Review: The Quest, But Are We Headed for Failure?

Daniel Yergin’s The Quest: Energy, Security, and the Remaking of the Modern World[1] is his eagerly anticipated follow-up to The Prize, his 1992 Pulitzer-Prize winning account of the rise of the oil industry. Yergin largely justifies the anticipation, and The Quest is an encyclopedic survey of the many quests to find, produce, and secure sources of energy. But like an encyclopedia, Yergin’s narrative can sometimes seem to neatly assemble a mass of facts but leave the reader unsure of how to make sense of them. The confusion is most evident and most disappointing in Yergin’s silence on the appropriate energy policies and efforts in a world where continued use of fossil fuels risks tremendous environmental damage and human costs.

Though few doubt the importance of energy to the modern world, the earthquake, tsunami, and nuclear disaster in Japan this spring and the simultaneous tensions and later uprisings in the ‘Arab Spring’ were reminders again of the fragility of global supply and interconnectedness of global energy and trade markets. Yergin tries to explain that importance, and the book’s ambitions match its title:

[The book] is the story of the quest for the energy on which we so completely rely, for the position and rewards that accrue from energy, and for the security it affords. It is about how the modern energy world developed, about how concerns about climate and carbon are changing it, and about how different the energy world may be tomorrow. [2]

Yergin tries to answer three questions:

Will enough energy be available to meet the needs of a growing world and at what cost and with what technologies? How can the security of the energy system on which the world depends be protected? What will be the impact of the environmental concerns, including climate change, on the future of energy—and how will energy development affect the environment? [3]

He is strongest on the first question and weakest on the third.

Yergin begins by tracing the complex world of oil since the collapse of the Soviet Union. He opens with the first Iraq War, and he quickly establishes the style of his chapters: stuffed with short, 2-page accounts that emphasize dramatic, telling anecdotes from leaders and CEOs intermixed with fast-paced narrative and big-picture comments. It works, and the reader always feels that something important is happening, but the drama can sometimes overwhelm sophisticated analysis.

The other major event at this time was the collapse of the Soviet Union and the opening up of Russia to the world. Here, I find Yergin insufficiently inquisitive into the corruption of the era and the gobbling up of state assets. Yergin does appropriately focus on the three largest Russian oil companies—Lukoil, Surgut, and Yukos—and others, such as TNK, which had complicated relationships with Western giants (in this case BP), but he could have done more to explain the opaque maneuverings of the Russian state. He is a little too quick to adopt the Westerner’s easy characterization of a “rule of law problem” in Russia and leave it at that.[4]

Yergin hits his stride in the next chapters which detail the second “great game” in Central Asia for the fight over oil and the delicacy of pipeline politics in the newly created post-Soviet republics of the region. While this is largely a story of success – Kazakhstan’s discovery of the Kashagan field, Azerbaijan’s pipeline independence – Yergin also pays attention to the failures: Turkemnistan’s stunted efforts to pipe out its huge reservoirs of natural gas to Pakistan, India, and, from their ports, to the rest of Asia.

Yergin next moves to Western boardrooms and golf courses to tell the story of the mega-mergers of the late 1990s when six Western giants – BP and ARCO, Exxon and Mobil, and Chevron and Texaco – ended as three super-giants. Yergin does a decent job explaining the motivation for such moves: the increasing cost of large projects, the benefits from consolidating existing operations, the pressure from other mergers. Still, he gets to them through the secretive lunches and phone calls among rival CEOs, in their words or in their thoughts (from his incredibly extensive and impressive list of interviews conducted for the book), a style that some readers might find engaging but that continues Yergin’s habit of over-personalizing the story.

Yergin next covers the complicated and largely sorry stories of petro-states and their politics, focusing particularly on Venezuela and Nigeria. He does a good job capturing the decaying infrastructures and many supply risks, such as the MEND guerrillas in the Niger Delta. A more recent supply shock came after the U.S. invasion of Iraq and Yergin tells of the difficulty of getting the oil production running again. As we now have heard from many other accounts of reconstruction in Iraq, it is a story of miscommunication, mismanagement, and many failures. Following Phil Carroll, the first oil adviser to the country, Yergin pulls up this damning anecdote after Carroll’s frustrating tour of duty: “He was taken in to see Defense Secretary Rumsfeld. The secretary mainly had two questions for Carroll: ‘Did you enjoy it?’ And, ‘What did you learn?’ There was not much more to the discussion than that. Carroll headed on home.”[5] And one can sense the string of failures to follow: “It would take Iraq until 2009 to once again reach its prewar production levels from 2001.”[6]

Yergin is good but incomplete on the impact of the financial markets on oil. He captures well how the price run-up in oil starting in the mid 2000s caught most of the world unaware, and he documents the many different changes to the oil markets: the use of oil as a hedge against the dollar, the increase of oil trading and freer energy markets, the beginning of oil futures contracts on the New York Mercantile Exchange, and the appetite of investors for opportunities in the BRIC countries.  But Yergin does little to sort out these financial effects from ‘real’ effects. Typical is the following line: “After the meeting, the president’s national security assistant Steven Hadley ruefully commented, ‘There is something going on in the oil market that is much more complicated than just turning on the spigot’.”[7] First, Yergin could do more to explain the appeal of commodities as an alternative asset class and the rise of huge commodities traders such as Glencore. Second, besides throwing all these factors together, it would be more helpful if Yergin tried to make an argument for their relative importance and what might be done to tame some of the more volatile and least helpful instruments. Though Yergin is chronically averse to policy advice and loves capturing multi-factor, muddled uncertainty that big men must slog through, he misses a real chance to help his readers think through a controversial and very relevant problem. And it is a deep problem, not only for consumers subject to wild swings in price but also, more importantly, for large producers who face greater difficulty financing the huge multibillion dollar mega-projects of the future.

However irrational their enthusiasm, the financial sector was right in noting the huge growth in demand coming from the booming economies of the emerging world. In two neat chapters, Yergin recounts China’s quest for self-sufficiency—the development of the Daqing field, the trials of which are marvelously captured by the story of ‘Iron Man’ Wang—and their expansion into foreign oil markets as they look for new oil to lubricate their export machine. I think Yergin a little sanguine about China’s efforts abroad. He is inclined to view the rise of China’s INOCs (international national oil companies) as market-driven machines, but he never quite sorts out their complicated responsibilities and how that might affect their behavior abroad. As an executive at one of the companies puts it: “As a national oil company, we have to meet the responsibilities of guaranteeing oil and gas supply to the domestic market. As a public company listed in New York, Hong Kong, and Shanghai, we must be responsible to our shareholders and strive to maximize shareholder value. And, of course, we have a responsibility to the 1.6 million employees of our company.”[8] What happens, though, when those responsibilities come into conflict? Yergin is too dismissive of outside worries that the first responsibility will come first.

In the second section of the book, Yergin turns to the quest to find and secure more energy. That first involves responding to the much-ballyhooed claims of peak oil. Yergin is sufficiently respectful of M. King Hubbert’s insights while rightly insistent his far-out projections have been way off. That is partly because of Hubbert’s too-static view of current reserves. But, “according to one study of the United States Geological Survey, 86 percent of oil reserves in the United States are the result not of what is estimated at time of discovery but of the revisions and additions that come with further development.”[9]

The further reason to rest easy about peak oil is the tremendous growth in unconventionals—Canadian oil sands, oil shale, and tight oil—and Yergin is helpful on the various new technological breakthroughs that have made these possible. But these advances, and even other advances that push the boundary of more conventional deepwater drilling, carry risks, and the Deepwater Horizon disaster last year is a stark reminder of those. Yergin notes that in its aftermath several companies have coordinate efforts to deal with these disasters—the Marine Well Containment Corporation and the Helix Well Containment Group. Yergin correctly insists that the disaster was the result of many different factors, but in his hands that comes off as exculpation. He is insufficiently harsh in his critique: the failures by BP and Halliburton were many, and symptomatic of broader ills in the industry. His analysis of the response is mostly limited to President Obama’s moratorium and the impact on the Gulf, but he could have asked more piercing questions about the tangled web of multinationals, drilling operators, and service contractors, the corruption of regulatory agencies by industry, and better ways to incentivize good behavior and hold companies liable when they err.

At higher geopolitical heights, Yergin charts OPEC’s rise and increasing power from the 1970s and the response of oil-consuming countries to its market control. That response has often taken the form of generally illusory promises of energy independence, and while some countries—notably Brazil—have been able to reach it, it remains far off for most. And that’s maybe because energy independence is the wrong goal: “As one senator put it, ‘Energy independence really means energy security’,” which is not self-sufficiency in energy consumption but rather a diversified and flexible energy supply.[10] But besides strategic reserves, Yergin is a little thin on how countries might achieve energy security and what might be appropriate benchmarks for thinking about energy security.

And that’s important, because there are no shortage of risks to it. Yergin compacts a lot of risks into one sobering chapter on challenges in the Middle East: Lybia’s cut-off production, risks of terrorist attacks and blockage of the Strait of Hormuz, Iran’s militancy and pursuit of a nuclear weapon. These briefs serve as reminders of how closely the question of fossil fuels interacts with other geopolitical risks. It may be asking too much in an already tome-like book, but Yergin could have expanded on how Iran’s generally nefarious influence in the region might destabilize future-fossil fuel production.

Yergin next moves into what is probably the biggest theme in the book: the rise of natural gas. Yergin focuses on Qatar’s efforts to capitalize on its huge natural gas reserves and get them to Asian and European markets. Using LNG which requires a fleet of custom ships and depot terminals, Qatar is able to make inroads into the Asian market and partial ones into the European market, where the always precarious pipeline politics of the continent leaves many countries desperate to diversify away from their dependence on Russia. America, though, proves to be a false promise for LNG exports with its shale gas reserves and the use of fracking re-writing the energy map.

The promise of natural gas is that it is a “cleaner” fossil fuel that results in fewer pollutants than coal or oil. While natural gas was once regarded as too precious for electrical generation, its new supplies are increasingly being used for that purpose. Nonetheless, coal will still be a huge part of the electrical story. To lessen its impact, some propose sequestering the carbon its plants emit, but here the challenges are legion: “What happens if there is a leak? Who is legally responsible to fix it? Who is legally liable? Indeed, who owns the CO2? Who manages it and monitors it—and how?”[11] Indeed, if only 60 percent of the CO2 from today’s coal-fired plants were captured and injected into the ground, it would be a volume equal to the 19 million barrels that the United States consumes every day.

The scale and urgency of those challenges has never felt so intense as now with emerging consensus on the harms of global warming. As is his style, Yergin recounts the history of climate change science and its move to the center of politics—profiles of early climate change scientists such as James Hansen, recounting George H.W. Bush’s decision to go to the chaotic 1992 Rio Summit, and tracing the dynamics of the the Kyoto Treaty—but leaves the topic with little specific to say about how climate change should influence future energy decisions besides acknowledging that they already are.

Yergin is excited by the prospect of renewables, but he largely centers the discussion around the effort of venture capitalists to find disruptive technologies. Though perhaps trying to bask in the tech halo around venture capital and the excitement of all things coming from Silicon Valley, Yergin’s emphasis on VC in the renewable space makes little sense. To his credit, Yergin quotes dissenters to his view, especially this forceful argument from Ray Lane, a partner at venture capital firm Kleiner Perkins:

I see few similarities between the digital world and the energy world. There is no Moore’s Law. In fact, there are different laws like thermodynamics, physical relationships, chemical reactions, and biological systems. It is a policy-influenced, low-cost, mature, capital-intensive industry, which investors must understand. I recommend leaving most the digital lessons learned at home.[12]

Yergin goes into some of detail about the potential renewable technologies, and his scientific explanations are lucid. However, he is too in thrall to documenting new policy initiatives, especially in the United States, without making more substantive points about their effectiveness. Additionally, Yergin concentrates the bulk of his focus on the amount of R&D funding spent by governments, whereas in practice a lot of learning and cost reductions come from learning-by-doing in the field and manufacturing improvements.

Yergin does include an insightful chapter on the push for efficiency and conservation, two efforts that offer dramatic room for improvement and that are all too often missing from books about energy policy which concentrate on the supply story. He discusses new efficiency standards in appliances and building codes, but he could have focused a bit more on transport policy, home energy audits, and more transparent pricing of electricity.

As this wide-ranging review testifies, Yergin’s The Quest is a sprawling and whirlwind book which, in what it covers and in what it is forced to leave out, captures well the large and varied challenges of energy production and consumption in the past years. Yergin does an impressive job bringing his account up to the very recent present—discussing the effect of the Arab Spring, new American auto standards, and Japan earthquake. But, and this is the major flaw in his account, Yergin provides too few signposts for how the future might play out, and perhaps more importantly, how we should hope it does. The worry then, is that as climate change grows increasingly unsustainable and harmful, Yergin will be able to return in 20 years to write another sprawling book: The Failure.

[1] Daniel Yergin, The Quest: Energy, Security, and the Remaking of the Modern World, 1st ed. (Penguin Press HC, The, 2011).

[2] Ibid., 2.

[3] Ibid., 2–3.

[4] Ibid., 33.

[5] Ibid., 158.

[6] Ibid.

[7] Ibid., 175–176.

[8] Ibid., 206.

[9] Ibid., 238.

[10] Ibid., 268.

[11] Ibid., 402.

[12] Ibid., 559.

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