HOUSTON, U.S. -- Daniel Yergin, vice chairman of S&P Global and a leading authority on energy, says Russian President Vladimir Putin once shouted at him during an international forum for asking about a sensitive topic: shale gas.
The question was about how Russia planned to diversify its economy from dependence on oil and gas export revenues. But the word "shale" triggered a fierce response from the Russian leader, back in 2013.
Putin knew that shale eventually would compete with Russian gas in Europe. He also understood that shale would enhance America's global strategic position, Yergin told Nikkei in a recent interview.
On both counts, Putin was spot on. But he gravely miscalculated the response from Europe to Moscow's invasion of Ukraine, Yergin said. The Europeans reacted strongly, despite their dependence on Russian energy. Now Putin has destroyed the very economy he has been building, Yergin said.
Edited excerpts from the interview follow.
Q: How is the Ukraine crisis affecting the energy market?
A: There is no more "business as usual" after what has happened. Putin's destroyed what he spent 22 years building up, in terms of the Russian economy. Almost nobody really could imagine the scale of the punishment of the Russian invasion.
This is an enormous miscalculation by Putin. He assumed that the dependence of Europe on Russian energy would be enough to prevent the Europeans from reacting as strongly as they did.
One of his major goals has been to fragment and break up NATO. The result is just the opposite.
We saw a 180-degree change in Germany. The very first step in the sanctions was postponing, or basically canceling, Nord Stream . So this $11 billion pipeline is just going to lie under the Baltic Sea. It was one of his great goals, and this is another example of his miscalculation.
Q: The Soviets were more careful about using energy during the Cold War.
A: Even in the Cold War days, the Soviet Union and Russia always wanted to send a message that "our energy supplies are not political," that "we're a reliable supplier." One big consequence of [the Ukraine conflict] is that the Europeans are going to make a very strong effort to reduce reliance on Russian gas.
There are three different ways the Europeans will do it. One is by additional LNG supplies. The second is internal gas supplies, so there will be some effort, particularly in the North Sea, to step up European and British production.
And then thirdly, this is going to be a big boost to the drive for renewables.
We are concerned about this coming winter in Europe. They will go into the winter with low stocks, and they'll need to build those up. So in the short term, it's a challenge for Europe. No one knows what the endgame is here.
Q: How about oil?
A: Russia exports seven and a half million barrels a day -- about half of that to NATO countries. Several million barrels of oil have been disrupted. Black Sea tankers are leaving with Russian oil but not being permitted to unload because companies are saying they will not buy Russian oil.
Russian oil is going to be disrupted for the foreseeable future. You can't get a letter of credit. A bank doesn't want to take the risk. But there's a new element in this: reputation and values.
It's not just the oil companies. Other companies are pulling out, too. Everything that's been tried to integrate Russia with the global economy is being undone. Russia is basically now being unplugged or disconnected from the world economy.
I fear we could have a scramble for oil supplies. That's why coordination between governments and industry is so important right now.
Q: If there is a scramble for oil, where is the alternative oil going to come from? Who will replace Russia?
A: Number one, from the Arab Gulf countries. The diplomacy now is very intense. You could get 2 million barrels a day more from the Gulf countries.
Secondly, if there is a nuclear deal with Iran, which seems close, that brings a million barrels a day of oil into the market.
Third are the strategic stocks, which were created for disruptions.
And fourth, we will see significant growth over the course of the year of U.S. production. U.S. output over the year will increase by about 900,000 to a million barrels a day. Those are the key numbers.
And you get some more oil, in smaller volumes, from Canada, Brazil and Guyana.
Q: In your book "The New Map: Energy, Climate, and the Clash of Nations," you wrote extensively on Ukraine.
A: At the end of the Cold War, Russia, Ukraine, Europe and natural gas was the central area of contention. It was where the great tension between Russia and the West was.
Putin thought the West is in decline. He thought the U.S. was preoccupied with its domestic issues. He thought Europe was preoccupied with domestic issues.
What happens in international crises so often is miscalculation and people don't really see the consequences. [Putin is] isolated, and he's probably in that state where people only tell him what he wants to hear.
He doesn't see very many people. He has a small circle of people around him, apparently, who have similar backgrounds in the KGB. It seems that his economic advisers were completely shut out of this.
When people come to see him, he sits at that ridiculously long table. He's very afraid of COVID. People speculate, does he have an illness that makes him immunocompromised?
He's very angry about the breakup of the Soviet Union, but nobody has done better out of the breakup of the Soviet Union than Vladimir Putin. He would have remained a KGB officer, and not president of Russia with the power and resources that he has.
Q: What is the significance of U.S. shale in light of the Ukraine crisis?
A: I was once shouted at by Vladimir Putin, in front of 3,000 people, for asking about shale. That had a huge impact on me.
I realized there were two reasons. One is that he saw shale gas competing with Russian gas in Europe, and he was right.
And two, he realized this would be a geopolitical asset for the United States. It will give the U.S. flexibility in world affairs it didn't have when it was importing 60% of its oil.
It was always clear to me that if the energy position of the U.S. were to change, it would be of great geopolitical importance. Imagine if we hadn't had the shale revolution and we didn't have LNG, and the U.S. was not self-sufficient in oil. What a different world it would be!
If you go back to the crises in the 1970s, you had a mad scramble of all the industrial countries to find oil supplies. But now, the U.S. isn't out there competing with Japan or Western Europe.
Q: Do the U.S. government's environmental policies contradict the need to promote shale production?
A: The Biden administration didn't pay much attention -- any attention -- to the oil industry until November. And then at the end of the year, the secretary of energy actually encouraged more production. But the big focus has been on climate. Now there is a recognition that oil and gas are really important strategically and politically.
There have been contradictory policies, and if you're a company and going to invest, you need at least a sense of certainty as to where things are going.