Seven Elements That Have Changed the World (13 page)

During the 1980s, LNG from Trinidad could not compete with cheap indigenous gas in the US, where recession had led to an excess supply. So projects to take it to the US were abandoned as was a project to sell gas to Puerto Rico because the buyer would not commit to take the gas for long enough. However, a decade later the US gas surplus had disappeared. There was now a new and profitable export market for LNG. Trinidad’s first LNG train, called Atlantic LNG and operated by BP, came into action in March 1999 at Point Fortin in the south-west of the island. The creation of a new export market sparked new exploration in the country and proven gas reserves grew. Between 2002 and 2005, three more LNG trains were added to Atlantic LNG, fuelling a sustained period of economic growth on the island.
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LNG enables natural gas to be transported to virtually anywhere in the world that has a terminal capable of receiving the LNG and turning it back into a gas. The development of huge new LNG trains around
the world, notably in Qatar and Australia, is transforming a series of regional gas markets into a more global one with the advantage that disruptions to supply, whether caused by political events or natural disasters, can be dampened by quickly sourcing LNG from elsewhere.
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By 2011, the LNG market had expanded enormously and was a hundred times bigger than it had been forty years earlier. It now accounts for a third of all the gas transported internationally in the world. Natural gas has, relatively rapidly, graduated to become a very valuable source of energy. In China, though, 2,000 years ago, natural gas was viewed as a manifestation of evil.

Around 250
BC,
when digging began in the salt mines of Sichuan in China, people thought evil spirits seeped up through cracks in the rock. Workers at the pits would suddenly become weak, lie down and die. At other times, the pits would be rocked by great explosions. Each year offerings would be made in the hope of appeasing the evil spirits. Miners soon realised that these deadly occurrences had a more scientific explanation: an invisible, combustible gas that would rise up through cracks in the rock. By
AD
100 they were using these fuel streams to boil brine at the mine site, leaving behind residue salt. Pipelines were the next logical step. By
AD
200 the Chinese were using bamboo tubes to collect the gas, caking joints with mud and brine to stop gas escaping from this rudimentary piping system. Natural gas could now be transported to boiling houses for cooking and boiling brine on a much larger, and more efficient, scale.

However, salt was still the main preoccupation of the Chinese. In 1835, the Shen Hai well was dug in Zigong to a record-breaking depth of one kilometre. On the way down, at 800 metres, miners hit a reserve of natural gas, but they kept digging. It was salt that they were after; natural gas was merely a useful by-product.

In the past, natural gas has often been regarded as an inconvenience. It is not only found separately, but also found dissolved in oil from which it needs to be separated before the oil can be transported. At the start of
the modern oil industry in the late nineteenth century, the gas was simply burnt off as no economic use could be found for it. It was easier to transport solid coal to where energy was needed and then convert it into town gas, the forerunner of natural gas. Not until 1935 did sales of natural gas overtake town gas.

‘Gas disposal’ was for a long time an important consideration for oil companies since, if gas was not flared, it would inhibit oil production. I remember the roar of the flares burning gas as I played badminton in our garden in Iran. Surprisingly, even today, large amounts of natural gas are flared in Russia since it cannot be used economically. Flaring also continues in other oilfields in inaccessible and hostile environments. Concerns over climate change and simple economics (it may be profitable to use the gas) have reduced this practice. Between 1996 and 2008 the volume of gas flared for each barrel of oil produced decreased by around 30 per cent. There remains great potential to reduce this practice further as around 150 billion cubic metres of gas are still flared each year (around 4 per cent of total global consumption).

The modern gas industry took off in the US in the 1920s with the development of sophisticated networks of pipelines. Advances in metallurgy, welding and compression technology enabled the building of long-distance pipelines, such as the 1,600 kilometre pipeline from the Texas Panhandle to Chicago. From 1940 to 1970 natural gas went from around 10 per cent to over 30 per cent of total US energy consumption. Despite significant growth in nuclear and renewable energy consumption since the 1970s, in 2010 natural gas still accounted for one quarter of all energy consumed in the US. Gas from the furthest corners of the continent could now be brought to homes in the urban centres of US, providing a cheap source of energy for heating and cooking. It could also be brought to electricity generating stations. Today, that is the principal use of natural gas; it is an efficient way of making the electricity we all need.
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Where pipelines start and finish can be restricted by both geography and politics. The US, however, was ideally suited in both respects for
the emerging gas industry. Pipelines could easily be built over large, flat expanses of land and could be linked to large consumer markets by crossing domestic state boundaries rather than national boundaries. But America is the exception rather than the rule.

‘How do I know that when the pipeline is built, China won’t turn around and cut the price they pay for gas to only half of our original agreement?’ said Vladimir Putin to me in 2004, when I suggested to him the possibility of constructing a gas pipeline from the super-giant Kovykta gas field in the east of Siberia into China. Far from any other possible gas market, China, with ever growing demand, seemed the obvious choice. Surprisingly, there were few pipelines crossing their shared border, despite the fact that Russia is the world’s biggest hydrocarbon producer and China is the world’s largest energy consumer.

‘But how do I know that when the pipeline is built Russia won’t start charging us twice what we agreed for gas?’ was Premier Wen Jiabao’s response when I approached him in search of a solution. I had explained Putin’s concerns, and hoped we could find some way to guarantee that China would not backtrack on the agreement. Building a pipeline is very costly. To be financed and to get a return on the investment, a pipeline needs a guaranteed long-term contract between the producer and buyer of the gas. Each party must trust that the other will hold to their part of a deal. For China and Russia, this was not possible.

Through overcoming political and geographical barriers, the use of natural gas has spread across much of the world. And with the ability to trade natural gas internationally, the wealth of nations has grown. But the end of a pipeline is still the end of a pipeline. The inherent restrictions on where gas can be transported from and to often result in a regional, rather than a global, market. The development of LNG has made the market more global, but for an LNG train to be built requires markets to commit to taking the gas for many years. There are, however, surprises as exploration and production technology uncovers new sources of gas. This is the story of the US, which needed to import LNG a few years ago but now has the potential to produce all the gas it needs. That comes about from the successful production of gas
from shale deposits, previously thought too technically challenging to tap.

This shale gas revolution has largely been brought about by the pioneering work of Texas businessman and philanthropist George Mitchell. In an area known as the Barnett Shale in Texas, Mitchell spent the later decades of the twentieth century experimenting to find an economic way to develop the gas dispersed through the region’s impermeable shale rock strata. Natural gas was long known to exist there, but considered worthless as there was no way to extract it. After an initial period of excitement in the 1980s, most other oil and gas companies gave up, but Mitchell continued to have faith in shale gas.

The risk paid off when Mitchell fine-tuned hydraulic fracturing, or ‘fracking’, technologies to release the gas. The techniques he employed, injecting high-pressure water with sand and small amounts of chemicals to break apart rock formations, were not new and had been used across the oil and gas industry for decades. Indeed, Colonel Roberts, using a different technique, was trying to do the same thing in the nineteenth century. But no one had ever succeeded in using the technology to produce economic quantities of gas. When combined with horizontal drilling, which allows more of a shale formation to be fracked, Mitchell’s work finished what Colonel Roberts began.

The US has benefited enormously from the widespread use of these techniques across its many shale basins. At the beginning of the millennium it seemed as if the US would need to import a great deal of LNG. Then, shale gas contributed just 1 per cent of the supply of natural gas. By 2012 it was contributing 36 per cent and reserves of natural gas had almost doubled. At current production rates, the US now has over a century’s supply of gas, half in shale and similar unconventional hydrocarbon-bearing formations. Mitchell’s innovation had made gas plentiful and inexpensive. It is competing with coal for the production of electricity. And most in the industry cannot remember the last time it was so cheap when compared to oil on an equivalent energy-content
basis. Compared with oil, gas has lost around 80 per cent of its value in a decade.

Twelve years after the beginning of the millennium, the US is planning to become a LNG exporter. That has not helped Trinidad. The US market no longer needs Trinidad’s gas.
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Former Prime Minister Manning was right: make sure you use your gas to add as much value in your own country before you export any of it. I suspect that thought will go through the heads of many policy makers.

The successful development of shale gas in the US was enabled by liberal pipeline regulations, subsidies and an abundance of drilling rigs and other infrastructure already in place. These conditions do not exist in the same combination elsewhere in the world, but the development of shale gas and oil is nonetheless beginning to happen, albeit at a slower pace. Countries are dreaming of a new abundance of energy below their feet and some hope that they will become a little more energy self-sufficient.

However, the growth of shale gas development in the US and elsewhere faces great challenges from surrounding communities, environmental NGOs and other pressure groups. They are concerned that fracking can cause earth tremors; that too much scarce water is used and that after it is used it is contaminated and disposed of incorrectly; that the chemicals used in the fracking process contaminate natural aquifers; and that the natural gas released from fracking can get into their drinking water. Dramatic images of US citizens setting fire to water pouring from their kitchen taps have provoked a lot of concern.

Many of these are fears born out of suspicion and misinformation. The incidences of water contamination investigated in the 2010 movie
Gasland
, for example, have largely been shown by the State of Colorado Oil and Gas Conservation Commission to result from activity unrelated to fracking.
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Some concerns, however, have a basis in fact. Just as with nuclear energy, this newly applied technology will be feared and resisted unless all stakeholders’ concerns are balanced with those of commerce. Ideally, the discussion needs to be based on evidence. Some of the evidence in the US is of bad practices by some operators who have cut corners to improve their profits. Standards and regulations are needed
everywhere to avoid the reputation of the industry being set by the weakest players.

Shale and fracking represent the start of a big change in the US energy supplies. What Mitchell had started for gas is now applied to oil (and similar liquids) which can be made to flow from naturally almost impermeable shale beds or other geological formations, so-called ‘tight oil’ or ‘shale oil’ fields.

The balance of opinion is that the US could at last become effectively self-sufficient in energy; it would not need to import energy from anywhere except its neighbour, Canada, unless it decided otherwise. Every US President since Richard Nixon has aspired towards that independence, seeking freedom from reliance on apparently unreliable supplies from the Middle East and South America.
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If this comes about, the political implications will be far-reaching. It means that less oil and gas will flow from the East to the US and the West, and much more will flow from the Middle East into Asia. As my friend and Pulitzer prize-winner Daniel Yergin writes, this is ‘nothing less than a rebalancing of world oil’.
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The US would have many choices as to how it considered its historic energy and defence relationships both inside its hemisphere and in the Middle East. China, too, will need to consider its relationships as it continues to import energy and in particular oil from the Middle East. Domestically, the US has, from shale oil and gas, a cheap and reliable energy supply, which gives it a considerable economic advantage. In short, we cannot know how the US will react to being able to meet its energy needs from its own continent. The choices that it and increasingly energy-dependent Asian economies make will, however, shape the global politics of the twenty-first century.

One important side effect of increasing gas consumption of the US is a drop in its carbon dioxide emissions. Natural gas is ‘carbon-light’; for an equivalent amount of power generated, it only produces half the carbon dioxide of coal. As a result, the US’s carbon dioxide emissions have fallen by almost half a billion tonnes, or 7.7 per cent, in the past five years, more
than in any other country. The growing use of natural gas around the world will be important in reducing the risk of climate change.