Interesting perspective from Charif Souki former boss of Cheniere Energy in this FT article.
Charif Souki, the entrepreneur who pioneered exports of liquefied natural gas from the southern states of the US, is aiming to undercut rivals by 15 to 20 per cent with his new LNG venture, which he hopes will start customer deliveries early in the next decade.
He is planning to build a LNG plant in Louisiana that could be the largest in the US, with first shipments in 2022, but needs to raise up to $12bn to finance it.
LNG prices have tumbled over the past two years as a result of global oversupply and the linkage to oil in many sales contracts, casting doubt over the future of exports from the US.
However, Mr Souki believes that over the next five years or so the market will tighten again, creating demand for new supplies.
Mr Souki founded Cheniere Energy, which in February became the first company to export LNG from the contiguous “lower 48” states of the US, but was ousted as chief executive last December.
He has now started a new company, Tellurian Investments, with Martin Houston, former chief operating officer of BG Group, to compete against his old business.
If the demand for LNG is there, US suppliers will be best placed to meet it, Mr Souki says in an interview with the Financial Times. Much of the infrastructure is in place, and the shale boom is expected to provide cheap gas for a very long time.
“Gas prices in the US are going to be lower forever,” Mr Souki says.
“The only real competition is other Gulf [of Mexico] Coast projects. The rest of the world doesn’t stand a chance.”
Mr Souki was ejected at Cheniere by the board following a clash over his plans for more ambitious expansion. He now hopes to realise those ambitions with his new business.
He plans to undercut his former company, charging customers a fixed fee of $2.50 per million British thermal units of gas that they have contracted to buy, plus 115 per cent of the US benchmark Henry Hub price for the LNG.
Cheniere Energy's LNG plant at Sabine Pass
Cheniere’s fixed fees are mostly $3 per mBTU at its Sabine Pass plant in Louisiana and $3.50 at its Corpus Christi facility in Texas, and it is also charging 115 per cent of Henry Hub for the LNG.
At today’s gas prices, this means Tellurian would be offering a saving of about 17 per cent compared with Cheniere’s Corpus Christi plant.
Tellurian is working to secure a 650 acre site in southern Louisiana, near other LNG developments including the Lake Charles project, which has been inherited by Royal Dutch Shell with its acquisition of BG.
There will be space there for a plant with capacity to produce up to 24m tonnes of gas per year, or about 4 per cent of US production.
The design will be modular, however, with each unit producing just 0.7m tonnes per year, so Tellurian can pace the scale of its development depending on the interest from customers.
Mr Souki calculates that by the end of the decade, Australia will have built about 30m tonnes of extra annual production capacity, including the mega-projects Gorgon and Wheatstone, while Cheniere and other companies will have added 60m tonnes in the US.
With exports from some other producers such as Algeria declining, Mr Souki argues, that will not be enough to meet the expected growth of demand into the 2020s.
“Anybody who wants gas in 2021-22 had better start making deals today,” he says.
Mr Souki’s dream still has some way to go to become reality, however. He needs to raise the finance, and the Louisiana plant has to be built on terms that will make those low customer charges viable.
But, as Mr Souki says, he has a proven track record in securing financing, having borrowed more than $15bn at Cheniere.
He is working with Bechtel, the engineering contractor, on how to deliver Tellurian’s new plant for the price he is looking for, which is about $500 per tonne of capacity, or $12bn for the full-size facility.
Mr Souki is confident it can all be made to work. “I am right: it’s just a matter of when it happens,” he says.
Nikos Tsafos of Enalytica, a research firm, says that while today’s LNG market is not conducive to any new projects going ahead, the industry is cyclical and over the next couple of years interest could revive, leaving Mr Souki well placed. “He sees it as a calling,” Mr Tsafos says. “He has the greatest ambition to have a lasting impact on the global gas market.”
Once again, reminds me how well placed LNG is ... just need BTAs with non-FTA ruling pending.
And I hear a ferret will be at LC in a couple of weeks ...
