September 20, 2019 | 12:06 am
BATON ROUGE, Louisiana
— China, India and Europe will remain the main demand growth drivers for
liquefied natural gas (LNG) but smaller markets are emerging to receive the new
fuel capacity in the US, an integrated global gas business with a new business
model predicts.
“There’s a number of
new markets that are opening up, facilitated by new technology called floating
storage and regasification units or FSRUs,” said Renee Pirrong, research and
analysis manager of Tellurian, Inc.
Based in Houston,
Texas, the company she represents has presented a new business model that
departs from the traditional set up for gas businesses in the US.
“Traditionally, you’d
have to build a rather large land-based import facility, but now we’ve actually
started converting LNG carriers into regasification facilities, which makes it
a lot faster to build infrastructure. All you really have to do is build a port
and hook up an FSRU to that port,” Ms. Pirrong told reporters from Asia and
Europe, or regions where the company expects LNG demand to come from.
Tellurian’s business
model promises natural gas prices at the lift cost, or the price it takes to
extract the fuel from the ground. But to be able to do that, the customer is
required to be an equity investor.
“Essentially you’d
purchase 1 million tons of LNG for an upfront cost of $500 million. So an
equity cost of $500 per ton, and for that cost you are entitled to lift LNG at
the facility at cost, so you’re not paying a premium every month for your
long-term contract,” Ms. Pirrong said.
Tellurian subsidiary
Driftwood LNG LLC is developing the production and export terminal in
Louisiana. Once completed, the facility will be able to export up to 27.6
million tons of LNG a year to customers anywhere in the world.
Joi Lecznar, Tellurian
senior vice-president-public affairs and communication, said Driftwood has
secured all the required permits from the US government.
“We have secured one
partner so far — Total. They have invested enough,” she said.
Of Driftwood’s
capacity, she said Tellurian would be retaining 14 million tons for its own
trading portfolio. The group plans to trade in London apart from its existing
trading activities in Singapore.
Ms. Pirrong said at
least 100 million tons and potentially up to 250 million tons of capacity is
required to satisfy demand growth on a global basis.
That demand makes the
US well-positioned to export its LNG. The country has emerged as the largest
producer of oil and gas in the world largely because of the shale revolution,
which started before around 2010 as private exploration and production
companies started experimenting with ways to extract resources from shale.
Ms. Pirrong said the US
in 2018 had the largest year-on-year growth of oil production in the world. The
dramatic growth in natural gas and oil production in the country has had an
impact on the prices of the commodities.
“It was the largest not
only in the United States but on a global basis. And that was entirely driven
from the shale revolution,” she added. “What that has done, it has a
corresponding downward impact on global oil prices.”
Ms. Pirrong pointed to
a “synergistic relationship” where the US needs global markets as an outlet for
its excess production, and global markets need the US for gas supply. Asia, for
instance, needs gas for power generation.
“We’re seeing a lot of
emerging markets such as Bangladesh, Pakistan, Lithuania using FSRUs as a way
to provide greater optionality for fuel imports, and as a low-cost way and a
fast way to do so,” she said.
With the assets
Tellurian is developing — from production, developing pipelines and the plant
itself, it anticipates to build energy infrastructure worth about $30 billion
from the Driftwood project alone.
“We believe that we can
produce LNG at $3 per mmBtu (million British thermal unit),” Ms. Pirrong said,
adding even assuming a shipping cost of about $1.50 a destination in Asia could
mean a total cost of $4.50 per mmBtu, the benchmark in pricing the fuel. — Victor
V. Saulon
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