Part II centers on energy security and the future of supply. Will the world “run out” of oil? If not, where will it come from? The new supply will include natural gas, with its growing importance for the global economy. The rapid expansion of liquefied natural gas is creating another global energy market. Shale gas, the biggest energy innovation since the start of the new century, has turned what was an imminent shortage in the United States into what may be a hundred-year supply and may do the same elsewhere in the world. It is dramatically changing the competitive positions for everything from nuclear energy to wind power. It has also stoked, in a remarkably short time, a new environmental debate.
Part III is about the age of electricity. Ever since Thomas Edison fired up his power station in Lower Manhattan, the world has become progressively more electrified. In the developed world, electricity is taken for granted and yet the world cannot operate without it. For developing countries, shortages of electricity take their toll on people’s lives and on economic growth.
Today, a host of new devices and gadgets that did not exist three decades ago—from personal computers and DVD players to smart phones and tablets— all require increasing supplies of electricity—what might be called “gadgiwatts.” Meeting future needs for electricity means facing challenging and sometimes wrenching decisions about the choice of fuel that will be required to keep the lights on and the power flowing.
Part IV tells the little-known story of how climate change, a subject of interest to a handful of scientists, became one of the dominating questions for the future. The study of climate began in the Alps in the 1770s out of sheer curiosity. In the nineteenth century, a few scientists began to think systematically about climate, but not because they were worried about global warming. Rather, they feared the return of an ice age. Only in the late 1950s and 1960s did a few researchers begin to calculate rising levels of carbon in the atmosphere and calibrate what that might mean for rising temperatures. The risk, they concluded, was not global cooling but global warming. But it was only in the twenty-first century that climate change as an issue started to have major effects on decisions by political leaders, CEOs, and investors—and even became a subject to be ruled upon by the U.S. Supreme Court.
Part V describes the new energies—the “rebirth of renewables”—and the evolution of technology. The history of the renewable industries is one of innovation, entrepreneurial daring, political battles, controversy, disappointment and despair, recovery and luck. They have become large global industries in themselves, but they are also reaching a testing point to demonstrate whether they can attain large-scale commerciality.
There is one key energy source that most people do not think of as an energy source. Sometimes it is called conservation; sometimes efficiency. It is hard to conceptualize and hard to mobilize and yet it can make the biggest contribution of all to the energy balance in the years immediately ahead.
The themes converge in Part VI on transportation and the automobile. It had seemed absolutely clear that the race for the mass-market automobile was decided almost exactly a century ago, with an overwhelming victory by the internal-combustion engine. But the return of the electric car—in this case fueled not only by its battery but also by government policies—is restarting the race. But will all-out electrification win this time ? If the electric car proves itself competitive, or at least competitive in some circumstances, that outcome will reshape the energy world. That is not the only competitor. The race is also on to develop biofuels—to “grow” oil, rather than drill for it. All this sets a very big question: Can the electric car or biofuels depose petroleum from its position as king of the realm of transportation?
We can be sure that, in the years ahead, new “surprises” will upset whatever is the current consensus, change perspectives, redirect both policy and investment, and affect international relations. These surprises may be shocks of one kind or another—from political upheavals, wars or terrorism, or abrupt changes in the economy. Or they could be the result of accidents or of nature’s fury. Or they could be the consequence of unanticipated technological breakthroughs that open up new opportunities.
But of one thing we can be pretty certain: The world’s appetite for energy in the years ahead will grow enormously. The absolute numbers are staggering. Whatever the mix in the years ahead, energy and its challenges will be defining for our future.
PROLOGUE
I raqi troops and tanks had been massing ominously for several days on the border with Kuwait. But Saddam Hussein, Iraq’s dictator, assured various Middle Eastern leaders that they need not worry, that his intentions were peaceful, and that matters would get settled. “Nothing will happen,” he said to Jordan’s king. He told Egypt’s president that he had no intention of invading Kuwait. To the U.S. ambassador, summoned on short notice, he raged that Kuwait, along with the United Arab Emirates, was waging “economic warfare” against Iraq. They were producing too much oil and, thus, driving down the price of oil, said Hussein—the results for Iraq, he added, were unbearable, and Iraq would have to “respond.” The U.S. ambassador, citing Iraqi troop movements, asked “the simple question—what are your intentions?” Hussein said that he was pursuing a diplomatic resolution. The ambassador replied that the United States would “never excuse settlement of disputes by other than peaceful means.” At the end of the meeting, Saddam told the ambassador that she should go on vacation and not to worry.1
However, a week later, in the early morning hours of August 2, 1990, Iraqi forces moved across the border and proceeded, with great brutality, to seize control of Kuwait. The result would be the first crisis of the post–Cold War world. It would also open a new era for world oil supplies.
Iraq proffered many rationales for the invasion. Whatever the justifications, the objective was clear: Saddam Hussein intended to annex Kuwait and remove it from the map. An Iraq that subsumed Kuwait would rival Saudi Arabia as an oil power, with far-reaching impact for the rest of the world.
“NOT SO FAST”
In the morning on August 2, Washington, D.C., time, President George H. W. Bush met with his National Security Council in the Cabinet Room at the White House. The mood was grim. The peace and stability so many around the world had hoped for was now suddenly and unexpectedly threatened. Just eight months earlier, the Berlin Wall had fallen, signaling the end of the Cold War. The key nations still had their hands full trying to peacefully wind down that four-and-a-half-decade confrontation.
With the annexation of Kuwait, Iraq would be in a position to assert its sway over the Persian Gulf, which at the time held two thirds of the world’s reserves. Saddam already had the fourth-largest army, in number of soldiers, in the world. Now Iraq would also be an oil superpower. Saddam would use the combined oil reserves, and the revenues that would flow from them, to acquire formidable arsenals, including nuclear and chemical weapons; and, with this new strength, Iraq could project its influence and power far beyond the Persian Gulf. In short, with this invasion and annexation, Iraq could rewrite the calculations of world politics. Allowing that to happen would run counter to four decades of U.S. policy, going back to President Harry Truman, aimed at maintaining the security of the Persian Gulf.
The discussion in the Cabinet Room on August 2, perhaps reflecting the initial shock, was unformed and unfocused. Much of it seemed to turn toward various forms of economic sanctions, almost as though adjusting to a new reality. Or at least it seemed that way to some in the room, including President Bush himself, who was “appalled,” as he put it, at the “huge gap between those who saw what was happening as the major crisis of our time and those who treated it as the crisis du jour.”
“ We will have to get used to a Kuwait-less world,” said one adviser, acknowledging what seemed to be a fait accompli.
Bush raised up his hand.
“Not so fast,” he said.2
DESERT STORM
Thereafter unfolded an extraordinary enterprise in coalition building—with some 36
nations signing on, in the form of either troops or money, under the auspices of the United Nations. The coalition included Saudi Arabia, whose largest oil field was only 250 miles from its border with Kuwait and whose ruler, King Fahd, told Bush that Saddam was “conceited and crazy” and that “he is following Hitler in creating world problems.” It also included the Soviet Union, whose president, Mikhail Gorbachev, said something that would have been unthinkable only a couple of years earlier—that the Soviet Union would stand “shoulder to shoulder” with the United States in the crisis.3
Over the six months that followed, a coalition force steadily and methodically assembled in northern Saudi Arabia until it numbered almost a million strong. In the very early predawn hours of January 17, Operation Desert Storm commenced its first phase, with aerial bombardment of Iraqi military targets. On January 23, the Iraqis opened the valves on Kuwait’s Sea Island Oil Terminal, releasing upwards of six million barrels of oil into the Persian Gulf, the largest oil spill in history, in an effort to foil what they expected to be an offensive from the sea by U.S. Marines. A month later, on February 23, coalition forces liberated Kuwait City. The next day, the coalition forces swept north from Saudi Arabia into Iraq, throwing back the Iraqi army. The invasion from the sea turned out to be a feint. The actual ground war took no more than a hundred hours, and it ended with Iraqi forces in full retreat.
But if Hussein could not have Kuwait, he would try to destroy it. Hussein’s soldiers left Kuwait burning. Almost eight hundred oil wells were set aflame, with temperatures as high as three thousand degrees, creating a hellish mixture of fire and darkness and choking smoke and gross environmental damage. As much as six million barrels of oil a day were going up in flames—much more than Kuwait’s normal daily production and considerably more than Japan’s daily oil imports. The scale of this inferno was so much bigger than anything that even the most experienced oil-well fire-fighting firms had ever seen, and a host of new techniques had to be quickly developed. The last of the fires was put out in November 1991.
In the aftermath of the war, Saddam was boxed in; it seemed only a matter of time before the Iraqi dictator, weakened and humiliated, would be toppled by internal opponents.
A NEW AGE OF GLOBALIZATION
The outcome of the First Gulf War was a landmark for what was expected to be a more peaceful era—what, for a time, was called a new world order. The Soviet Union was no longer an adversary of the West. At the end of 1991, the Soviet Union disintegrated altogether. The talk was now of a new “unipolar world” in which the United States would be not only the “indispensable nation” but also the world’s only superpower.
A new age of globalization followed: economies became more integrated and nations, more interconnected. “Privatization” and “deregulation,” which had begun in the 1970s and gained momentum in the 1980s, became the watchwords around the world. Governments were progressively giving up the “commanding heights”—that is, control of the strategic sectors of their economies. Nations instead put increasing confidence in markets, private initiative, and global capital flows.
In 1991 India began the first phase of reforms that would unshackle its economy and eventually turn it into a high-growth nation and an increasingly important part of the global economy.
In the energy sectors of countries, as in so many other sectors, traditional government ministries were turned into state-owned companies, which in turn were partly or entirely privatized. Now many of these ministries-turnedcompanies worried as much about what pension funds and other shareholders thought as about the plans of government civil servants.
International barriers of all kinds came down. With the Iron Curtain gone, Europe was no longer divided between East and West. The European Community turned into a much more integrated European Union and established the principle of the euro as its currency. A series of major initiatives—notably, the North American Free Trade Agreement—promoted freer trade. Overall, global trade grew faster than the global economy itself. Developing nations morphed into emerging markets and became the fastest-growing countries. Their rising incomes meant growing demand for oil.
Technology also drove globalization—in particular, the rapid development of information technology, the rise of the Internet, and the dramatic fall in the costs of international communications. This was changing the way firms operated, and it was connecting people in ways that had been inconceivable just a decade earlier. The “global village,” a speculative concept in the 1960s, was now quickly becoming a reality. The oil and gas industry was caught up in these revolutions. Geopolitical change and greater confidence in markets opened new areas to investment and exploration. The industry expanded its capacity to find and produce resources in more challenging environments. It seemed now that an age of inexpensive oil and natural gas would extend much further into the future. That would be good news for energy supply but not such good news for higher-priced alternatives.
THE FADING OF RENEWABLES?
The energy crises of the 1970s had combined with rising environmental consciousness to give birth to a range of new energy options, known first as “alternative energy” and then, more lastingly, as “renewables.” They covered a wide range—wind, solar, biomass, geothermal, etc. What gave them a common definition was that they were based neither on fossil fuels nor on nuclear power.
They had emerged out of the tumult of the 1970s with a great deal of enthusiasm—“rays of hope” in a famous formulation. But over the 1980s, the hopes had been dulled by the realities of falling costs of conventional energy, their own challenging economics, technological immaturity, and disappointment in deployment. With moderate prices and the apparent restoration of energy stability in the early 1990s, the prospects for renewable energy became even more challenging.
Yet environmental consciousness was becoming more pervasive. Most environmental issues were, traditionally, local or regional. But there was growing attention to a new kind of environmental issue, a global issue: climate change and global warming. Attention was initially confined to a relatively small segment of people. That would change in due course, with profound implications for the energy industry—conventional, renewable, and alternatives.
In other ways, the combination of energy policies launched in the 1970s and the dynamics of the marketplace had worked. In the face of much skepticism, energy efficiency—conservation—had turned out to be a much more vigorous contributor to the energy mix than most had anticipated.
A STABLE MIDDLE EAST
Mideast politics, which so often bedeviled security of supply, was no longer a threat. In the decade that followed the Gulf crisis, it seemed that the Middle East was more stable and that oil crises and disruptions were things of the past. No longer was there a Soviet Union to meddle in regional politics, and the outcome of the Gulf crisis and the weight of the United States in world affairs looked like an almost sure guarantee of stability.
The Palestinian Liberation Organization realized that it had driven itself into a dead end by supporting Saddam in the Gulf crisis, and, in the process, alienating many of the Arab countries that were its financial benefactors. It quickly reoriented itself, and swift progress thereupon followed in the Israeli-Palestinian peace process. In Washington, D.C., in September 1993, Yasser Arafat, chairman of the Palestinian National Authority, and Israel’s prime minister, Yitzhak Rabin, signed the Oslo Accords, which laid out the route to a two-state solution to that long conflict. And then, standing in front of President Clinton with the White House as a backdrop, they did what would have seemed inconceivable three years earlier—shook hands. The following year, they shared the Nobel Peace Prize along with Israel’s foreign minister, Shimon Peres. All this was a positive and powerful indicator of the world that seemed to be ahead. It might not have happened had Saddam not gone to war.
As for Saddam Hussein himself, he no longer seemed to be going anywhere.
CONTAINMENT
In 1991 the coalition’s forces had stopped 90 mi
les short of Baghdad. The coalition had come together under the authority of the United Nations to eject Saddam from Kuwait; it had no mandate to remove Saddam and change the regime. Nor was there any desire to engage in the potentially bloody urban warfare that would be required for a final push. As it was, the television images of the destruction of the Iraqi army, and the backlash those images were engendering, were in themselves a further reason to call things to a halt—what has been dubbed the “CNN effect.” Beyond all that, it was widely assumed that aggrieved elements of the Iraqi military would do what was expected—launch a coup—and that Saddam’s days were numbered. But, such was his ruthlessness and iron control, that, contrary to expectations, he held tightly to power after the war.
Yet Saddam’s position was much reduced. For Iraq was now hemmed in by a program of inspections, military force, and sanctions that amounted to what has been called “classic containment,” evoking the policy that had checked Soviet expansion during the Cold War. In addition, some efforts were mounted over the next few years to support Saddam’s opponents in toppling him, but that all ended in failure. Under the administration of Bill Clinton, the containment policy became more explicit. It also became conjoined with what now was described as “dual containment”—of Iran along with Iraq.
In principle, U.N. weapons inspectors could range freely around Iraq, looking for the elements that could go into weapons of mass destruction—colloquially known as WMD. In practice, obstructions were constantly put in the inspectors’ way. There was only one moment of surprising cooperation: In 1995 the head of Iraq’s unconventional weapons program, who happened to be Saddam’s son-in-law, defected to Jordan. The regime panicked, fearing what he might tell. Trying to preempt any revelations, Baghdad suddenly released half a million documents (which had been hidden in a chicken coop) that detailed production of a variety of biological weapons. But after Saddam lured his son-in-law back to Iraq (in order to have him killed), obstruction once again returned as the norm.4
The Quest: Energy, Security, and the Remaking of the Modern World Page 2