MARY LOUISE KELLY, BYLINE: This is THE STATE OF UKRAINE, a special podcast highlighting NPR’s coverage of the ongoing crisis in Ukraine.
STEVE INSKEEP, HOST:
At this dramatic moment, Daniel Yergin is with us. He is Vice Chairman of S&P Global and author of acclaimed books on the energy industry. He joins us via Skype. Mr. Yergin, welcome back.
DANIEL YERGINE: Thank you. It’s good to be with you today.
INSKEEP: We heard that Russia’s decision was called a wake-up call. Europeans also called it blackmail. How would you describe it?
YERGIN: Well, I think it’s a major sign that Russia – Putin just a few weeks ago said that Europe can’t do without energy. I think he demonstrates with this that he will use the energy as a weapon or try to use it.
INSKEEP: Will this work?
YERGIN: Well, I think in the case of Poland and Bulgaria, they have easy alternatives, so it really doesn’t have much impact. In fact, Poland will buy gas from Germany, which will in fact be Russian gas. But I think you have to assume that when Putin threatens things, he will act accordingly in his current, crazy, irrational way.
INSKEEP: That seems like a reasonable assumption, especially after seeing the invasion of Ukraine that didn’t seem to make sense to anyone else but made sense to Putin, and then he went ahead. And yet, I notice that they only cut the gas to two countries that didn’t use that much. Does this mean that Russia itself is afraid to go all the way?
YERGIN: Well, I think – what happens with other countries, can you find a way, in some of them – to open a bank account in Gazprombank – which is part of Gazprom…
YERGIN: … The Russian energy giant – and you put euros in it and they convert it somehow. So it’s – it’s an uncertain situation right now. The European EU is telling companies not to violate our sanctions. But I think many companies will, if they can, open those accounts to keep the gas flowing for now. But as the German economy minister said, we have to prepare for a bigger cut and a bigger – you know, that Putin will use, you know, the energy weapon, which is quite different from which has been the hallmark of Russia for half a century, that is, we are a reliable supplier. They demonstrate that they are not a reliable supplier.
INSKEEP: Do you think it’s likely that big European companies will circumvent the will of their governments or the will of the European Union and try to find a way to evade sanctions?
YERGIN: I think it’s already happening. I don’t think they’re going to do it against their governments. They will do this in consultation with their governments. I think Germany said very interestingly that they could do without Russian crude oil, but they need natural gas. And so I don’t think any company will do that without the approval of their government.
INSKEEP: Is the energy weapon a weapon much like nuclear weapons for Russia – they can’t really use them without destroying themselves?
YERGIN: Well, I think Putin, you know, is behaving in an apocalyptic way. And his thesis now is that the West wants to destroy Russia. So he could do something like that. But I think it’s the longest – the most important point is that Europe – Russia is going to lose Europe as a market. Europeans are determined to no longer depend on Russian energy. The only question now is time. And I think that timeline got shorter as this war got more gruesome. Putin is talking about, well, I’m going to move my gas supplies to Asia. It will take a long time. And so I think ultimately he might be stuck with gasoline that he can’t sell because of his actions. And by the way, when he goes to China and says, are you going to buy some more of my gas? – the Chinese will make a very difficult market.
INSKEEP: Of course, because he has no other clients. However, you said an interesting thing, Daniel Yergin. You said that the Europeans are already determined to turn away from Russian gas. It may take them a little time, but they are determined to do it. I wonder if that then becomes part of Putin’s calculations. I recall that before the invasion of Ukraine, Putin was threatened with all kinds of sanctions and, at least in public, persuaded himself – and said so explicitly – that the sanctions are coming anyway. Indeed, they will – come after us no matter what, so might as well invade us. That was the logic of that statement. Could this be the logic of Putin’s thinking today? I will eventually lose this energy weapon. I might as well use it.
YERGIN: Well, I think that’s a very good point, because of course until recently Europe was talking about moving away from natural gas anyway, moving more and more to renewables. He decried it. So he may be saying, well, we won’t have that market there anyway in five years. So – but I think in the current situation – like the pressure, as Germany is now sending weapons to Ukraine – the likelihood of him retaliating increases dramatically. And I think that the Europeans, whatever they say, must prepare for it.
INSKEEP: Daniel Yergin, even before the developments of the past few days, you said that energy markets around the world were in crisis. And I understand that there is a lot of pressure and that the prices go up. But what do you mean by crisis?
YERGIN: Well, the crisis means that the prices – your gas price – of natural gas in Europe are five times normal, that the balance is very precarious in the world markets. Because even before the start of this war, these markets were very tight. And crisis means disruption – means scarcity. And I think that risk is there. What’s happening is – for me, what’s getting a lot of attention is the cut off of gas to Poland and Bulgaria. What didn’t get so much attention was that the German economy minister said that we can do without Russian crude oil in a matter of days. Three or four weeks ago they said it was not possible. The German government has consulted very closely with energy companies and determined what the alternatives are? Where can you get supplies? So the one they can deal with most successfully in the short term is crude oil, because there are a lot of other oils in the world. When you get to natural gas, you get to the kind of situation where if Putin really acted on it, you could shut down German industry, if you really cut the gas.
INSKEEP: Who, if anyone, is profiting from this crisis – the Persian Gulf countries? China? Someone else?
YERGIN: Well, I think China doesn’t because they pay higher energy prices, although with the shutdown, the lockdown in Shanghai and Beijing, in a sense, their consumption of energy decreases. Clearly, in the short term, revenue increases for energy companies and gives them more money to invest in alternatives. I think what you see Germany doing – something they say – now they’re going to build terminals to receive natural gas, LNG, from the United States. But it will take a year or two to build them. But I think that in the short term, what Europe must do is look, what are our alternatives to the use of natural gas and electricity production? – which means – a short-term expedient means using more coal.
INSKEEP: More coal.
INSKEEP: And that – despite their desire to fight climate change, they might opt for more coal.
YERGIN: Well, I think you – your language is right. You are fighting a war now, which is immediate, and climate change is longer term. So I think they’re going to have to do some quick things. And Germany is already doing this, saying that we are going to extend the life of our coal-fired power plants, at least until the end of this conflict.
INSKEEP: The coal industry could be a winner. Daniel Yergin, it’s always a pleasure to chat with you.
ERGUINE: Thank you.
INSKEEP: Thank you very much. He is Vice Chairman of S&P Global.
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