The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  What then might reduce the risk and encourage Iran to stop somewhere short of the red line ? It could be a combination of containment and external pressure, economic difficulties within Iran, and widespread domestic discontent that foments a political change. The potential for change was vividly demonstrated by the overwhelming victories of the reformist Khatami in 1997 and 2001, and then the mass “Green” protests after the bitterly contested and much-disputed reelection of Ahmadinejad in 2009. But in all those instances, the tools of violence and repression, wielded by the religious establishment and the powerful Revolutionary Guards and their allies, demonstrate how strong is the resistance and the determination to defend the system now in place. This leaves the unnerving risk that nuclear weapons would be in the hands of those who are bent on overturning the regional and international order and who believe in the necessity of an apocalypse to usher in a “perfect world.”

  The whirring of the centrifuges may also be the ticking of a clock. The timing as to when Iran would cross a red line in its nuclear program is uncertain, as is the response of those who feel most threatened by it. Sometimes it is said to be two years away. But containment and other measures may stretch out the time by a few more years. Still, as one senior official from the region put it, “Whatever the time frame, time is running out.”

  Here is one of the preeminent risks for regional security and the world’s energy security, and one that inescapably becomes part of the calculations for the energy future.

  15

  GAS ON WATER

  From the moment they left Doha, the capital of Qatar, the cars took just a little over an hour speeding on a new four-lane highway that crossed the desert with tight curves. This desert motorcade carried members of the Qatari royal family; senior officials from the government and from RasGas and Qatargas, the country’s two gas-exporting companies; along with a range of other dignitaries, including bankers and executives from the international companies that are Qatar’s partners in the greatest concentrated natural gas development the world has ever seen.

  The cars slowed as they passed through several gates where identifications were checked again and again. A little distance off, rising, as though a mirage in the desert, was a huge assortment of pipes and machinery, the nearest part half assembled with tall cranes, and the rest arranged in neat lines, stretching down across the sand. Beyond all this, on the other side of the road, was the sea.

  Out there, below those waters of the Persian Gulf, was the North Field, one of the world’s major energy assets. But it ends abruptly. For some forty miles off this placid coast is an imaginary demarcation line, invisible except on maps, on the other side of which is Iran and, specifically, its offshore South Pars Field. In political terms they are two separate fields. In geological terms, they are one and the same. But still, North Dome by itself constitutes the largest conventional natural gas field in the world. The median line between the two countries was negotiated before the gas field was discovered, and Iran has never been happy that it does not have a larger share.

  Once out of their cars, the group was ushered into a huge tent, filled with chairs. After everyone was seated, there was a stir. The emir, Sheikh Hamad bin Khalifa al-Thani, swept in, a big, husky man in a dishdasha. He paused to shake hands and kiss people. Next to him was Abdullah bin Hamad al-Attiyah, deputy prime minister and at the time minister of petroleum. For many years, al-Attiyah’s true vocation had been natural gas, and he had driven this development. Everyone was there to celebrate an industrial feat: the building of a massive new LNG train—as the facilities for transforming natural gas into a liquid at very cold temperatures are called—ahead of schedule and on budget. Another notch for one of the largest production facilities of any kind anywhere in the world.

  Qatar is a mostly flat, sandy, stony peninsula that juts out from Saudi Arabia a hundred miles into the Persian Gulf. Through the nineteenth century, Qatar had been under the overlapping rules of the Ottoman Empire, the neighboring island of Bahrain, and Great Britain, which sought to maintain its influence in the Persian Gulf in order to protect the routes to India. Qatar itself managed to eke out a livelihood from fishing and pearl diving. After a military clash between Bahrain and Qatar tribesmen, a merchant family from Doha, the al-Thanis, emerged as the ruling clan. With the collapse of the Ottoman Empire at the end of the First World War, Qatar became a British protectorate; it did not gain full independence until 1971, when the British withdrew their military presence from east of Suez.

  At that time, Qatar was still a poor country. No longer. In recent years, its economy has been growing at a furious pace—some years reaching double digits. Today Qatar has the highest per capita gross domestic product in the world and has become one of the main commercial hubs of the Persian Gulf. At the same time, this small principality of about 1.5 million people (of which at least three quarters is composed of foreigners with temporary residence status) also rivals Russia to be the Saudi Arabia of world natural gas. For Qatar has emerged as the central player in what is becoming, after oil, the world’s second global energy business—natural gas, specifically liquefied natural gas, or LNG. This corner of desert at the very edge of the Arabian Peninsula, just two decades ago mostly dunes, was now well on its way to being one of the strategic junctures in the world economy.

  NORHT FIELD AND SOUTH PARS: QATARAND IRAN’S OFFSHORE GAS FIELD

  The world’s biggest gas field, shared with Iran, has enabled Qatar to become the largest LNG exporter.

  Source: IHS CERA

  Qatar is also a key element in the larger mosaic of the world natural gas market. Not so many years ago, there were three distinct gas markets. One was Asia, mainly fed by LNG. The second was Europe, with a mix of domestic gas, long-distance pipeline gas, notably from Russia, plus some LNG. And North America, with virtually all gas delivered by pipeline. Each had its own distinctive pricing system. But then the development of LNG, represented most notably by Qatar, appeared to be tearing down the walls. The markets looked like they were coming together and would eventually be integrated into a single global natural gas market in which prices were converging. That seemed irreversible—until a major innovation in the United States made it reversible.

  After the inaugural ceremonies, the emir boarded a minibus to tour the new facility. The bus crossed the sand and then turned into the site. It was like driving into a dense forest, but one that was not damp and whose colors were not varieties of green but rather silver and steel glinting under the dry desert sun. For this forest had none of the vagaries of nature but rather was an intricately planned maze of interconnected pipes and towers and turbines and, occasionally, what looked like huge white Thermos bottles. That image was appropriate enough since the liquefaction train was in effect a giant-sized refrigerator, into which was pumped the natural gas from the North Field, after it had been scrubbed and cleaned of impurities. There, through a facility that stretched more than a half mile, the gas would step by step be compressed and refrigerated. It would come out the other end as a liquid that could be pumped into ships and transported around the world. And it was a very expensive forest. Adding up all the trains together, some $60 billion of engineering and hardware has been compressed into this small area in a remarkably short number of years.

  This train—70,000 tons of concrete, 440 kilometers of electric cable, 13,000 metric tons of piping—was one stage in the great complex at Ras Lafan, which in its entirety is the single largest node in the expanding global LNG business that involves more and more countries. The growing list of LNG suppliers ranges from Malaysia, Indonesia, and Brunei in Asia; to Australia; to Russia (from the island of Sakhalin); to Qatar, Oman, Abu Dhabi, and Yemen in the Middle East; to Algeria, Libya, and Egypt in North Africa, and Nigeria and Equatorial Guinea in West Africa; to Alaska; to Trinidad and Peru in the Western Hemisphere. Other countries may join in the queue, including Israel, after a major new gas discovery offshore that could turn the Eastern Mediterranean into a new frontier fo
r gas development.

  This global expansion of LNG is a very big business. Projects today can easily run $5 billion or $10 billion—or even more—and take five to ten years to complete. The Gorgon prospect in Australia is budgeted at $45 billion. Altogether, the price tag for LNG development worldwide could add up to as much as half a trillion dollars over the next fifteen years.

  Yet the very possibility of this huge global LNG business derives from a single physical phenomenon—that when natural gas is compressed and brought down to that temperature of −260°F, it turns into a liquid, and, as such, takes up only 1/600th of the space it occupies in its gaseous state. That means it can be pumped into a specifically designed tanker, shipped long distances over water, and then stored or re-gasified and fed into pipelines and sent to consumers.

  But very few of the participants in this business today would know that the industry owes its existence to someone whose fascination with LNG long predated theirs.

  CABOT’s CRYOGENICS

  Just after World War I, Thomas Cabot, a graduate of both Harvard and the Massachusetts Institute of Technology, had headed down to West Virginia to sort out a natural gas pipeline business owned by his father, Godfrey, who, to Thomas’s distress, had lost all interest in it. Returning to Boston, Thomas found that he had other pressing family business to attend to—keeping his father from going to jail. It turned out that Godfrey had had no use for the federal income tax, which Woodrow Wilson had signed into law in 1913, and for the next several years Godfrey had simply not bothered to pay it. “Income is only a matter of opinion,” he would say to government agents. In return, the Internal Revenue Service had expropriated Godfrey’s bank accounts.

  While wrestling with this problem, Thomas had some time on his hands, and he started writing a scientific paper that related to one of his father’s other failed ventures. This concerned cryogenics—the study of very low temperatures, at which various gases turn into liquids. During the First World War, Godfrey Cabot had built a plant in West Virginia to liquefy natural gas and patented a design. “My father had dreamt of liquefying components of natural gas,” Thomas Cabot later said. As a business, however, it had proved to be a total bust.1

  Cryogenics was based on the work of Michael Faraday, who in the 1820s had used cold temperatures to turn gases into liquids. In the 1870s the German scientist Carl von Linde had done further work on refrigeration. His research attracted interest from brewing companies, which, along with their customers, decidedly liked the idea of cold beer. Linde was soon supplying the brewers with refrigerators. He later patented processes for liquefying oxygen, nitrogen, and other gases at very low temperatures and making them available on a commercial scale. His work provided the basis for practical applications of cryogenics.

  It was back to his father’s dream of liquefying natural gas that Cabot turned, while also fending off the IRS. Cabot specifically wanted to explore how extreme refrigeration could be used during the summer season, when demand was low, to compress natural gas into a liquid, enabling it to be held in storage and then returned to its gaseous state in winter, when demand was high.

  Cabot’s father, who rarely demonstrated positive responses to anything his son did, showed his characteristic lack of interest in his son’s paper. Seeking to interest someone, Cabot passed it to the chief engineer of a natural gas pipeline company who was “intrigued to the greatest possible extent” by the idea of compressing natural gas in order to store it. But it was not until 1939 that the first pilot plant was built.

  During World War II, in order to meet the energy needs of factories working two or three shifts a day to supply the war effort, the East Ohio Gas Company built an LNG storage facility in Cleveland. In October 1944 one of the tanks failed. Stored LNG seeped into the sewer system and ignited, killing 129 people and creating a mile-long fireball. Subsequently, the causes of the accident were identified: poor ventilation, insufficient containment measures, and the improper use of a particular steel alloy that turned brittle at very low temperatures. The design and safety lessons would be seared into the minds of future developers.2

  After World War II, such interest as remained in LNG shifted from using refrigeration to store gas for consumers to quite a different purpose; instead, using it as a way to transport gas over water over long distances.

  KILLER FOG

  In December 1952 a killer fog gripped London, making it difficult for people even to find their homes, let alone breathe, killing thousands and making many more ill. The fog resulted from the interaction of weather conditions and coal smoke. Rapidly reducing the burning of coal and replacing it with cleaner fuels became a critical priority. The government-owned British Gas Council teamed up with an American company to import natural gas from Louisiana into Britain in the form of LNG. The first shipment to Britain, aboard the Methane Pioneer, arrived in 1957. This may have proved the concept, but importing LNG was a very small business. Yet demand, stimulated by a promotional campaign for “High Speed Gas,” was exceeding all expectations. If this new LNG business in the UK was going to get anywhere, it needed a much larger source of gas.

  Royal Dutch Shell bought controlling interest in the nascent LNG company and started developing a large natural gas deposit in Algeria far out in the Sahara Desert. In 1964, two years after Algeria gained its independence from France, its first shipment of liquefied natural gas was loaded on a tanker in Arzew for a month-long , 1,600-mile trip to Canvey Island in the lower Thames. A few months later, another shipment left for La Havre in France.3

  This was the real beginning of the international LNG trade. It demonstrated what would become the characteristic practice in the business. It is expensive to turn gas into liquid, transport the liquid, and then turn the liquid back into gas. These large costs require predictability about prices and markets. Thus the business model for LNG projects has traditionally involved long-term (often twenty-year) contracts among all the interested parties—countries, international oil companies, utility customers, and sometimes trading houses. They share overlapping ownership of tankers and liquefaction and regasification facilities. This model, quite distinct from the international oil business, would last a half century.

  In the mid-1960s, Europe certainly looked poised to become a growing LNG consumer. But what might have been an LNG boom was abruptly stymied—by competitive gas that was cheaper and more accessible. In 1959 a huge gas field—at the time the largest in the world—had been discovered under the flat farmlands in Groningen in the northern part of the Netherlands. Then in 1965 natural gas deposits were also found in the British sector of the North Sea. With that, Britain made a wholesale shift to natural gas for appliances and heating. Subsequently, the Soviet Union and then Norway began to deliver growing volumes of natural gas, via pipeline, to Western Europe. LNG now had to compete in Europe.

  Asia was a different story. Japan, in the midst of its amazing postwar economic boom, saw natural gas as a way to reduce the stifling air pollution produced by its coal-fired electric-generation plants. Lacking any significant gas or oil resources of its own, Japan turned to LNG. The first LNG arrived in Japan in 1969. The source was the United States—the Cook Inlet in southern Alaska, in a project developed by Phillips Petroleum. After the 1973 oil crisis, Japan was determined to reduce its dependence on Middle East oil and diversify its energy supplies. LNG, along with nuclear power, was a key part of the prescription. By the end of the 1970s, Japan was importing large volumes of LNG.4

  As they entered their economic miracle phases, both South Korea and Taiwan—two other hydrocarbon-poor countries—also became major LNG importers. All the projects followed the original model, based on overlapping long-term contracts. Because the imported gas was replacing not only coal but also oil in electric generation, the LNG price was indexed to oil prices, meaning that the price of LNG followed oil’s.

  THE “FUEL NON-USE ACT”

  The natural gas industry in the United States was very different. Natural gas, produced
like oil, had become an important energy resource but a largely local one. During World War II, when gasoline was rationed and fuel shortages in the fighting theaters were a constant threat for the Allies, President Franklin Roosevelt urgently wrote to his secretary of the interior: “I wish you could get some of your people to look into the possibility of using natural gas. I am told that there are a number of fields in the West and Southwest where practically no oil has been discovered but where an enormous amount of natural gas is lying idle in the ground because it is too far to pipe to large communities.”5

  But this had to wait until after World War II. It required the development of long-distance pipelines, stretching halfway across the country, in an industry for which “long distance” had heretofore meant 150 miles. Pipelines connected the Southwest to the Northeast, and New Mexico and West Texas to Southern California. Thus natural gas became a truly continental business, in which the main population and industrial centers were connected to gas fields that were far across the country. As the nation’s economy grew and suburbs rolled out around major cities, natural gas consumption increased at a rapid pace.