Energy enters new sphere as old realities topple, says Yergin after CERAWeek

In the current global environment of lower oil prices, a new world of energy has emerged as once-valued assumptions are upended and the old ways of doing things may no longer apply, according to Daniel Yergin, IHS vice chairman, offering a cogent summation of views following IHS CERAWeek.

In the webinar "Energy: A Turning Point - The Industry Resets," Yergin alights on seminal touchstones covered in Houston toward the end of April by the five-day CERAWeek event, the world's pre-eminent energy conference that draws together industry leaders, experts, government officials, and policymakers. The webinar is part of a continuing series conducted by IHS Energy on the most pressing oil, gas, and energy issues of the day.

While the old world upheld the cherished belief that $100-per-barrel oil was here to stay, the huge tumble in oil pricing has brought about a turning point and "an adaption to a new reality," Yergin said in comments during the hour-long webinar. "A gritty new realism" is the present order of the day, observed Yergin, a Pulitzer Prize winner for his work in energy. The realignment of costs, as well as a recalibration in priorities, focus on standardization, and concern with maintaining innovation during this difficult time are foremost in the minds of industry leaders.

The existing downturn is different from that in the past, Yergin added. The energy industry's slump in the 1990s was caused by financial problems, but the current slowdown is taking place alongside plenty of capital. And this time, North America is a major player-not the Gulf Arabs-with industry undercurrents defined not by megaprojects but by innumerable microdecisions that affect overall dynamics.

Likewise a big theme during CERAWeek was infrastructure, especially on the pipeline and transmission of natural gas, a substance occupying an increasingly larger role on the world's energy stage. In particular, experts see Mexico-with four of the country's top energy-decision makers in attendance at the event-as the next big market for natural gas. Large imports of natural gas will be required from the United States, its neighbor to the north, as Mexico seeks to become a major manufacturing platform, Yergin notes.

Concern about China's slowdown was palpable at the event, as strength has buckled in Chinese demand-a long-solid premise in the energy industry during the last 10 years. Meanwhile, countries like India, Russia, Argentina, Iraq, Colombia, and Canada each presented its own challenges and potential for consideration.

A major issue in the future could be the impact on the industry of the US Clean Air Act, following a speech at CERAWeek by US Environmental Protection Agency (EPA) Administrator Gina McCarthy. Section 111D of the Clean Air Act would compel US states and manufacturers to reduce carbon emissions, alongside other regulations being sought by the EPA to regulate methane. Industry players may need to do a better job of communicating their concerns to regulators, Yergin said, especially as investors push oil companies to make a stronger stand in their filings on climate change.

Other regulatory issues loomed large at the event, Yergin pointed out, with US Interior Secretary Sally Jewell discussing Arctic drilling, deepwater, and the unconventional development of federal land.

Another prominent speaker at CERAWeek, Sen. Lisa Murkowski of Alaska, said in well-publicized comments after the event that she would introduce a bill to lift a ban exports of US oil. Murkowski said that a continued proscription amounted to a "sanctions against ourselves," especially in light of talks on oil restrictions being lifted on Iran, which would add upward of 1 million barrels of oil to the global market.

By IHS Staff Writer April 29, 2015

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.