a customary way of doing business. And by the way, that's why the position of the United States has so dramatically changed from being the world's largest importer of oil to being the world's largest producer of oil.
MONICA: And I think that is a point that doesn't really get as much attention as it should, right? Because from what you've said, from reading your book, the story is quite a story because we went from being a nation that was thinking of itself as an importer in the future to suddenly the world's biggest exporter.
DAN: And it's hard to imagine if this revolution hadn't happened, you know, with the counterfactual, how the world could have worked without it in so many different dimensions. So the US is now a far larger producer of oil than either Saudi Arabia or Russia, largest producer of natural gas, the largest exporter of LNG in the world. This has all happened pretty recently.
MONICA: And how should we view the sort of pushback that we always see when we talk about LNG, when we talk about shale gas and shale oil in terms of all the environmental concerns that's around it? So for example, during the Biden administration, there were bans, there were restrictions, there was the view that, know, LNG might become a problem if we want to have renewable energies and might divert resources away from renewables. How do we think about this?
DAN: The Biden administration was divided because on the other hand, the importance of LNG from a geopolitical and a strategic point of view became very clear on the day that Russia invaded Ukraine in 2022. And Vladimir Putin, one of his many miscalculations, another miscalculation was he thought the war would go in five days, but he miscalculated thinking he could use his gas, his exporting to Europe as the energy weapon.
And that he could shut off the flow of gas and that would shatter the coalition support in Ukraine. And it failed, and it failed because of the rapid development of US LNG. US LNG replaced about 40 % of the Russian gas that Putin shut down. So you had the Biden administration that came in just focused on climate and environment coming to see that there was very geopolitical significance. So some in the administration saw this as a very important really attribute of strength for the United States and others wanted to shut it down.
And that was reflected in the policies that wavered back and forth.
MONICA: This is a very interesting way. The way you spoke about the Russia-Ukraine war and the role of LNG in it, in particular LNG exports from the U.S.
DAN: I think that the coalition support in Ukraine would have fallen apart because the economic pain for Europe would have been too great. And that's exactly what Vladimir, who intended to have happen.
MONICA: Exactly. And in this series, in this podcast, we have had an episode where we talked about the energy transition in Europe with one of our senior fellows here at the Peterson Institute, Jacob Kierkegaard, whose view is very much that, well, you know, the Russia-Ukraine conflict actually helped the energy transition in Europe along.
And this is one of the reasons why Europe did not have bigger issues with the restrictions on gas exports from Russia and so on. But you're telling a different story, or at least a complementary story to this.
DAN: The two, mean, renewables are very important because they help to, among other things, they diversify your energy resources or your energy supply and diversification. Going back to a famous quote from Winston Churchill is the basic foundation of energy security.
But you still look at it in terms of energy supply. Europe, in fact, I think we may see the EU actually relaxing some of its restrictions to increase consumption of natural gas because they need it for the economy. I just came back from Davos, and it was the most pessimistic about the future of Europe that I can ever remember. And so much of it was the weight of regulation.
The rate of intervention, but the sense that, you know, that renewable is an important part of it. But by the way, if you have renewables, it's intermittent and therefore there's an additional role for natural gas and LNG to balance out what are these intermittent resources.
MONICA: Yeah, so what you're saying with the intermittent resources is that solar and wind, they're available when you have plenty of sunshine, plenty of wind, right?
DAN: Right, and you actually...I think sometimes it's not calculated into the cost. You have to build in, to integrate into the system, you have to build in a lot of other things that you didn't have to worry about because you have this variability that you didn't have. And so there's a direct cost of generation with renewables, but then not so often looked at as the integration costs around it to make the system adapt to one in which you don't have predictable supplies.
MONICA: So in other words, realistically, we should not be thinking of the energy transition as from fossil fuels immediately to renewables, but more of something like, well, we are going to have steps in between where we might be other types of or slowly transitioning to other.
DAN: I think we actually need to rethink the energy transition. And I have an article coming out in Foreign Affairs in a couple of weeks that says that actually a lot of the thinking about energy transition was shaped during COVID. when demand went down and prices went down. And now we're in a world in which, by the way, it's not energy, it's not just energy transition, it's energy addition, which by the way is true of every energy transition since the energy transition began in January of 1709 in a British, in an English village.
MONICA: So you're always adding on something new, some new source of energy.
DAN: I mean, here's the example. Oil overtook coal as the world's number one energy resource in the 1960s. Today, the world uses three times as much coal as it did in the 1960s. So I think that the notion that you could just take what is a $115 trillion economy today and in 25 years completely remake its energy foundations without really understanding the costs. The complexity, the supply chain issues, et cetera, et et cetera, was, I'll search for a word, ambitious.
MONICA: And in any event, LNG, when we think about, for example, the global south or what we previously used to call the developing world, we know that for a lot of those countries that are very dependent on coal and thermal sources of energy to power up their industries, for example, their manufacturing or what have you, those countries will not be able to transition immediately into anything else that is a viable alternative to coal unless they have, let's say, the ability to buy LNG.
DAN: That's what's happening. I mean, the major growth market for LNG is South Asia and Southeast Asia for exactly that reason. Really, LNG is competing with coal in those parts of the world.
MONICA: That's extremely interesting and that's something that we should look at positively, right? Because it's one source of energy that's cleaner substituting.
DAN: It's reducing emissions.
MONICA: How about the current US administration and its policies towards fossil fuels and in particular LNG? How do you view those?
DAN: First, let me say something that people may not, you know, they hear LNG and they think, well, you what is it? Or they don't really have a picture of it. We just did a study with the US Chamber on what we said, a major new industry at a crossroads.
And it was, as we were finishing it, say, well, let's see, what are our LNG exports compared to other exports? So it turns out that our current level of LNG exports are half the entire value of our semiconductor exports. They're more than soy beans, and they're twice as much as Hollywood and television and entertainment. So in other words, this is a really major industry that's gone from zero in 2016 to where it is today. About 300,000 jobs a year, a big contributor to GDP. It could be 500,000 annual jobs a year. So it's a significant industry that has sort of come, I mean, it's sort of where an economic historian had, it's sort of amazing to see something develop this quickly.
MONICA: Oh, absolutely, absolutely. If we think about it, it's not even 10 years.
DAN: Yeah, exactly. It's less than 10 years to have that happen. And I think until we looked at those numbers, we didn't realize just how significant it is. Take semiconductors, a controversial export industry, take soy and beans that could well be a controversial export industry with China once again. Then you have this other industry that's right in between in terms of its value.
MONICA: It is in a sense of significance to the world. And in a way, if we consider the current stance of the US administration. In some ways, you could say, well, it's sensible in a way because it is, of course, getting out of the Paris climate agreement is not sensible, but the whole idea of supporting this industry, which has risen so importantly in such a short period of time and represents what it represents and can be helpful, not only can, is helpful, will be helpful, is being helpful in the energy transition.
DAN: Well, it's also in another dimension too. It's very important in terms of our relationship with our allies. And I know when the pause occurred that the Biden administration put in place, there is great disquiet both in the Japanese and the South Koreans and the Europeans saying, is the US a reliable supplier? Can we count on it or not? Now, it was only meant to be a pause, but that was the question. So the US needs to establish that it is a reliable supplier because you're talking about long-term commitments. You're talking about basic energy supply, which economies need to run.
MONICA: How does LNG compare to other fossil fuels regarding the impact, the environmental impact?
DAN: It has big advantages in terms of emission reduction. We've seen in the United States that the emissions from electric generation has gone down about 40%. That's mainly not because of wind and solar, which are still relatively small, but because natural gas has just replaced coal. coal used to be half of our electric generation.
Now I think the last number I looked at was 16 or 18 percent. Natural gas is about half of our electric generation in the country. So, you know, it's a very immediate way to reduce emissions. And I think that stands out. And at the same time, I think it's very important for our international relations. And I think one thing that I've found that people don't appreciate inside this country, but people outside the country are very aware of it, how the geopolitical position of the United States has changed, that it's now basically the number one producer. This gives a heft in the world that we didn't have before.
When we were an importer, we had less flexibility in foreign policy. it's brought changes that people don't really see because it's just maybe not visible to them, but both economically and geopolitically very significant.
And we actually looked at the question if you stopped US LNG exports, about 85 % of the demand for energy that would go into electric generation would be replaced by fossil fuels produced in other parts of the world. Because that's another thing to remember. It's a competitive global market. It's not just what the US decides to do.
MONICA: Exactly. On the topic of climate change, because we've been discussing a lot of the pros of LNG, the fact that, you know, substituting coal, you are reducing emissions because you're going from one type of energy to a different type of energy that is much, has much less emissions tied to it. But there is the big issue of climate change and fossil fuels and what we do about all that, especially given that from all recent evidence that we've seen, it appears as if climate change is accelerating, or at least it is outpacing what we thought was going to happen.
DAN: If we decided, OK, we're not going to supply LNG, Mozambique would be very happy to do it. Qatar would be very happy to do it. Australia would be very happy to do it. So it's not like we have a free hand as to what's going to happen here. And we've seen with renewables, there are also issues, one of which is the variability of supply that you'd really need to.
I was talking to energy people from one country that's making a very big commitment to renewables. And they've decided the generation cost of solar is one and a half to two cents, but the actual costs are six or seven cents because of what you have to invest to manage the variability of a distributed energy system as opposed to a more kind of focused energy system.
And we do a conference in Malaysia called Energy Asia and the Prime Minister of Malaysia spoke at it and it was very interesting what he said. You know, he said we're not going to be dictated to by countries in Northwest Europe and North America. We have other needs too. We need economic growth. We need to reduce poverty. We have big health issues. We're going to pursue our energy transition in our own way and in our own mix.
That's why I think that the kind of linear notion of an energy transition that became very common during COVID, it really needs to be supplanted by a notion that it's going to be multi-dimensional, unfolding at different paces, different parts of the world with different mixes of energy and for governments, different priorities.
MONICA: That's a great point because I see it echoed in, I see your words echoed in Latin America all the time. in terms of how different countries in the region are thinking about their own energy transitions and it's exactly that. know, countries want the autonomy to be able to take their energy transitions in the way that's best for their economy and everything else. To sort of try to summarize and wrap up our conversation, thinking about the potential of LNG, with the backdrop of climate change and everything else that we see going on in the world geopolitically, what is it that you feel we haven't discussed as much or as in depth as perhaps we should? Because you've brought so many interesting things to think about in different ways of looking at things.
DAN: Well, one thing that hit me when I was writing the new map, you know, my first book was on the Soviet American Cold War. And when I was writing it, I never expected to be writing another book about a new Cold War. And I felt when I was writing the new map that, and I think that one other thing that people don't see is that there is kind of the geopolitical competition with China interacts with the energy transition because China has determined that it's going to be the leader in EVs. It's the leader in solar. It's advancing in wind and Xi Jinping has said we want to dominate the new industrial supply chains.
And I think that is a complication to the energy transition that's not really recognized. Now, we're in a new environment. obviously, Joe Biden put 100% tariffs on Chinese EVs. But of course, we're now in a new environment with the Trump administration in which trade issues themselves look like they're going to be more tumultuous and uncertain and less predictable and really reversing a long trend that went back to the 1930s, a 90-year trend towards freer trade. And so I think that is going to complicate all of these issues.
We've just seen that China has just put a 10% tariff on US LNG. And when I was in China recently, I, one of the senior people I saw there, you know, they do buy US LNG and it is one way of, and this was going back to the first Trump administration to kind of shift the trade balance. But, you know, his comment to me was, we don't look at the US as a reliable, predictable supplier.
MONICA: How interesting. Well, thank you very much, Dan. It was wonderful having you on the podcast.
DAN: Pleasure to be with you. Thank you.
MONICA: Thank you for joining me on Policy for the Planet. This is our final episode of the season, but we'll be returning with season two in April 2025.
Have a question or a topic to suggest for our next season? Email me at [email protected]. I'd love to hear from you.
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