Dear reader, you’re with me in the grind now. My intention with this substack is to produce a coherent book on petrohistory, but what you’re getting here is far from the fully realized work. To support this project, buy a paid subscription now, and I’ll send you a “free” copy of the book in a few years, when it’s ready. It will be better than the below.
So here we have a piece about gas that will later be integrated into a section about the 1973 OPEC crisis, material which now can be found in Part II of The Autonomous Chemical Weapon on APOCON, subsection C. This section takes us up to the development of Fracking in the 2010s, although it gets real lazy there at the end around the Enron bit which maybe I’ll go back and rewrite later. Getting myself set up for a piece on LNG and Ukraine that was relevant and fresh when I wrote it.
Gas runs out in a way that oil just doesn’t. It comes rushing out of the ground of its own accord, and eventually the unfracked ground will just be deflated. Also, gas is geographically constrained in a way that oil isn’t: it can’t travel by ship (without first freezing it into a liquid), only by pipeline, and so the producer, pipeline, and consumer all need to be on the same continent. Even so, there is so much of the stuff in the ground that this didn’t begin to happen in North America until the early seventies, after eighty years of increasingly voracious methane consumption.
The shortage of gas forced the unregulated price of gas that did not cross state lines in a pipeline to increase, while the government continued to regulate the price of interstate gas. This caused a shortage in the national interstate gas network that serves the large, northeastern cities, as producers sold to the higher bidders. Eventually, this dynamic initiated the deregulation of the interstate gas market. Deregulation proceeded slowly, but the rest of methane history sits along an entropic slide from gas being a highly regulated public good to a radically privatized commodity that was still nonetheless used and billed to the consumer as a utility. In the old regime, pipelines acted as gas traders: they bought gas from producers and sold it at the other end of the line to utility compacts (themselves to be deregulated to their own degree). The pipelines prevented utilities from making deals with gas providers. In the new regime, the pipeline is a contracted transportation service, and the trading is done on Wall Street.
Gas lived on the margins of the great petrowars, conquests, and fortunes of the 20th century, but beginning in 1973, it moved on to the center stage, where it coexists today with oil, first by way of this great deregulation.
1973 can be considered a useful narrative pivot from oil to methane because of the value of its scarcity. Of course, throughout everything, oil continued to be the main player of American capitalism. 1973 can only mark the beginning of the methane narrative shift that is only now reaching its maturity.
The disciplining power of the seventies oil shock was so important to the development of austerity that it needed to be buttressed not only by a stage play orchestrated between American allies in the Middle East, but also a material shortage of oil’s offspring, gas. The bubbles of gas beneath America had long been popped. Before horizontal drilling, there wasn’t much that producers could get out of old gasholes. There was never an oil shortage, but there was a gas shortage.
The gas shortage was used as a tool to discipline the public, to generate justification for austerity. Where oil is the godfather of the international stage, gas is a domestic creature. It can only be transported by pipeline. Which means, it can only be transported over land. For this reason, and other reasons directly attributable to the nature of flammable gas, it was considered to be a public good, a utility. This was why the price of interstate gas was regulated until the 1980s. The price of intrastate gas, that was burned in the same state it was produced, was not regulated. This theoretically created two separate commodities markets, with two different prices. During the propulsive phase of market saturation, it was easy to keep those prices identical. As it began to run out in the 1970s, the prices diverged, as nobody would sell gas to the price-regulated municipal markets. School had to be canceled because the building had no heat in the middle of winter. This generated a public demand for gas to become ‘deregulated.’ This of course was tightly aligned with the market incentives of the oilmen. The price of a single-carbon molecule had to correlate to the cost of strings of liquid carbons bonded with hydrogen. Even though the molecules travel through the economy on separate tracks. So, deregulated and thus more profitable, gas began its financial journey from the backburner of petrocapitalism to the sexy desk on the commodities floor. By the 2000s, the gas trading game was high risk, high reward, overleveraged and volatile, despite the fact that it was still consumed as a utility.
The gambling culture that grew up around this market reached a first peak in Enron, which will always be a funny thought to someone of my generation. Biggest idiots in the room type of affair, Marx brothers. Because their core gas trading business was a healthy cashflow. They leveraged that, gambled and lost. Others gamble and win, like Charif Souki, and yet others gamble and win a lot and then lose it all quickly like gas traders John Arnold and Brian Hunter who made and lost $5 billion in the 2000s.
Charif Souki had been born into a wealthy, connected Lebanese family, and made millions investing in real estate in the 1970s. He retired to Aspen, Colorado, and invested in a few restaurants that lost money. By the 1980s, oil and gas assets were dirt cheap after a decade of collapsed prices and oversupply. And there they stayed until the 2000s, before they collapsed even further. But Charif could imagine a world in which gas would begin running low; the same wells had been in service for decades. He decided that demand was growing faster than supply, enough so that in a few years he’d be able to make money importing natural gas. The U.S. had started importing LNG during the energy crises of the 1970s, but the old LNG import terminals had been mothballed for decades. He convinced a bunch of investors to go in with him on building a new LNG import terminal on the Gulf Coast, a facility which was to be called Sabine Pass. He started importing by 2004 and within five years the market was utterly destroyed by a massive surge of frack gas, and Souki’s investors were threatened with total loss.