Paul Laudicina: I am Paul Laudicina, chairman emeritus of Kearney and founder of its Global Business Policy Council, and this is Coronavirus: a world transformed.

We’re recording this on Monday, June 22. 

COVID-19 is fundamentally changing the way we live, work, socialize, travel, and support one another. And while we’ve been paying close attention to the daily, tragic impact of COVID-19 on our lives and livelihoods, this pandemic is also disrupting one of the biggest industries on the planet: energy. Focusing on the changes in supply, demand, and the price of energy can help us understand how the global economy will be reshaped by this pandemic. 

To say that energy markets have been volatile since the coronavirus hit the world would be a gross understatement. If your own personal cardiogram, for example, mirrored the kind of wild fluctuations we’ve seen in oil markets, you’d be in intensive care. The unprecedented bottoming out of oil prices we saw at the beginning of the pandemic back in March appears of late to be making an almost equally sharp rebound of oil prices, reflecting (in the words of an experienced oil trader) “the most torrid period in the history of oil.” At the same time that traditional hydrocarbon energy market performance is in the spotlight, there is growing interest in and bullishness about the further development and rollout of alternative, non-hydrocarbon sources of energy in an attempt to help address growing, legitimate worries about climate change. We just saw, for example, the Arctic Circle just record its highest temperature ever—38 degrees Celsius, or 100 degrees Fahrenheit. And we know from our own Kearney Foreign Direct Investment Confidence Index we released last week that investors the world over are increasingly concerned about climate change, with over 77 percent of investors noting that within the next three years, climate change will be a factor in their investment decision-making.

We are very fortunate to have someone with us today who can help put all of these complex and worrisome developments into context, Dr. Daniel Yergin. Dan is and has been for many years the most respected and valued authority on the complicated but extraordinarily important nexus of all of these issues: energy, geopolitics, the global economy. In fact, Time magazine was once quoted as saying “If there's one man whose opinion matters more than any other on global energy markets, it’s Daniel Yergin.” He’s a bestselling serial author and winner of the Pulitzer Prize—with a new book scheduled for release this September and already available for pre-order on Amazon, entitled The New Map: Energy, Climate, and the Clash of Nations. Dan is not only a global thought leader of extraordinary stature whom I have had the good fortune to know and follow over the years; he’s also a business leader as vice chairman of IHS Markit, one of the world’s largest research and information companies. 

Dr. Yergin joins us today to discuss how the coronavirus pandemic is reshaping global energy markets and geopolitics.


Interview with guest

Paul Laudicina: So Dan, welcome. Even laymen know that energy markets have been rocked by the pandemic and its impact on the global economy. Could you give our listeners a quick overview of what has happened to energy markets over the course of the last few months since lockdowns started earlier this year? And what’s the state of the market now as these markets seem to be recovering somewhat?

Daniel Yergin: Thank you, Paul. Very pleased to be able to join you on this podcast. 

One of the words that comes to the fore again and again over the last few months is unprecedented. And what we’ve seen in an energy is unprecedented. This was a year that began with oil at $63 a barrel. Then you had a shutdown in China. You had an oil price war between Russia and Saudi Arabia. Then you had a much bigger shutdown in the United States and Europe, which took world oil demand down by about 30 to 33 percent. 

And at one point, through a quirk in the future market, got oil as low as—for a few brief minutes, –$37.63, and now just in a matter of weeks, almost we’ve spun around in oil is back toward around $40 a barrel. And so this has been—roller coaster is an understatement.

Paul Laudicina: Well, Dan, how much of this rebound, then, do you attribute to the historic production cuts of about a tenth of supply by the so-called “OPEC +” alliance of the traditional OPEC producers plus other cooperating countries like Russia? Or is this more about a rebound in global demand with various economies restarting, even if unevenly? What’s this all about?

Daniel Yergin: Well, like many things, it’s a combination of both of those, again, you talked about—that demand cut, production cut by the OPEC and non OPEC, and again, the word “unprecedented” because nothing like that had ever happened before. 

It was also unprecedented because the person who orchestrated it was the president of the United States, who began by saying he’s always hated OPEC, but he did this basically to defend this extraordinary growth of the US shale industry. So you have that. 

Then on top of that, you had another 4 million barrels or so production what’s called shut-in, like a producer in Texas saying, “I'm not going to sell oil for less than it cost me to produce.” So you had that.

And then you had the beginning of recovery. China now, when we look at it, and I talk to our office in Beijing, they say Chinese oil demand is back to 90 percent of the level of what it was before the crisis. Or to give you some hot news, we survey at IHS Markit 15,000 gasoline stations a week. And at the bottom period, in early April, gasoline demand in the United States was down by 49 percent. This week, now it’s down by only 22 percent. So in opening up, some recovery going on—we see in retail sales and other things. So it’s a combination of the two coming together. But still what hangs over everything, Paul, is whether or not we’re going to see a second wave of this virus.

Paul Laudicina: Yeah, of course. And that’s the big question. I guess we’re already seeing it in many places. But some have said that, as you referenced, the rebound in the gasoline market—we’re seeing a V-shaped recovery in gasoline, even though diesel and jet fuel prices are still depressed, just because of the change in the composition of economic activity since the beginning of the pandemic.

Daniel Yergin: Well, that’s true. I mean, what’s happened, of course, you know, like in China, where diesel never went down, because that’s the fuel that trucks use, and they have many more trucks vis-a-vis cars. But I think it is people want to get out. I think there’s going to be a preference, Paul, for people to take their private cars rather than public transportation or short-haul flights, at least until there’s a vaccine. So you have that. 

On the other hand, of course, is the question, how work has been changed and where are people going to work in the future? And will they be commuting in the same, to the same degree?

Paul Laudicina: Yeah. And of course, as you alluded to earlier, Dan, we’re seeing an impact on the global oil market, to be sure, but also companies that are falling out of the sector. Global demand back in the beginning of the pandemic, as you noted, fell as much as 30 percent. But we just saw, for example, the impact that this drop in prices is having on the major players, with BP announcing that it’s writing down the value of its assets by 17 and a half billion dollars due to its lower forecasts for oil prices. And we’ve also seen the second-largest US shale producer recently filed for bankruptcy with some forecasting more of this coming in the industry. Do you expect further fallout like this, Dan?

Daniel Yergin: Yes, I think there are 1,000 companies working in—over 1000 companies—working in the Permian, which is a big new oil-producing area. It’s an old one, but again, a new one in the United States. And there’ll be consolidations. There’ll be more bankruptcies, I think, in response to this. 

And we’ve seen the major international oil companies pursuing somewhat different strategies, but all of them cutting their budgets by about 25 to 30 percent from where they were at the beginning of the year and the large US independents cutting their budgets about 50 percent. So we’re going into a period of actually low investment compared to previous years, which may be significant two or three years from now but reflects the economic pressure, the market pressure, to make good on their relationship with investors, that oil companies face today.

Paul Laudicina: Well and with this lack of capital and therefore lack of investing in new reserves, you know, I guess we see some scenarios that there might in fact be a supercycle coming for oil with prices spiking since so much supply has been taken offline. What do you make of this notion of the prospect of a supercycle because of the offset in the normal investments that might be made in developing new reserves?

Daniel Yergin: Well, I think one has to, of course, be cautious when we still have so much uncertainty about, really strong, very affirmative predictions. But I don’t think we’ll see a supercycle. I think the supercycle was a “China enters the WTO” cycle. China was responsible (the growth of China was responsible) for half of the growth in oil and all these other commodities, and I think it, you know, I don’t want to get ahead of my new book, The New Map, that I talk about, there was a BRIC era when it was, you know, Brazil, Russia, India and China. But that C—the China—was the most important. And that was driving demand. 

India is going to grow once it gets through this. But I don’t see that same kind of enormous appetite for resources growing at that pace, which led to the supercycle. I'm one of those people who thinks actually, cycles are not abolished, cycles will come back. And, you know, at any given point in the cycle, you think that’s it, it’s finished, but it comes back. So I think there’ll be a cycle, and I do think you’re pointing to the fact that if you have a couple of years of low investment, and then you have—start having growth in the world economy again, demand goes up, then you’ll go from markets that are awash in too much supply to markets that are tight. That’s the way the markets will work. And there’s a time lag.

Paul Laudicina: Well, Dan, you are every day engaging with energy CEOs and the government players from around the world. And in May and June, during the virtual version of CERAWeek, your IHS Markit annual energy conference, you hosted many of these CEOs. What were some of the important takeaways from those discussions, Dan? Any surprises for you regarding the state and future of energy markets and major players?

Daniel Yergin: Well, I think that, you know, we’re doing these CERAWeek conversations. We’ve now done about 40 of them, and many of them with CEOs or energy ministers, so you’re getting different perspectives. A fair amount have been on the subject of how they’ve reacted to COVID, how it’s changed, what their expectations are. So one CEO says that in that company, expect now 25 percent of the people will work permanently at home. Another CEO says, “I want people back in the office. People have to be in the office. They have to interact with each other.” So I think part of the question is just sorting out how you work. I think everybody’s been surprised by how much you can accomplish with people working at home. But of course, the oil industry has people who are doing critical jobs on platforms or people in gasoline stations and managing them and their health has been a very important question. 

I think a second big theme is the relationship with investors. Different people are approaching that question. But the notion that you have to, in a sense, restore a social contract with investors. And then there's a difference in terms of how much leaning into sort of, almost into, a different era of what should we say of changing from oil and gas companies to energy companies moving into electricity. I think all of them there’s a big emphasis on kind of venture capital and technology, but a difference between how many of them really want to bridge into other businesses, as opposed to how much want to concentrate and be very efficient in their business and ensure that they can operate profitably at, you know, $40 a barrel.

Paul Laudicina: Well, Dan, I’m sure many of those discussions took place at the fifth Abu Dhabi CEO Roundtable that you participated in, which was, as I understand it, a special edition of that roundtable to bring together leading oil, gas, and petrochemical companies to sort of focus on these urgent issues. Any insights coming out of that about how these organizations might be  working together and how they view their short-, medium-, and long-term futures in light of what’s happened in the drop in demand that you are asserting might likely continue?

Daniel Yergin: I think it was very interesting to me because I’ve chaired that session now since its beginning four years ago. And you know, if I thought back to the first one, there was a lot of discussion about the growth in petrochemicals, then we subsequently had discussions about, you know, anti-plastics. 

One thing that’s come through now is that people actually see a lot of virtues to plastics, even plastic bags. Because it turns out, it’s healthier to have things in plastic bags when you go to the grocery store as opposed to a cloth bag. And of course, recognizing all those PPE equipment, that’s all petrochemicals. So I think that was part of it. 

And then the question is, you know, continuing to maintain the sustainability initiatives, how you do it in this environment and some discussion about that. 

And I was struck by one of the CEOs, said that, you know, sustainability has been a big issue with investors and with their own employees, but now also, inclusion is a big issue. And it’s all happened in a matter of weeks. And so that was, you know, going back to your earlier remarks—I was talking to a big institutional investor who is saying that is now becoming part of their questions as well as the kind of ESG environmental governments and social questions they ask about.

Paul Laudicina: So, Dan, we’ve heard this challenge from environmental groups about needing to “build back better” after COVID-19. Do you see this? I mean, the irony, as you suggest, is the pandemic and perhaps future pandemics will drive demand for petrochemical products that help prevent viral spread. But at the same time, do you see this as a moment for a chance to further shift toward either lower energy use or a rollout of more renewable energy resources? How is that likely to play out? 

Daniel Yergin: Well, I think—I was just on a call this morning with a bunch of CEOs and energy ministers on exactly that subject—I think it’s a little challenging when they say “build back better.” Are they talking about using fiscal stimulus to accelerate capital going into solar or wind? Or does it mean more charging stations for electric vehicles? Does it mean subsidies to automobile makers to get them to hasten EVs? I find a little unclear at this point. 

And there is a larger question around what you’re talking about, which I think is—we really have to keep in mind—is the amount of stimulus that’s been poured into economies now is, I think is going to be a big constraint on governments in the future. We may be looking in the United States at stimulus this year that’s equivalent to half of GDP. Now, do you want it to go into infrastructure? People like the concept of infrastructure; it’s just hard to get things built. But I think that, you know, I think when we come out of this, there’ll be a lot of reckoning about debt levels, particularly if interest rates don’t stay at sort of near zero.

Paul Laudicina: Yeah, surely not only huge macroeconomic challenges, but also probably changes in geopolitics, which you have followed so closely and do again in your upcoming book. What was some of the dislocation to the hydrocarbon sector, self-inflicted, if you will, given the highly visible production standoff that we saw between the Kingdom of Saudi Arabia and Russia back in the early days of the pandemic in March? And how do you think these new power dynamics around the world are likely to change? 

Daniel Yergin: What I was thinking about I think we really saw it in April, to talk about the standoff between Russia and Saudi Arabia, to say was ill-timed is an understatement because they were still looking particularly—one of the countries I think was looking back to the shutdown in China and not seeing this dark age that would fall over the economies of North America, and Europe and other parts of the world. 

But it also pointed to the fact that, and this is something I thought about when I was—I could see it unfolding while I was writing The New Map—this changing relationship between Saudi Arabia and Russia, that, you know, these were two countries that were animosity, historic opposition, I mean, going back to Soviet Union days, going back to Joseph Stalin in the 1930s, it really went back. 

And now this thing called OPEC+ is really Saudi Arabia and Russia deciding that they have common interests. I think the interesting thing is now the emergence of the Big Three because the biggest of the Big Three is the United States, and the United States suddenly playing this very different role of dynamic where the US is the dealmaker here in order to really preserve what has become an economic and geopolitical advantage, the United States, the growth of the shale industry. And so I think it’s kind of a different game. We’re beyond the days of OPEC versus non-OPEC, beyond the days of producers versus consumers, because the United States may be a large consumer. It’s also a large exporter.

Paul Laudicina: Yeah, to be sure. And how what role has the US played over the course of the last number of months? 

Daniel Yergin: The US has been very involved. It really started from the US Senate, where senators from oil-producing states said that, you know, their industry was being killed, employment was being killed. And if shale has become such a large element in our economy, what happens in the shale industry is very important for manufacturing industries in Illinois and Michigan and so forth. And in technology across this range. 

And so a group of senators started kind of reaching out directly to the Saudis saying, “We’re the people who vote for the military relationship that we have. And this relationship is now threatened by what’s happened in oil prices. And I think then President Trump ended up using that in his discussions with the Saudis and the Russians saying, particularly Saudis saying, “You know, these people aren’t going to vote anymore. We’re not going to be able to, you know, have a relationship anymore.” And so the US really, you know, brokered the deal. It was the United States that was on the phone to Riyadh and Moscow, kind of putting the deal together and making sure that it worked. 

The outlier at the end turned out to be Mexico. But that problem got solved, but it was. So it is very much a rearrangement of power in world oil, and it reflects the fact that the US, right now at least, is still the world’s number one producer. And that just changes interest in the US and gives the US an influence that it hasn’t had for decades and decades.

Paul Laudicina: You’ve looked for so many years at all of these big issues and made sense of big transformations that have resulted from this kind of intersection, if you will, of the competition for natural resources, climate change dynamics and geopolitics, and in your book that comes out in September, you obviously examine many of these big transformations that are coming from this new competition. Can you give us a little bit of a sneak preview at some of the issues you address in the book, Dan?

Daniel Yergin: Well, it describes, first of all, how this you know, the shale revolution has really changed the both the energy, the world’s energy map, and the world’s geopolitical map. It’s changed it for Russia. It’s changed for China. And so that’s part of it. 

And then I look at it from the viewpoint of you know, I mean, obviously, Russia’s position in terms of energy. There are a lot of current conflicts and clashes that are going on. 

You know, China, in a way—I was, I was thinking about this the other day—is in the position the United States was in 12 years ago. We were importing 60 percent of our oil. China’s importing 75 percent of its oil. That sense of vulnerability on the part of China plays into a lot of the things that I think they’re doing geopolitically. 

And of course, the Middle East. You know, you have Vision 2030 in Saudi Arabia, the sense that you want to diversify your economies because oil markets will change, energy markets will change. And by the way, oil prices are volatile, as you pointed out at the beginning, but it turns out that, in order to finance diversifying away from oil, you actually need to sell a lot of oil at a reasonable price. So it kind of creates a quandary there. 

And then, you know, I think the big question is how to think through this issue of energy transition that everybody talks about and how long it will take and what’s actually gonna be involved in it. When you look at a world today that gets 80 percent of its energy from oil, gas, and coal, and at least historically, energy transitions don’t happen overnight.

Paul Laudicina: Dan, you and I both have been around the block for many years and seen many of these kinds of tumultuous periods of history. As you step back, Dan, and reflect on where we are today, where we’re likely headed, what kind of advice would you give the next generation of leadership, political, and commercial, perhaps, as they try and cope with and adapt to and overcome these new challenges in an environment of ambiguity and volatility as far as the eye can see?

Daniel Yergin: I think that’s a very good question. I think it’s: expect volatility. Plan around it, don’t get too locked in, you know, be flexible. At the same time, you know, the obvious one is don’t get caught up in the short term. Think beyond the short term. Because so often you get actions and then you get reactions and you have to deal with them. 

I think the other thing that’s much on my mind, as I’m sure it is on your mind, is we’ve had an era that really began with the collapse of the Soviet Union. China’s kind of joining a global market economy, India opening up, this era of globalization that is largely, I mean, it’s had problems, but it’s been beneficial. And it’s brought a lot of people out of poverty. It looks like we’re going to be in a more rocky period of globalization won’t go away. But it’ll be rockier. And, you know, what does that do to economic growth? And the importance of countries not making, this is not companies but countries not making mistakes that exacerbate tensions beyond what they actually are. 

So I think there are concerns—longer term concerns out there—there that weren’t there; there’s been a change in attitudes. And in particular, you know, this changing relationship between the US and China. Where are we going to be in two or three years? Because neither China is going away nor the United States is going away. But kind of the views that were there before and the hope for but these are two economies that are still quite interconnected, but are we gonna have two parallel globally economic systems? How's it going to work? 

I mean, you know, when we were in the Cold War with the Soviet Union, it was a different situation because the Soviet Union was not a very important factor in the world economy. And today, China is. So I see that as a kind of overarching question. 

And how do you function as a company in a world in which the kind of almost taken-for-granted confidence in the smooth workings of a world economy may now have a lot bigger waves on those seas on which the container ships sail?

Paul Laudicina: Well, you know, one of the great ironies that we’ve been discussing with many of my guests here on this podcast has been that while the pandemic has bred this notion of social distancing, with many people, each sort of hunkering down and tugging at their own end of the blanket, the only way ultimately out of this kind of global predicament is going to be through much closer cooperation and engagement with one another. And therefore, the demand for a transformed new global governance system to take us there is probably going to be greater than ever. Do you agree with that, Dan? 

Daniel Yergin: Well, let’s think back to the financial crisis 2008–2009. That was pretty serious. But people really came together. The countries came together. China was the first country to launch a big stimulus program. You know, the G20, functioned as a—people almost thought for a time was going to be a board of directors of the global economy. It wasn’t that, but there was a coordination. This crisis we sure haven’t seen that. And yet, that’s a lesson that comes out of this that how do you deal with a global pandemic on a national basis? We really have to ponder that. And so, you know, this has really been a big disruption. And you know, it’s not a war, but it’s a disruption. It’s not over. And I think the wounds of it will last longer and the questions it raises about the future, or as you suggest, much sharper.

Paul Laudicina: Well, Dan, that’s a good note on which to conclude our discussion. You have been such an important guiding light over the years on all of these critical issues. Your new book, The New Map: Energy, Climate, and the Clash of Nations, is now available for pre-order on I have no doubt that it’s going to join the ranks of your previous books on bestseller lists. Thanks, Dan, for taking the time to join us and sharing your insights with us today.

Daniel Yergin: And thank you, Paul. It was great to be able to, to kind of wrestle with these great questions with you. So thank you for the invitation.

Wrap-up (Paul Laudicina)

There’s only so much ground we can cover in one interview, and we’re aware there are undoubtedly many more questions that you might wish we had been able to discuss during each podcast. So don’t hesitate to be in touch with me with any additional insight we might be able to provide by contacting me at [email protected] or on Twitter at @paullaudicina, and I would be happy to respond. 

We’ll be back with new episodes of Coronavirus: a world transformed soon. So stay tuned. More is coming.

About Dan Yergin

Daniel Yergin is a highly respected authority on energy, international politics, and economics and a Pulitzer Prize winner. He is vice chairman of IHS Markit, a leading information and advisory firm with 16,000 employees worldwide. He is chairman of IHS Markit’s CERAWeek conference, which CNBC has called “the Super Bowl of energy” and of “India Energy Forum Presented by CERAWeek” in New Delhi.

Time magazine said, “If there is one man whose opinion matters more than any other on global energy markets, it’s Daniel Yergin.” Fortune said he is “one of the planet’s foremost thinkers about energy and its implications.” 

Daniel’s new book, The New Map: Energy, Climate, and the Clash of Nations, will be published in September 2020. He is the author of the best seller The Quest: Energy, Security, and the Remaking of the Modern World, which the Financial Times described as “a triumph.” The New York Times said it is “necessary reading for C.E.O.’s, conservationists, lawmakers, generals, spies, tech geeks, thriller writers,” among many others. Bill Gates called it “a fantastic book.”

Daniel is known around the world for his book The Prize: The Epic Quest for Oil, Money & Power, which was awarded the Pulitzer Prize. It became a number one New York Times best seller and has been translated into 20 languages.

Of his book Commanding Heights: The Battle for the World Economy, which has been translated into 13 languages, The Wall Street Journal said, “No one could ask for a better account of the world’s political and economic destiny since World War II.” Both The Prize and Commanding Heights were made into PBS/BBC series.

He has served on the Secretary of Energy Advisory Board under four presidents. In 2019, he and former US Energy Secretary Ernest Moniz led a major study, “Advancing the Landscape of Clean Energy Innovation,” which was conducted for the Breakthrough Energy coalition. 

He is on the board of directors of the Council on Foreign Relations and is a trustee of the Brookings Institution. The prime minister of India presented him with a lifetime achievement award, and the US Department of Energy awarded him the first James Schlesinger Medal for Energy Security. 

Daniel earned a bachelor’s degree from Yale University and a PhD from Cambridge University, where he was a Marshall Scholar.