Further candor, a little less hype and a realistic assessment of...

Further candor, a little less hype and a realistic assessment of the great position LNG is in with new MD & Chairman quoted ...


New LNG Ltd chief executive Greg Vesey.

There has been a swift changing of the guard at the nominally Perth-based US gas export hopeful Liquefied Natural Gas Limited, with founder Maurice Brand leaving quickly following the appointment of a successor, career Chevron executive Greg Vesey.

The change at LNG Ltd will mean a dial-up in industry experience, with Vesey’s most recent role being in LNG marketing. And it will come with a toning down of the entrepreneurial rhetoric that characterised Brand’s tenure and helped the market value of LNG Ltd soar to $2 billion a little over a year a ago before an oversupply of frozen gas and stunted progress sent it back to around $300m now.

“I don’t want to go out there and overhype it because I’ve been in this market a long time and I know it can take a while for things to turn around,” Vesey, who will be based in Houston with most of the company’s staff, told The Australian in the days before Brand’s unexpectedly quick departure was announced.

“The state of the market means we’re going to have a realistic, or measured, view.”

Brand’s departure at the start of this month, up to a year ahead of expectations, comes as the company pursues low-cost, mid-scale LNG at sites in Louisiana and Nova Scotia amid a market overflowing with LNG thanks in no small part to the recent ramp up of Australian production.

LNG Ltd’s long-time chairman, Richard Beresford, says the changeover from the 70-year-old Brand, the company’s driving force for 14 years (and who had previously said he was looking forward to retirement), is a natural transition. He praised Brand’s efforts in putting the Australian upstart in the position of being the next US LNG export plant in line for approval and potential development.

“We’re morphing from an entrepreneurially driven development company,” Beresford says. “While wanting to maintain that culture, we also want to ensure we deliver excellence in project execution.”

He also notes that the company has suffered at the hands of investors when it did not delivered on previous timing commitments, which were delayed by factors mostly outside it’s control.

“Now we’re saying it will happen when it happens, and when it does we will let you know,” Beresford says.

What is most needed to give the company a kick-ahead is the securing of long-term LNG offtake contracts at its most advanced project, the $US3.5 billion ($4.6bn) Magnolia LNG project in Louisiana.

Vesey says the project is “shovel ready”, approvals are nearly all obtained and that the last real piece in the puzzle is offtake agreements.

But in the current environment, buyers are few and far between, despite predictions of a market shortage early next decade. “You’re not seeing offtake signed up for any meaningful numbers, just piddly short-term deals that are more stop-gap measures,” Vesey says.

“Can you imagine a situation where Chevron is excited about half-a-million tonnes? From my days, that’s quite a change.”

He was referring to Chevron’s announcement last month of a deal to sell 500,000 tonnes of LNG a year to private Chinese buyer for five years.

Chevron’s Gorgon project in Western Australia, by comparison, will have the capacity to sell 15.6 million tonnes per year of LNG, with a large part of that still uncontracted.

Magnolia is being studied as an 8-million-tonnes-a-year operation, of which it has buyers for about 2 million tonnes.

After more offtake deals are signed and financing is secured, the project is expected to take up to four years to build and will use gas from the US grid.

Vesey admits buyers are feeling no pressure to act. But he says they are starting to think more about the forecast shortfall and the fact development decisions need to be made soon to meet it.

“We’re seeing a deeper level of discussions, but I can’t say anything is imminent because there is no pressure to sign,” he says.

“There are a lot of folks who are keen to be in the market that don’t want to be first, so if they see one or two deals signed, hopefully the dominoes will start to fall quickly.”

Vesey, no relation to AGL’s chief Andy Vesey, has had a 35-year career in the US oil industry, starting with Getty Oil after graduating with a business degree from the Northwestern State University of Louisiana. In 1984, Getty was taken over by Texaco, which was taken over by Chevron in 2000.

Most recently, he was head of natural gas supply, marketing and trading, including LNG, and before that led Chevron’s Technology Ventures unit. The technology position is also relevant to his current position, in that LNG Ltd’s claimed market advantage is its patented OSMR technology that helps keep development costs low.

In April, when Vesey’s appointment was announced, LNG Ltd said Brand would stay on as an executive director for as long until June 2017, when his contract expired. His hastily announced departure, two days before he left, came less than two weeks after Vesey announced 13 staff cuts to save $4.2m a year.

“We had to let some very talented people go because their skills were around construction and putting the plan in place,” Vesey says. “Since we don’t know when that’s going to be, we slimmed down a little to extend the life of the company a little further, at least until additional funding is needed.”

As of June 30, LNG Ltd had $71.5m of cash in the bank, which he says will now take the company beyond 2018 and, hopefully, a final investment decision.

Vesey says work is progressing on the Bear Head project in Nova Scotia, where a recent pullback in west coast Canadian LNG projects could provide an opportunity.

“There has been a lot of money spent upstream in western Canada, but all those west coast LNG plants are going by the wayside in the last couple of months, so the only option is to sell into the North American grid,” he says.

Talks have started with upstream players about moving the gas west on the TransCanada pipeline, at a total cost, including liquefaction, at $US6 to $US8 per million British thermal units.

“It’s not attractive against current LNG prices, but if you assume the market will turn, this could become attractive,” Vesey says.

http://www.theaustralian.com.au/bus...d/news-story/df209c8e8abf02887a855c84b89f7784