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Foreign Affairs
The Next Prize
By Daniel Yergin and Michael Stoppard
Daniel Yergin is Chair of Cambridge Energy Research Associates (CERA) and the author of The Prize: The Epic Quest for Oil, Money, and Power. Michael Stoppard is Director of Global LNG at CERA and co-author of The New Wave: Global LNG in the Twenty-first Century.
A Global Gas Market
A new global energy business — natural gas — is emerging. It will have a far-reaching impact on the world economy, bringing new opportunities and risks, new interdependencies and geopolitical alignments. As natural gas becomes a traded global commodity, it will be critical to meeting a host of urgent needs. The United States needs it to keep the lights on and stave off a coming energy shortage, Europe to rejuvenate its industry, developing countries to boost growth, and all of them to meet their aspirations to have a cleaner environment.
The change will be accomplished both with long-distance pipelines and with natural gas that ironically is no longer in gaseous form, having been liquefied through cooling. This "liquefied natural gas" (LNG) will be carried in tankers that can change direction on the high seas to respond to sudden shifts in demand or prices. Thanks to this emerging global commodity market, lights, air conditioning, and factories in the United States will run on electricity that is sometimes generated with natural gas from Indonesia, the Algerian desert, the seas of Trinidad or Nigeria, the island of Sakhalin in the easternmost part of Russia, the frigid northern waters of Norway, or the foothills of the Andes.
Yet, one of the more haunting aspects of this new global gas business is its reminder of the transformational years of the late 1960s and early 1970s, when the United States became integrated with the world oil market. In a few short years, the United States went from being a minor petroleum importer to a major one. The surge in demand from the world markets, pulled by the engine of the American economy, helped set the scene for the oil crises of the 1970s and created dependencies with which the world still wrestles.
For more than half a century, the United States has been broadly self-sufficient in natural gas, save for imports from Canada. In the next five years, it is likely to become a large gas importer; within ten years, it will overtake Japan as the world’s largest. As it inevitably becomes part of this new global gas market, will the United States inadvertently trigger new security issues — or will new interdependencies help reduce future risks?
Many businesses have become truly global in their operations and perspectives over the last decade. Natural gas has been an exception until now. Although it is huge — a business worth over half a trillion dollars a year — it has been a local, national, or continental business, limited by the reach of pipelines and the absence of a global marketplace. But this picture is changing because lng will allow the world’s plentiful but long underdeveloped and "stranded" gas reserves to be efficiently carried to consumers.
The need for a global LNG market is growing urgent. In the United States, gas prices have doubled since the second half of the 1990s, placing a new burden on the economy and portending a shortage. Federal Reserve Chairman Alan Greenspan warned recently that dwindling . . .