The New Map: Energy, Climate, and the Clash of Nations

by Daniel Yergin

the real question seemed to be at what rate imports would...

EOG needed to answer the specific question: Were oil molecules too big to flow through shale that had been fracked? They were clearly bigger than na...

“Let’s look it up,” Papa announced. Surely, there had to be some research papers. Yet, strangely, the EOG team could find no research that ...

They would have to do the research themselves. How large was a natural gas molecule, how large was an oil m...

after fracking would be the pore spaces—the tiny spaces or holes, invisible to the naked eye, in the rock? After investigating the matter with electron microscopes and a CT scan and thin slices of cores, they had the answer—an oil molecule was anywhere from slightly bigger than a gas molecule to seven times bigger. But, cru...

EOG ended up focused on the Eagle Ford Shale, which underlies South Texas. The Eagle Ford was regarded as the source rock—the “kitchen”—for other Texas oil fields, but it was considered to have little commercial potential of its own. Yet in their research, the EOG geologists came across seismic logs from very low-production wells called “strippers” that had been drilled decades ago. As they examined the logs, they became more and more excited. The production profiles of those old wells matched up with how shale wells performed—high initial production, then declining to steady production at a much lower level. The play, said Papa, “was begging for horizontal drilling.”

suddenly visualized something that could not have previously been imagined—120 miles of pure oil.

Papa sent out orders to lease as much land as possible, but also as quietly as possible. By the time they were done, EOG’s land men had acquired half a million acres at $400 an acre. EOG thought it had acquired almost a billion barrels of oil. But as it began to drill, it found that it had greatly underestimated the reserves. Papa broke the news at an investment conference in 2010. “We believe horizontal oil from unconventional rock will be a North American industry game changer,” he said. Once it became apparent what EOG had done, other companies rushed into the Eagle F...

Within a couple of years, it would become clear that Papa had understated shale oil. It was not only a North American game change...

Then there was North Dakota.

After the Bakken and the Eagle Ford came the Permian—the biggest of all. The Permian Basin sprawls across seventy-five thousand square miles in West Texas down into southeastern New Mexico. Much of it is characterized as a “featureless high plain.” It draws its name from rocks that are characteristic of the Permian geologic age, which ended with the “great extinction” that wiped out most living creatures about 250 million years ago. The name itself was derived from the Russian city of Perm, where in the nineteenth century a British geologist had identified rocks of that geologic era.

the “Santa Rita 1,” named for the “Patron Saint of the Impossible.”

Between January 2009 and December 2014, the state’s total crude oil output more than tripled. By this time, Texas was producing more oil than Mexico, and more than every OPEC country except Saudi Arabia and Iraq.

The unconventional revolution also transformed the map of oil resources. One area in the Permian—known as the Spraberry and Wolfcamp—was now deemed the second-largest oil field in the world, behind only Ghawar, Saudi Arabia’s supergiant field. The Eagle Ford was ranked fifth, behind Burgan in Kuwait and another Saudi field, and ahead of the giant Samotlor field that is the foundation of Russia’s oil might. The United States was back, once again a major player in world oil.

Between the end of the Great Recession, in June 2009, and 2019, net fixed investment in the oil and gas extraction sector represented more than two-thirds of total U.S. net industrial investment. In another measure, between 2009 and 2019, the increases in oil and gas have accounted for 40 percent of the cumulative growth in U.S. industrial production.

In practical terms, that means money flowing into paychecks throughout the country. By 2019, the unconventional revolution was already supporting over 2.8 million jobs.* There were jobs in and around oil and gas fields, manufacturing jobs in the Midwest making equipment and trucks and pipes, jobs in California writing software and managing data, and jobs generated by increased income and spending, like real estate agents and car dealers. What is striking is that, owing to the linkages, the economic impact was felt across virtually all states. This was true even in New York state, where environmental activists and politicians succeeded in getting the state to ban hydraulic fracturing and prevent a new natural gas pipeline that would have carried inexpensive natural gas from the Marcellus in Pennsylvania to gas-short New England. The lack of new pipelines resulted in a prohibition in 2019 on gas hookups for new housing and small businesses in Westchester County, just north of New York City. Yet even New York registered over forty thousand jobs that were supporting shale activity in other states.

All of this incremental economic activity generates a lot of federal and state revenues, estimated to be $1.6 trillion between 2012 and 2025.

Shale has generated not only revenues but also environmental controversy and opposition as it grew. As with most major industrial activities, environmental issues around shale need to be properly managed. In the early years of the shale revolution, the controversy was particularly focused on water contamination, either from the fracking process itself or the disposal of wastewater that comes out of the well.

as Daniel Raimi

observes in his book The Fracking Debate, water contamination has proved not to be the system...

the fracturing itself takes place several thousand feet below freshwater aquifers. There was also the view that shale was a “wild west” activity. But shale production, as with the rest of the oil and gas business, is highl...

Earthquakes were another concern, particularly after swarms were felt in Oklahoma. Follow-on studies attributed these quakes not to drilling but rather to disposing of wastewater in inappropriate locations, causing slippage of rock formations and thus quakes. With new regulation of where wastewater could be disposed and at what pressure, the number of earthquakes fell sharply. Much has been learned about managing the impacts on rural communities, including noise and the number of trucks on local roads, while at the same time meeting those communities’ needs for jobs and new sources of income.

The most significant question today concerns “fugitive” methane emissions—basically, natural gas leaking from equipment or pipelines—which is not limited to shale. The Environmental Defense Fund was among those at the forefront in directing attention to methane as a significant greenhouse gas. Reducing those emissions is now a priority for both regulators and industry and a particular focus of the thirteen-company Oil and Gas Climate Initiative. Moreover, the International Energy Agency notes, “Methane is a valuable product and in many cases can be sold if it is captured.”

The effects of the shale revolution on the trade position of the United States are striking. Using 2007 as the baseline comparison, the U.S. trade deficit in 2019 was $309 billion lower than it would have been if there had been no shale revolution. Without shale, the United States would have continued to be the world’s largest oil importer. It also would have become a

large importer of LNG, competing for supplies with China, Japan, and other countries, adding greatly to the trade deficit.

The shale revolution also dramatically improved the competitive position of the United States in the world economy.

Over $200 billion is being spent on new and expanded U.S. chemical-related facilities.5 Tens of billions of dollars more are going into steel fabrication and other manufacturing and processing plants, as well as refining and infrastructure. The primary reason is the abundance of low-cost natural gas. It is used both as a fuel and as a raw material for making chemicals. It also helps lower the cost of generating electricity.

For years, investment by the chemical company Dow had been outward bound, primarily to the Middle East, in the quest for access to cheap natural gas as a raw material for its products. But the advent of inexpensive gas in the United States pulled it back home. The company has since committed billions to expanding or building new petrochemical facilities in the United States.

the burden of Europe’s high energy costs to invest in the United States. In announcing a $700 million investment in Corpus Christi, Texas, the CEO of an Austrian steel manufacturer explained at the time that the low U.S. gas price compared to Europe “is the big economic advantage.”

After decades of U.S. companies setting up factories in China, Chinese manufacturing companies were starting up new manufacturing facilities in the United States,

Inexpensive energy was not the only reason, of course. But for many companies—American and foreign—abundant low-cost natural gas—and the expectation that it will last for a long time—is decisive. All this makes

shale gas a key contributor to what has been called the “manufacturing renaissance” in the United States and to the increased competitiveness of the United States in the world economy.

Liquefied natural gas is the product of a complex process that refrigerates natural gas to extreme cold, down to minus 260 degrees Fahrenheit, thus compressing it into a liquid. Since in its liquid form the gas takes up only one six-hundredth of the space that it would in its gaseous state, it can be pumped into tanks on refrigerated ships and transported across oceans and then “regasified”—turned back into gas—at the other end and pumped into a pipeline system in the receiving country.

The technology had been developed during World War I. But it was only after World War II that experiments began to liquefy gas in order to transport it. The real spur was the killer fog that enveloped London in 1952. Burning cleaner gas instead of coal to generate electricity would help alleviate pollution, and LNG could be the source of that gas.

The major market for LNG in Britain and in Europe largely evaporated with the discovery of the huge Groningen natural gas field in the Netherlands and then additional gas in North Africa and in the seabed off the east coast of Britain.

The growth market for LNG turned out to be on the other side of the world, in the East Asian “economic miracle”—Japan, South Korea, and Taiwan. To lower their dependence on Mideast oil for generating electricity and increase energy security, and to reduce pollution, those countries entered into complex contracts for LNG from Indonesia, Malaysia, and the sultanate of Brunei. Also, a small LNG facility in Kenai, Alaska, would intermittently ship supplies to Japan.

This new LNG business required very large investments—eventually billions of dollars—to find and develop and pump the gas; to construct the plants that, at one end, would liquefy the gas and, at the other, regasify it; and to build the specially constructed tanker ships that would ply the thousands of miles of ocean in between. Given the amount of money, participants in the market required confidence about the long term. Thus a highly interconnected business model developed, ...

Molecules from a particular field in Indonesia or Brunei or Malaysia would end up in specific power plants in Japan, Korea, or Taiwan. There was no buying and selling along the way, no redirection, no middlemen. Prices were indexed to the price of oil. If oil went up, the LNG price...

It was on this basis that the LNG industry turned into a big business. For a number of years, it was largely Asia-bound. Then the emirate of Qata...

Qatar is a flat, sandy peninsula that projects out into the Persian Gulf from the eastern side of Saudi Arabia. For much of the twentieth century, it was a poor country, eking out a living from fishing and pearl diving. That started to change when modest oil production began in the late 1960s. But the rapid development of the North Field, offshore of Qatar, would transform its econo...

Separated only by a demarcation line on the map is Iran’s huge South Pars field. Qatar and the companies it partnered with introduced ever-greater scale into every phase of the LNG operations, including tanker size. The objective was to be able to competitively ship gas anywhere in the world. By 2007, Qatar had overtaken Indonesia to become the world’s largest supplier of LNG. It was poised to begin large exports to the Uni...

This was the global business into which Souki wanted to jump. He set out to build a regasification facility—or several of them. They would take the natural gas, which had been liquefied in Qatar or Trinidad or somewhere else, and turn it back into gaseous form ...

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 o...

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 growin...

Under the Natural Gas Act of 1938, the federal government had to approve gas exports. Cheniere’s application was thorough and did not garner much attention. After all, the whole plan was regarded as not realistic. The application went through smoothly, and, in 2011, Cheniere received its approval. That same year, it got the first of several commitments to buy LNG from Sabine Pass. Buyers ranged from Spain to India.

What had taken Cheniere nine months would take Freeport almost four years. The same proved true for another first-mover project, Sempra LNG at Cameron, Louisiana, as well as other newer projects. They would all have to wait.

After the fact, the Cheniere approval had set off a storm of criticism and opposition. Senators thundered against the decision. Some manufacturing companies, notably from the chemical industry, feared that the export facilities would divert gas supplies that they were counting on and drive up the cost of gas, threatening the billions of dollars they were investing in new plants. They were joined by unlikely allies—environmental groups that opposed the development of shale gas altogether. One environmental organization methodically registered an official objection to virtually every single export application going through the regulatory process.

But the opposition from the manufacturing companies dissipated in the face of the evidence—a continuing increase in natural gas supplies and the persistence of low prices. What finally quelled the controversy and alleviated industry fears was the enunciation of an export policy by the Department of Energy. While declaring that the market provides “the most efficient means of allocating natural gas supplies,” it pledged “intervention” that would “protect the public” in the event of a shortage. Such intervention was highly unlikely, but the protection was there. Approvals were