By Rich Heidorn Jr.
NEW ORLEANS — The company about to begin construction on a $15.2 billion LNG export terminal is not concerned about fears of oversupply, an official told the Gulf Coast Power Association’s MISO South regional conference Thursday.
“It is true that at this point — with new supply coming on in different parts of the world, including the U.S. — there is a momentary glut of LNG,” acknowledged Jason French, vice president of government and public affairs for Tellurian. “However, virtually everyone who looks at it [agrees] there is going to be a … shortage of LNG by the middle of the next decade,” he said, noting that the number of countries importing LNG has grown to 47 from 29 in the last three years.
French formerly worked for Cheniere, whose LNG export terminal was based on 20-year take-or-pay contracts and $120/barrel oil prices.
“We’re starting to see smaller, modular designs. We’re not in a $120 oil environment so we have to be more competitive,” French said. Tellurian and other exporters are offering portfolios of short-term, mid-term and long-term contracts, he said, as well as taking on equity partners in the projects, unlike the typical 70% debt structure in the first export terminals.
“Sometimes you’ll hear negativity about our industry because of this momentary glut in supply. I tell you, people are steering you wrong when they tell you that, because the future is very bright for what we’re doing.”
Tellurian’s Driftwood terminal, on the Calcasieu River, south of Lake Charles, La., is expected to spend $400 million to $500 million in annual operations and maintenance expenses. Tellurian is currently in discussions with electric providers for Driftwood’s 167-MW load.
Despite his confidence, French displayed some humility about his predictions, noting that much of Tellurian’s management came from Cheniere, which opened its Sabine Pass LNG import terminal — the nation’s first import facility — just before the domestic shale gas boom eliminated the need for imports. “We got this wrong once,” he said.
David Dismukes, executive director of Louisiana State University’s Center for Energy Studies, said capital expenditures in Louisiana and Texas resulting from cheap gas will total $318 billion between 2011 and 2025.
Dismukes said economic theory suggests that U.S. gas prices will rise to the global “proxy” as LNG exports increase, undermining industrial customers who have built new facilities in Louisiana to capitalize on cheap gas as a feedstock. Thus far, however, he said it has been the inverse, with global prices coming down to Henry Hub prices. “That’s not to say it’s going to be like that in permanency, but at least in the near term, we’ve seen this test out,” he said.
