[Premium] Tellurian Aims to Undercut US Projects

There was “150 years of energy industry experience” on the stage at a natural gas event in Budapest, Hungary this week, where a group of speakers from a wide variety of natural gas suppliers from around the world gathered at the Budapest LNG Summit. They included relative newcomers to LNG shipping like Tellurian and Cheniere, to the majors like Shell and ExxonMobil.

They were all featured in a session entitled “New routes and new sources in Central & Eastern Europe - Opportunity and challenges for the international LNG suppliers.”

Columbia Energy Policy Center's Akos Losz characterised the “interesting times” for gas suppliers, offering phenomena like the bevy of new LNG suppliers, more flexibility in global energy trade and even new business models emerging in the LNG supply chain as evidence to that fact. He also listed challenges such as the low price environment and the difficulty in getting new projects airborne.

New strategies from US LNG shippers

Citing the growth of global LNG demand year-on-year at 12%, Tellurian's senior vice president, Tarek Souki, said he believed that existing liquefaction capacity is required for global markets, that most of it is being used and that prices are starting to converge.

According to him, the low prices seen in the last 24 months had been somewhat of a remedy in and of themselves. Showing a global map indicating all of the various LNG carriers on the water, he said it was the storage equivalent of 686bn ft³ of gas. “That means that you have somewhere between 10 and 12 cargoes loading every day. By the end of this decade, you will have about 18 or so cargoes loading every day that, within 10-12 days voyage that can meet any source of demand around the world."

This, he said, fundamentally changes the ability of gas to be delivered to consumers.

Souki explained that to demonstrate how the US is part of developing a liquid gas market around the world, his company's strategy had gone beyond the construction of its liquefaction facility in Louisiana and how such businesses had been built in the past, taking advantage of lower costs across the value chain to bring gas onto the market at competitive prices.

He reported: “Most recently, we've purchased an asset in the upstream in the Haynesville and this is part of our strategy to continue growing the upstream with a pipeline down to the liquefaction so that we can get on to the ship free on board at a very competitive cost.”

Fundraising for new projects, he added, will come from offtakers, who receive shares of the upstream and the liquefaction facility. Via this method, Souki explained that the company aims to deliver gas on to the ship at $3/mn Btu which he called a “new value proposition.”

The existing US export project at Sabine Pass takes the Henry Hub price as the starting point, adds 15% for fuel cost, and then charges about the same again, depending on the contract, for providing liquefaction capacity. So by the time the LNG passes over the ship's rail it already costs around $6/mn Btu in today's market.

What big stakeholders want in central Europe

Explaining that ExxonMobil is present across the entire LNG supply chain and that the company is one of the largest importers of LNG in Europe, the company's vice president for International Gas, Peter Clarke, reported that ExxonMobil is set to increase its presence in central Europe, an opportunity resulting from its Black Sea development project offshore Romania and is pursuing exploration activity in the region following what he termed the “successful tender” of Block 10.

ExxonMobil, he said, sees gas as an essential element to the European energy mix. Clarke added that the activity in the region would improve energy security, interconnectivity and inward investment in central Europe and pointed out that by increasing the influence of the gas industry on European energy policy as natural gas is able to fulfil the growing needs for energy alongside environmental expectations. “Natural gas is going to be important here in central Europe as it is around the globe,” he said.

Interconnection, said Clarke, is critical to achieve secure supplies of gas, “both for the region and for individual countries.”

Raising the question as to what investors required to make significant new investments in the gas business in central Europe, he said, “Stakeholders want security of demand. To invest in infrastructure, we want the security of a stable, regulated market and to know that the policy connection will support long-term use of gas.”

Competitive markets are key, he said, where players can compete on a level playing field with price signals that reflect market realities.

Uncertainty for next generation LNG projects

Emphasising the swift growth of natural gas as global demand for energy increases, Anglo-Dutch major's Roger Bounds considered what those involved in the LNG business should keep in mind, despite that growth.

“One of the great things about the LNG business is that it has been growing at about 7%/year over the last four years, doubling in 10 years – that's an extraordinary rate of growth,” he said. “And one of the good things about LNG is we can actually see where the production in the next five to ten years is going to come from, because those projects are now under construction. Over half of the projects that were commissioned in the last decade are now operating.”

However, warned Bounds, in the last couple of years many fewer final investment decisions (FID) had been seen. “The next generation of projects is much less certain,” he commented. The pricing signals were much less clear now, whereas the earlier projects went ahead once the output was nearly all sold.

Drew Leifheit