If Tellurian’s Sharif Souki is right, LNG prospects are golden
It wasn’t that long ago that the United States ran out of natural gas, making it harder to feed a thriving nation. Imports would be the key: liquefied natural gas, or LNG, which is frozen before being shipped and regasified. Remarkably, the shale gas revolution changed this paradigm in 2009. The United States would no longer need such imports; instead, he would become a global LNG export mogul.
But this transition was not without pain. And one of the founding fathers of the LNG movement was Charif Souki, an investment banker of Lebanese origin who became an energy pioneer. Souki is an explorer, no pun intended: he is in perpetual search for natural gas deposits to incorporate into his liquefaction facilities – a pioneer who has been overthrown but who continues to rise and move forward. At 68, he changed the American economy by turning it into a powerhouse.
For all his contributions, Souki received the United States Energy Award by the United States Energy Association – the highest honor of the organization and recognition of its services to humanity. This journalist had the honor of being the master of ceremonies of the event last week.
“I am a businessman who tries to maximize his profits,” Souki told this writer in an interview. “As a businessman, I try to do the right thing” – a reference to the fact that while he produces and sells hydrocarbons, he supports a carbon tax to mitigate the effects of climate change. “Technically, this flies in the face of our shareholders. But it is the right thing to do. We have “arbitrage opportunities” – the ability to produce natural gas here for $ 6 per million BTUs and sell it north of $ 20 around the world. “Doing the right thing won’t hurt us. ”
Souki is the founder of Cheniere Energy, which started out as an offshore exploration company. This company then built LNG reception terminals in 2008 for $ 2 million. But when American shale gas production went wild, the dynamics reversed: Souki had made the wrong bet and, figuratively speaking, had to turn around on this towering ship and create a export, at 10 times the original price.
But the visionary persisted. In 2016, the Sabine de Cheniere facility officially became an export terminal. Today, Chenier is the second largest exporter behind Royal Dutch Shell and ahead of BP, Exxon Mobil Corp. and Chevron Corp. It was a financial feat, not to mention a technical and regulatory triumph.
“We are one of the big three”, in reference to the largest LNG exporters in the world: the United States, Qatar and Australia, said Daniel Yergin, vice president of IHS Markit at the ceremony award ceremony. “This innovation has contributed in so many different ways, including the balance of payments” – the difference in value between a country’s incoming and outgoing payments over a period of time. “It saves us $ 400 billion a year. What a contribution to the US economy and energy security.
But it has been an eventful race. When Souki built the receiving terminals in 2008, natural gas had risen to $ 14 per million BTUs. But once hydraulic fracturing and horizontal drilling techniques opened up the shale gas market, those prices fell a year later to $ 4 per million BTUs. And the company’s stock price fell from $ 40 to $ 1.12 per share during that time.
Undeterred, he transformed the receiving terminal into a liquefaction facility and the first exports left the port in 2016 for Brazil and China. The stock then rose in five years from $ 1.50 in 2010 to $ 80 in 2015. And during that time Carl Icahn, a corporate raider and activist investor, got involved and bought 15% of Cheniere. Souki wanted to reinvest his profits and grow while Icahn preferred a conservative approach and larger dividend distributions. Icahn won and edged out Souki.
But Souki emboldened even more. A year later, he founded Tellurian Inc., which explores for natural gas. It is now delivering this fuel to US markets and will soon ship it overseas. French oil giant Total has invested $ 200 million while General Electric has invested $ 25 million in the company.
Tellurian will build an LNG production and export facility in Lake Charles, Louisiana, called Driftwood. When the $ 20 million terminal is completed in five years, it will be able to send 28 million tonnes of LNG around the world. The Bechtel Group is in the process of designing the site and next year construction of the facility will begin.
The timing seems impeccable. Natural gas prices are rising around the world, including the United States – a combination of rebounding economies and supply chain disruptions. In this country, prices have dropped from $ 2 per million BTUs to $ 6. Europeans pay $ 25 and Asians $ 30. A brutal winter will push prices up even more. As for Europe, at least Russia’s Nord Stream II is coming online to ease the constraints. But there is room for more players.
“The world is so short of energy that everything is needed,” Souki told this writer. “We went through a period of very low prices – until this summer. We got complacent and figured it would always be. But the reality is that 15% of the world uses 40% of the world’s energy. For the remaining 85%, they aspire to the same standard of living. The demand for energy globally will exceed our ability to supply it. This country has a huge amount of natural gas, and our business model – arbitrage – will work very well. ”
Souki, however, expects the current crisis to be relatively short-lived. Natural gas prices will peak this winter, he adds, as there is currently too little fuel in stock. But high prices will lead to more production and by the end of 2022, prices will moderate. Global markets are also expected to benefit as the United States has seven LNG export terminals that particularly benefit Asia. They could also supply fuel to Europe.
Russia now supplies 39% of European natural gas. The United States Supplies 3.5%, although a third of all US LNG went to the European Union between January and November 2019, according to the European Commission. And now, Nordstream II will allow Russian Gazprom to double its natural gas capacity for Europe. Can US LNG compete with Russian natural gas?
“I’m worried,” says Souki. “The world will need a lot more gas and we may not be able to provide it. ”
He points to supply shortages in Europe which lead to painfully high natural gas prices. You can’t blame the Russians. And that’s not Covid’s fault. The responsibility lies with European leaders, he says, because they “didn’t plan” and they “fell in love with renewables” – at the cost of abandoning natural gas development and even dismantling nuclear power plants.
Climate change is real and must be fought, underlines Souki. For starters, nuclear power is already working – a carbon-free fuel that runs 24 hours a day. Meanwhile, natural gas is now supplanting the use of coal. If natural gas replaced all coal-fired power plants in the world, he says it would displace 6 billion tonnes of CO2.
But the most ambitious thing governments can do is put a price on carbon to discourage the use of hydrocarbons, Souki continues. The proceeds of these carbon royalties would help finance the development of new technologies or would be used to help low-income residents pay their electricity bills.
Renewable energies are valued and essential. But, he says, it’s unrealistic to think that the world’s power grids will run entirely on wind and solar power – a function of changing weather conditions and inadequate transmission infrastructure. Natural gas, in fact, complements wind and solar: these electric generators can seamlessly accelerate and support sustainable energy sources. In addition, he believes that the need for universal access to energy is paramount.
“Charif was one of the first to see the opportunity to liquefy abundant US shale gas and export it around the world as LNG,” said Jack Futcher, vice president of the Bechtel Group at the ceremony. “He was not seen as an industry player or an insider. In fact, many were skeptical and dismissive of his vision. I can’t think of a better example of entrepreneurial instinct, courage and vision.
Indeed, Souki’s dreams and determination made a huge difference. The United States has moved from being a net importer of natural gas to that of a net exporter of natural gas. And in doing so, the nation has become more self-reliant while helping to empower other energy-hungry countries. Tellurian is a vehicle for further change, says Souki – a company that can tackle climate change and deliver energy and prosperity to those who don’t have it.