The year 2008 was the moment when the bell rang. That year, U.S. natural gas output went up instead of down, as had been the general expectation. That abruptly caught the attention of the majors, the big international companies. Some of the majors began to shift some of their investment back to the onshore United States. In some cases, they bought independents. And a number of international companies—from China, India, France, Italy, Norway, Australia, Korea—paid up to become partners of U.S. independents and provide them with the cash they needed to continue their frenetic advance. (Pg.12)
The most decisive change was in the electric power sector. King Coal had long been the dominant source for electric power, a position that had been bolstered by government policies in the 1970s and 1980s, which promoted coal as a secure domestic source of energy and restricted the use of natural gas for electric generation (because at that time, too, the country was thought to be running out of gas).
In the 1990s, before shale, gas never accounted for more than 17 percent of generation. But, with the arrival of shale, gas was highly competitive on price, and environmental opposition had made it virtually impossible to build a new coal-fired plant in the United States. As late as 2007, coal generated half of U.S. electricity. By 2019, it was down to 24 percent, and natural gas had risen to 38 percent. That was the main reason why U.S. carbon dioxide (CO2) emissions dropped down to the levels of the early 1990s, despite a doubling in the U.S. economy. Any thought of expensive LNG imports had been banished. The challenge was no longer how to eke out scarce new supplies, but rather how to find markets for the growing abundance of inexpensive natural gas. There was just so much of it. (Pg.17)
Souki and Smith worked out a partnership. Smith took controlling interest in one of the proposed sites, Freeport, about seventy miles south of Houston. Souki pushed ahead on a project at Sabine Pass in Louisiana, on the border with Texas. Two international majors signed twenty-year contracts to use Cheniere’s Sabine Pass facility to regasify their LNG shipped in from the other parts of the world. The financial markets were now taking Cheniere seriously. Its stock price rose twenty-five-fold and then split. Michael Smith brought in major investors for his Freeport facility. Construction began at both sites.
By 2007, dozens more regasification projects were being proposed by other groups. In 2008, natural gas prices reached a high point of almost $9 per thousand cubic feet, providing further “proof” of a shortage and thus increased urgency to import LNG. Yet by 2008, skepticism was emerging about the financial strength of Cheniere, and its stock price was falling. Souki himself was becoming depressed about the prospects for his business as he kept reading and hearing about more new gas discoveries in the United States, which could mean less demand for LNG imports.
Then, in the spring of 2009, came the call to Souki from Aubrey McClendon, CEO of Chesapeake, who was at the forefront of the shale gag boom and had built up a huge inventory of drilling sites. “Hey, can you guys do liquefaction at Sabine Pass?” asked McClendon. “Why are you asking?” replied Souki. McClendon became more explicit—could Cheniere build an export terminal for Chesapeake so that it could find markets outside the United States for its swelling volumes of gas and help relieve the growing pressure of oversupply? Despite his growing worries, Souki was still stunned; Cheniere had been going all-out on an import terminal, not an export terminal. And building an export liquefaction terminal could be literally ten times as expensive as an import regasification facility. Then Shell called to ask the same question. This had to be taken seriously, for Shell was no entrepreneur; it was a supermajor oil and gas company, and one of the leaders in LNG.
These calls sounded the alarm that U.S. supply was growing much faster than the market could absorb—meaning there would be no market in the United States for imported LNG. The Cheniere team started working on the numbers. By the spring of 2010, Souki presented to the Cheniere board a plan for turning Sabine Pass into a liquefaction facility—at least $8 billion for the first phase. The board was surprised. It seemed too good to be true. But, the board concluded, the numbers worked.4 (Pg.36)
Not much more than a decade ago, the world worried about “peak oil,” the idea that oil supplies would run out. The focus has shifted to “peak demand”: how long consumption of oil will continue to grow and when it will begin to decline. Will oil lose its value and importance in the decades to come? The demand collapse for oil in 2020 has further fueled the urgency for oil exporters to diversify and modernize their economies, which Abu Dhabi had begun in 2007 with its Vision 2030, and which Saudi Arabia is now trying to do in double time.
If there is one major factor leading to the idea that demand, not supply, is the future constraint, it is related to the junction of climate policies and technology. The one market that seemed to be guaranteed for oil for a very long time was transportation and, specifically, the automobile.
No longer, not on the “Roadmap” to the future. For oil now faces a sudden challenge from the New Triad: the electric car, which uses no oil; “mobility as a service,” ride-hailing and ride-sharing; and cars that drive themselves. The result could be a contest for dominance in a new trillion-dollar industry: “Auto-Tech.” (Pg.xviii)
Edited by EZorrilla.