LNG for Europe: Locking in on the Target

In his presentation to delegates at the Tight and Shale Gas Summit in Budapest, Hungary, Rudolf Huber, CEO of NeXtLNG Ltd. presented a photograph of Steve Jobs to illustrate just how the E&P industry should pursue developing unconventional gas in Europe. 

It was a timely reference to someone who had actualized his vision.

“Shale gas is similar to this,” he said of Jobs’ masterful, goal-driven orchestration of Apple technologies and devices. “We need that in Europe - to make it happen. We need those dreamers here, those who say ‘we’re going to do that.’ It’s a matter of believing in a business concept.”

NeXtLNG, he said, was a specialist LNG project developer providing contracting and business development services, EPCM, finance and solid markets to reserve holders. 

“We developed Bulk Make and the mesh system,” said Huber. “We have three projects underway: two of them are in sub-Saharan Africa and one on the Black Sea.”

Mr. Huber explained that previously he had been involved in LNG for more than seven years, mostly for EconGas, the gas trading arm of Austria’s OMV. 

“I have built up their entire LNG business from putting together first agreements, liquefaction projects and regasification position and have designed new liquefaction strategies and kick started the ‘give to get’ process in LNG for EconGas,” he said

He said that as he was involved in the liquefied natural gas (LNG) industry, he was used to opposition. Huber recalled, “People opposed LNG tankers travelling through waterways near their houses, thinking they might blow up and felt perfectly safe with chemical tankers passing nearby.”

“It’s a matter of perception. People overestimate the dangers of what is new and underestimate those of what they’re used to.”

He noted the effects on LNG from unconventional gas and said that shale gas had killed LNG in the US, where there once were 65 terminals proposals covering the coasts of the continent.

“Now they’re thinking about liquefying shale gas and exporting it in order to make any sense of those few that got built.”

One of Huber’s slides said, “Just because you can, does not mean you should.” It showed someone playing soccer in scuba equipment. He recalled what he said were stupid ideas that had been dreamed up in LNG, some causing double-digit billion USD CAPEX exposures.

“‘There’s the high LNG prices right now, there’s the after effects of Fukushima now,’ they might say,” he offered as explanation, “but we all seem to forget that those things are temporary and that such schemes have very long financing periods like 20 years. When the effects of short-term events will have evaporated, one is left with a project that just is too expensive.”  

Location was also a big challenge – sometimes prohibitive - to oil and gas projects. He said development of Russia’s Shtokman gas fields could be considered a case in point. “It’s in the Barents Sea, and they have icebergs. You’re refining gas in the middle of the Arctic, and then have to transport gas very far away. That’s not like developing gas in Poland or the Ukraine.” Huber explained. 

“There are no reliable figures for the costs; some say the gas can’t cost less than $9-10 mmBTU before it hits Europe. If the old Siberian gas fields would have to be developed under modern project economics, they would all be stranded gas.”

According to him, that was in big contrast to what unconventional gas was all about.

“You are here,” he said. “You have the gas under your feet and you just have to deal with the technical problems. 

“Many of them will prove to be economical,” Huber stated of unconventional gas plays.

Again, another example from the LNG world. He said that Qatar had, for 20 years, tried to export its gas via Saudi Arabia to Europe, and when they found out it would not work, as an option of last resort reverted to LNG.

“Today they look like the big superstars, because history has played into their hands. They took the gutsy decision of going for it,” he said of the country’s LNG exports.

Regarding Cuadrilla Resource’s recent huge resources estimate at Blackpool in the UK, and the authorities’ pointing the finger at the company’s hydraulic fracturing as the cause of some seismic activity, he said: “People forget very quickly.” 

In connection with that, Huber added, “I don’t think the nuclear power phase out is written in stone. When people see their utility bills going up and staying up they will reconsider.”

He said he’d had discussions with Europe’s pipeline builders, who believed unconventional gas would not happen. 

“They forget their own problems,” he countered. “When I look at some of the projects on the map, aren’t they looking like pipe dreams? Has anyone ever told you what the transport tariff will be on one of them? Compare that to unconventional gas in Europe, and I think it will be the winner in many cases.”

Gas, he said, was green, and it was abundant.

“I see societies or companies going gas, because there’s no peak in sight,” observed Huber. “There’s a feeling that gas won’t go out in our lifetimes. There’s a here and now situation as the technological foundations are mature. It’s the absolutely perfect substitute to any kind of oil production.”

He believes that in China and India, development of unconventional gas was more for job creation and less for security of supply.

In terms of energy security, Mr. Huber offered up where the US now sat with its shale gas resources.

“Today, the US is a totally insignificant nation for LNG. Shale gas frees LNG up so it can go to places for which it was unintended originally.”

The development of unconventional gas in Europe required a bit of entrepreneurial soul searching.

“What risk are you comfortable with?” he asked the delegates. “What kind of entrepreneur are you? Are you just going to go where others have gone; most companies are just trying to rush in something that someone else has done. Unconventional gas is an area where new companies can make themselves a name.”

Huber explained that high natural gas prices were the driver for why unconventional gas happened in America in the first place, encouraging innovators to pursue it.

The present high costs of exploration and production in Europe, he said, would eventually go down.

“If it succeeds, prices will go down. Look at America - they are still producing despite low gas prices. There are liquids associated with unconventional gas and that improves economics.”

He said players in Europe would need innovation, not only technological, but unique approaches to dealing with local problems and opposition to unconventional gas. 

“In the end it’s always ‘the economy, stupid.’ Economic pressure is created and looks for relief,” said Mr. Huber of the prime driver that created an atmosphere for pushing an industry forward.

He continued: “We need our first innovators to go there and try things out. There will be dry holes, earthquakes, things that go wrong just like in any industry. 

“There’s no way to learn something if nothing fails.”

As regards the future of LNG in Europe, Mr. Huber added: “LNG's nature will change dramatically with all the shale coming up. LNG should not compete with shale but much more be the premium fuel for replacing other liquids like diesel, gasoline but also heavy fuel oil. That’s already happening and will be a paradigm change in the industry. 

“Shale and LNG are very complementary,” he said.