“A map is the greatest of all epic poems. Its lines and colors show the realization of great dreams.” – Gilbert H. Grosvenor
This quote came to mind recently while reading Daniel Yergin’s latest book, “The New Map – Energy, Climate, and Clash of Nations.” It’s a marvelous description of how geopolitics and energy are shaping our world today – and how the novel coronavirus turned everything upside down. An epic poem indeed.
It’s familiar territory for Yergin, who has spent a career chronicling the interplay of geopolitics and energy. But “The New Map” brings us current, painting an image of where these major shifts are taking us. It’s a composite of five different maps, and – fair warning – at the outer edges, as urban legend has it, there be dragons.
He begins the book describing how America’s new map has evolved. With a focus on the United States, he tells the story of the unconventional resources revolution, beginning with George Mitchell and his focus on natural gas and the Barnett Shale, followed by Mark Papa, then CEO of EOG Resources, who shifted his company’s focus to recovering oil from tight rocks.
The ability to find and produce these resources transformed U.S. energy supplies and unleashed an economic boom.
“Between the end of the Great Recession, in June 2009, and 2019, net fixed investment in the oil and gas extraction sector represented more than two-thirds of total U.S. net industrial investment,” Yergin writes. “In another measure, between 2009 and 2019, the increases in oil and gas accounted for 40 percent of the cumulative growth in U.S. industrial production.”
From a “renaissance in manufacturing” at home to global energy exports of both LNG and crude oil, U.S. unconventional resources have transformed energy markets. OPEC remains important, but the Big Three – the United States, Russia and Saudi Arabia – dominate.
Russia’s ‘New Map’
Russia’s place in the Big Three is due to its vast energy resources and that the country spans two continents. Russia has oil and natural gas in abundance and high global demand and much higher prices led to significant economic growth over the past decade. Oil and natural gas provide the economic foundation for the country.
Russia’s new map demonstrates President Vladimir Putin’s intent to ensure his nation’s status as a great power, and he understands oil’s role: “Oil is no doubt one of the most important elements in world politics, in the world economy … I have never referred to Russia as an energy superpower. But we do have greater possibilities than almost any other country in the world. This is an obvious fact.”
Assuring that Russian oil and natural gas can find ready markets is essential to its economic health and a central tenet of Russian foreign policy. It’s led to political interference and military conquest in the name of stability and to preserve access.
It’s also led to sanctions against Russian companies and leaders. A result is that Russia’s oil and natural gas industry has been largely cut off from the technology created and used in the United States for unconventional resources development. Ever resourceful, Yergin writes, the Russians are working on developing their own technology to exploit the significant shale potential that exists in places like the West Siberian Basin.
Energy security is a big concern for Russia’s neighbors to the west in Europe and pipeline politics have played out over decades. Putin has focused much attention on thawing an historically frosty relationship with Beijing by way of Russian oil and natural gas flowing across its border with China. Russia needs these markets and will do what is necessary to preserve its access to them.
The Dance of the G2
Did you know that the “G2” – the United States and China – together represent about 40 percent of the world’s GDP and 50 percent of its military spending? It’s the dominance of China as the world’s largest economic engine and its emergence as a geopolitical and military power that characterizes China’s new map.
China is the world’s largest energy consumer and fueling the nation’s economic engine is a significant domestic and foreign policy priority. But there is a broader struggle underway, between the “rising power” and the “dominant power.” It’s a dance of the G2 that is playing out on the world’s stage, as China ascends, seeking to be the dominant influence in its own neighborhood and, increasingly, across the globe.
Middle East Diversification
The last regional map Yergin talks about is the Middle East, where oil and natural gas has determined the fates of nations for more than a century. Threats of armed conflict, sectarian violence and vast petroleum resources focus attention on the region, with a worried world wanting assurance that oil and natural gas will continue to flow.
But this is also a region of transformation. Where nations – led by Saudi Arabia, the third member of the Big Three – are building a future in which their economies diversify beyond oil and natural gas, where they can use their natural resources to expand and modernize their economies.
There is urgency to do so as economists begin to talk about “peak demand” in oil consumption. At no point was that more evident than earlier this year, when Saudi Arabia, leading OPEC, and Russia agreed to production cuts to respond to the dramatic reduction in demand due to the global pandemic and resulting contraction in economic activity.
Electric Cars and Climate Change
Yergin closes his book with two additional maps that are causing ripples in energy markets.
First, the evolution of transportation toward electrification for cars and light trucks, autonomous driving and the emergence of ride-hailing – transportation as a service. He observes that as this sector changes, so will demand for crude oil. But it will create its own resource constraints, and he concludes “it is not clear how the overall utility of the electric car, on its own, is superior to that of the gasoline car. The electric car is still a car.”
He concludes talking about the climate change map and how climate change is influencing both policy and business decisions worldwide. He doesn’t offer concrete solutions, instead discussing the various elements of the energy system and how they interrelate. He also points out the trade-offs, and that in energy choices, there are always trade-offs.
It’s here that we come to the edge of the map. Grab your compass. Let’s go explore.