CERAWeek: With ample U.S. gas, LNG export debate is over, Cheniere CEO says

Even though the market for exporting liquefied natural gas has gotten crowded, companies now have a shot at playing without investing the billions of dollars Cheniere Energy spent on its nearly complete terminal, CEO Charif Souki said Wednesday.

Smaller-scale projects also have the potential to be successful with an investment of $1 billion or less, a fraction of the cost of Cheniere’s $18 billion Sabine Pass terminal, slated to become the first facility to ship LNG from the continental U.S.

Micro-projects wouldn’t have 20-year contracts and they would reap poor profits at first, a gamble not suitable for every investor, but the payoff down the road could be big, Souki said in a panel discussion about the future of natural gas on the third day of the weeklong IHS Energy CERAWeek conference.

More than 30 projects have lined up for federal approval to supercool natural gas and export it to countries with which the U.S. does not have free trade agreements as companies scramble to take advantage of vast supplies of cheap natural gas from U.S. shale formation. But skepticism has been mounting that projects not already under construction will ever get built.

The global crude collapse has erased much of the price advantage of U.S. gas that stoked the initial flurry of interest in building U.S. LNG export terminals. International natural gas prices, which are linked more closely to oil markets, have tumbled dramatically with the fall of oil, making international LNG more competitive against cheap U.S. gas.

In addition, Asian natural gas demand no longer appears as robust as it once did, raising questions about whether new LNG projects could secure enough customers willing to buy all the gas they have proposed to sell.

Still, Souki said the demand for U.S. LNG remains strong, thanks in part to the oil bust. International companies that sell LNG at a price linked to oil have no financial incentive to build new projects, limiting the number of competitors vying for a slice of the global market.

“We expect the U.S. market will continue to grow at a fairly significant pace and become a very significant part of the LNG picture on a global basis over the next five years,” he said.

Critics of LNG export terminals have questioned whether the U.S. has enough excess natural gas to ship out overseas, but Souki said supplies are ample — citing as evidence the burning off of gas produced with oil in shale plays including the Bakken in North Dakota and Eagle Ford in South Texas.

“As long as there’s flaring in the Bakken, flaring in South Texas, and we’re burning gas instead of selling it, the debate is over,”  Souki said.

He also pointed to a backlog of hundreds of wells in the Marcellus Shale alone that have been drilled but not completed as producers hold back in anticipation of higher prices in the future.

It doesn’t take much effort to turn the spigots on those wells, and producers easily could refill the nation’s natural gas coffers if supplies ever started to tank, Souki said.

But that rapid-fire ability to ramp up or slowdown shale production has created a more volatile market, making it more difficult to plan for decades-long projects.

“We’re living … in a world where we have to make investments for 40 years but the market will change every two to three years,” Souki said.

He declined to speculate on how many of the proposed export terminals will get built, but said that pressing forward requires a “certain purpose of will and the commitment to stick with the program for four or five years,” despite the challenges.

“Undeniably with $50 oil prices, it’s harder,” he said. “It gets harder no matter what pricing mechanism you use. We have people who are willing to spend the next five years willing to work on something that’s not quite as obvious as it was five years ago.”

Responding to a question from conference chairman Daniel Yergin about the escalating costs of LNG projects, Souki said the Sabine Pass terminal construction has been predictable with work coming in on time and under budget.

The terminal will ship out its first LNG shipment in the coming months, five years after Cheniere filed its applications for federal approval, a fast pace for any mega-project, Souki said.