The U.S. is becoming a leader in the global market for liquefied natural gas (LNG), amid record gas production at home and growing demand for the fuel abroad. What opportunities does that present for the U.S.? And what challenges follow from this changing global market?
In this edition of Columbia Energy Exchange, host Bill Loveless sits down with Meg Gentle, the president and CEO of Tellurian Inc. Bill and Meg got together outside the World Gas Conference in Washington, D.C. to talk about the emergence of the LNG export business in the U.S. and the opportunities for sales of gas in China, Europe and the rest of the world. They also discussed potential obstacles to growth in that business, including the prospect of trade wars between the U.S. and other nations. Finally, they touched on her status as one of the relatively few women at the top of the corporate ladder in the oil and gas business, and whether she thinks that will change any time soon.
read the transcript
[00:00:02]
Bill Loveless: The U.S. is becoming a leader in the global market for liquefied natural gas, the mid record gas production at home and growing demand for the fuel abroad, but how big is that opportunity for the U.S. and is there anything that could get in the way of it. Hello and welcome to the Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University from Washington, I am Bill Loveless. Our guest today is Meg Gentle the President and CEO of Tellurian a used and based company that aims to break in to the growing U.S. market for LNG exports.
Meg is hardly a newcomer to the LNG business having played a big role at Cheniere Energy which two years ago became the first company to export U.S. shale gas as LNG. She was Cheniere’s Chief Financial Officer and held several other top posts of the company. In 2016, Meg joined Tellurian as a President and CEO and teamed up again with Charif Souki the co-founder of Tellurian as well as of Cheniere’s some years before. There she is leading efforts to build a new LNG export giant in the U.S.
Meg and I sat down outside the World Gas Conference in Washington to talk about the emergence of the LNG export business in the U.S. and the opportunities for sales of gas in China, Europe and the rest of the world. We also discussed potential obstacles to growth in that business including the prospect of trade wars between the U.S. and other nations. Finally, we touched on her status as one of the relatively few women at the top of the corporate ladder in the oil and gas business. And whether she thinks that will change any time soon. Here is our conversation. Meg Gentle, welcome to the Columbia Energy Exchange.
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Meg Gentle: Thank you Bill for having me on your esteemed podcast.
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Bill Loveless: I appreciate that. You know first let’s talk about you, your -- you got your B.A. at James Madison University in Virginia, you got your MBA from Rice University in Houston. How did you get involved in energy?
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Meg Gentle: It’s an interesting story actually. I was in an International Affairs and Economics major for undergrad and I moved here to Washington DC to live with Sorority Sisters and -- and work on the hill and I ended up answering an ad in the Washington Post which said only research analyst and my phone number. And it turned out it was for a natural gas research analyst job with CCPs Resources which is now called Pace Global and they are an energy consulting firm out in Fairfax. And I was interviewing and they asked me, would you be interesting in selling a 100 MMBTU of gas to a utility in Kansas. And I said, well when you teach me what is an MMBTU I will be interested. And that was my entry into the energy business.
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Bill Loveless: It was the serendipity factor.
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Meg Gentle: Exactly. Fate was at work.
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Bill Loveless: Right place at the right time. And then you went on from Pace to Anadarko where you were involved in international business development and then on to Cheniere where -- which you spent some 14 years from 2000 to 2014 in a variety of positions with that company Executive Vice President for Marketing, the CFO, you arranged financing that enabled the company to go from _____ [00:03:32] strategy from inputs to exports. I am sure that was quite an experience?
[00:03:37]
Meg Gentle: It was an amazing growth experience both for imports and for exports. And really I have been in Houston now almost 20 years. And -- and now we are with Tellurian doing what we’re now best building infrastructure and starting over to build a 30 billion dollar company from the scratch.
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Bill Loveless: And of course you’ve been the CEO you became the President and CEO of Tellurian Investments in 2016 and of course that’s a company founded by Charif Soufi the founder of Cheniere as well and Martin Houston. You told plats of my old outfit, news outfit that you see yourself as a disruptor and what did you mean by that?
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Meg Gentle: I think it’s important to recognize trends in the market and anticipate change. And for the LNG business, there was a lot of change happening because the U.S. flexible volumes are brining liquidity. And frankly the ability for the market to expand on a much more rapid and -- and stable basis. So, that means that we have to think of new business models, new pricing indices, new ways of managing differences in prices across the world and break apart old norms in the industry that have sort of captured behind as a -- a true commodity.
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Bill Loveless: Right, right. And the market is still relatively new. The export market from the U.S. You know the U.S. is emerging as a leader in LNG exports having begun to ship gas LNG just two years ago in 2016. And that’s from the two export facilities that have come online in that period of time when Cheneire’s Sabine Plant in Sabine Pass Plant in Louisiana Dominions Cove Point Plant in Maryland four more are scheduled to start operations in the next two years in Georgia, Louisiana, and Texas. What do you make of that growth?
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Meg Gentle: We will be taking U.S. LNG exports from what was only Alaskan less than half a million tons a year going to Japan to about 10 BCF a day of gas production which today is about 1/8th of the total -- total production and about 75 million tons of capacity which will make the U.S. the third largest LNG exporter after Qatar and Australia.
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Bill Loveless: Over what period of time we’re talking about, Meg?
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Meg Gentle: This will be by 2021 when all the plants that you mentioned are online. And -- and so the U.S. will represent about 20% of the total LNG market. This has been really important for the LNG business so we have to grow up if you would as a commodity because prior to the U.S. all of the LNG investment was made based on the long-term 20 year contracts with very, very restrictive destination causes where the LNG left the plant of origin and went to the destination country and had very little ability to move around the world, which meant that new markets had trouble getting access to LNG supplies. The U.S. LNG is leaving the Gulf Coast and for the most part it can be completely destination flexible. So if it’s supposed to go to Korea, but prices are lower in Korea and higher in the UK like we’ve seen this month because the UK has no wind, then the Korean buyer can divert their cargo and send it to the UK instead. So it’s bringing a lot more flexibility into the market.
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Bill Loveless: What’s – what’s prompting that flexibility though?
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Meg Gentle: A couple of things. First, just that structure of the contract and then second is the increased ease in building the infrastructure on the market side. So the regasification infrastructure can now be installed in you know less than two years for fairly low capital cost. And so that’s allowing markets with smaller demand than before and -- and maybe weaker credit to start becoming an LNG importer you know with us little as 300 -- with us little as yeah 300 megawatt power plant.
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Bill Loveless: But now Tellurian is -- is coming into the -- into the market with plants for an export facility in Driftwood in Louisiana. The company has as I understand it what it considers an experimental model, what is that?
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Meg Gentle: So now we -- we talked a little bit about the capacity that’s coming online all of that’s under construction. Now we face what do we do next yeah. So we succeeded as a nation in bringing a lot of flexibility to the market, but that means the market is changing, right. And as a market become -- any market becomes more commoditized the most competitive projects are going to be focused on cost. It is all about beating the marginal cost of supply to be able to ensure profitability for the project and for the company.
So what we decided with Tellurian is that we needed to attack the cost not only in the construction of the plant, but also in the production of the gas and the logistical transport of gas from the field to the export facility. And therefore we should develop the next project on an integrated basis and we’ve been buying resource in North Louisiana in the Haynesville gas field in order to start that integrated project. We approached the LNG community and explained to them what we are planning to do and overwhelmingly they asked if they could come as a partner in the project.
So this is how we evolved to the partnership structure that we are proposing whereby the customer will become a partner and invest capital. Their invested capital will fund all of the budget to buy acreage, drill and produce gas, build pipelines to transport it to the Driftwood facility and build a liquefaction plant. And then we will deliver gas to all of the partners at as low as we can get the cost, so that we are all as competitive as possible in a market that is more flexible and changing and liquid. And we should be able to deliver gas FOB so delivered on to the vessel in the Gulf Cost for $3 an MMBTU which is the equivalent delivery to Europe of about $4 an MMBTU and to Asia about 4.50 an MMBTU which today compares to market prices in Asia which are about a 11.50. So --
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Bill Loveless: And what is the timetable for that Meg for this project because as you say it’s a full -- it’s a widely designed project one involving gas production pipeline construction to get it to the export terminal and the export terminal itself. How much is the overall cost of this project?
[00:11:28]
Meg Gentle: In total, the Driftwood facility is a 27.6 million ton facility which means it will convert about 4 BCF a day of gas production to LNG. And the budget for everything from the well head to the plant during the construction period is about 25 billion dollars. And -- and that will fund the acquisition of acreage, drilling, production of gas during the construction period, some interconnecting pipelines and the liquefaction plant. And we can break that budget down into about four different pieces so that we can proceed interfaced manner as we are going forward.
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Bill Loveless: And -- and the timetable for actually completing the project getting it built, getting it online?
[00:12:22]
Meg Gentle: It’s about a four year construction schedule for the liquefaction plant and we will be able to begin that as soon as the Federal Energy Regulatory Commission completes our permits which should happen in January of 2019. So we start construction in the first half of 2019 and we have first LNG production in 2023. And then we continue to ramp up through you know probably the end of 2025.
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Bill Loveless: Yeah, it’s interesting. It’s -- it is such an interesting project though in preparing for our discussion I was doing some reading and I saw a comment by the fellow named Ethan Bellamy who is with Robert W. Baird & Company and he is an analyst. And again he said in the plat story she’s as much a backer as she is a diplomat. Is that a fair characterization?
[00:13:09]
Meg Gentle: Good thing I have some years under my bell as the CFO because there is a lot of banking right and financing that has to go forward. And -- and as we’re forming a partnership this is investment in a long-term relationship with counter parties that come from countries all over the world and we all have to -- all of us come together and you know work towards common solutions on a very big capital project.
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Bill Loveless: How do you see the -- the market of LNG shaping up? You know the U.S. as we discussed has been accelerating quickly in its own exports according to the energy information and administration 53% of those exports went to Mexico, South Korea and China with in that order, but China is seen as a big player here. The Center on Global Energy Policy just released a report pointing that out and noting China’s growing appetite for LNG and the extent to which you will drive investment in LNG around the world. What -- how do you -- do you share that same view of China?
[00:14:20]
Meg Gentle: Definitely yes. The growth in the Chinese market has been incredible. We have seen even year to date 60% increase in LNG imports from China in the first half of 2018 compared to 2017. There was a commitment in the Chinese economy to cleaning up their polluted cities. And I in fact inspired to help people have clean air, right. And -- so there are I think five million homes a year in around Beijing that alone that are being converted from some kind of coal fired heating system to either natural gas or electricity which will be you know pulling on natural gas fired power generation.
I think there are eight thousand vehicles a month that come on to the road that are natural gas fired vehicles. So you can see that the Chinese economy is actually growing parts of an elastic demand that will form a base for increased gas use. As of earlier this week, China is now the largest consumer of natural gas both pipeline and LNG and we expect that they would be an importer of about a 100 million tons of LNG somewhere between 2025 and 2030.
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Bill Loveless: And what -- and let’s talk about the rest of the world while we are at it, there is other major consumers of -- of LNG as well South Korea, we mentioned in the U.S., Mexico and there’d been other countries in Latin America that have had a demand for liquefied natural gas and of course there is Europe. When you go around the globe, how are you seeing the market shaping up?
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Meg Gentle: Japan is still today the largest importer of LNG all the gas they consume being an island nation comes in the form of LNG. So more than 70 million tons actually almost 80 million tons of LNG imported in Japan. And -- and along with Japan there are very important traditional markets which I would consider Japan, Korea, Taiwan, Spain, Italy, France, and a little bit the UK that you know are an important base for the LNG market. The big growth engines are coming from the growing economies in Asia not only China, but also India who is planning to have a total installed regasification capacity of 80 million tons.
And even places like Malaysia and Indonesia which are traditional exporters of LNG, but are finding that they need gas for their own population and their production is in decline. So Indonesia for example is becoming an importer of LNG on some of their islands as they continue exporting from other places. So the Asian engine for growth is -- is incredible and a lot of it fueled by desires for decarbonization and clean air and just stable power generation for a growing population.
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Bill Loveless: And so is that where you focus most of your attention right now Asia when you look into build the market for Tellurian?
[00:17:50]
Meg Gentle: We are pretty balanced worldwide because as you would imagine we’d prefer our diversified portfolio. Asia consumes about three-quarters of all the LNG in the world, so naturally it’s a very important market for us. But the political benefits that we bring to Europe by being able to deliver gas supply alternative to Russian supplies. It is really important as we look for markets that that are growing and reliable. And then there are definitely important places in central Mexico central and South America, Brazil and Argentina for example.
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Bill Loveless: Right.
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Meg Gentle: In addition to Mexico do consume a lot of LNG cargo sometimes just off the sport market as they’re responding --
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Bill Loveless: Sure.
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Meg Gentle: to shortages in -- in hydroelectric power.
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Bill Loveless: You speak of Europe, how -- how does U.S. gas compete with gas from with Russian gas in Europe?
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Meg Gentle: Ah, such a great question because really for the first time ever we know that we can produce gas in the U.S. for less than a dollar an MMBTU and that means that we are able to compete with the cost of Russian gas supplies. Russia has been a reliable supplier to Europe and we would anticipate that’s an important part of the energy balance in Europe. The existing pipeline infrastructure brining Russian gas across the border is even this summer I think nearly full capacity and definitely runs at full capacity in the winter. But imports of LNG provide a nice alternative and can compete head to head, so places like Lithuania and Poland which decided to go forward and invest in regasification infrastructure without necessarily having a long-term contract who have been in our opinion the exactly correct thing to focus on, build the infrastructure and then you have the access to the global market if you want it.
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Bill Loveless: Does the -- the prospect of the Nord Stream II pipeline coming in from Russia to Germany factor into your own planning very much in terms of that where infrastructure in Europe and the competitiveness of U.S. gas with Russian gas?
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Meg Gentle: Oh, no. Certainly the Nord Stream II project would help Russia face like only operating cost right once the pipeline is installed it’s on cost and give Russian gas an ability to increase where our pipeline capacity is generally full right now. And so we would simply compete head-to-head with those supplies.
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Bill Loveless: U.S. Trade Policy is very much in the news right now and I know here at the World Gas Conference this means a lot of discussion of Total’s CEO Patrick Pouyanne told the reporters here that a Trade War with China would be very bad news in his words for LNG exports. What -- how do you view that, do you see the potential risk here and if so how great the risk might be?
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Meg Gentle: A trade war with China that included LNG and natural gas would definitely hurt the competitiveness of the U.S. gas going into the global market. And it’s a really important consideration as you know we as a nation, as a government, as a industry are trying to support increase in oil production, right because the U.S. is expected to increase natural gas production much of which is a result of associated gas coming from oil production by about another 25% so adding roughly 20 BCF a day into a market that domestically does not grow very much. So arguably the U.S. needs to access the global market and double it’s export capacity in order to support the oil industry. So you know it’ll be a curious time to actually hurt the competitiveness of U.S. gas export at a time where we really have the opportunity to completely rebalance the energy balance of power with --
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Bill Loveless: Right.
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Meg Gentle: with our energy exports and help our allies in times of instability.
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Bill Loveless: Yeah, I imagine this is something _____ [00:22:34] is one of the investors in Tellurian that’s why Pouyanne’s remarks struck me, but nevertheless there must be a topic that’s very much one in the discussions you have with your peers in this industry right now?
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Meg Gentle: We are in discussions with several potential Chinese buyers and find that they would be a natural benefit to -- to the partnership and so we’re supportive of LNG not entering the trade war.
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Bill Loveless: Right, right, right. You want to get some feedback from them from out of concerns that are raised on that -- on that very subject. You talk it all to the _____ [00:23:17] in Washington, talk it all to the -- to the administration about this or --
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Meg Gentle: We do indeed and we can know definitely this the U.S. is the largest producer of natural gas in the world and China is now the largest importer of natural gas in the world. So there must be a rational trade between the two of us.
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Bill Loveless: You know the Trump administration is bullish on U.S. LNG exports as we’ve -- as we’ve indicated, but as was the Obama administration before. I used to correspond with the regulatory regime that’s in place for proving LNG exports.
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Meg Gentle: The administration has several important goals that I would be boastful and say that we are perfect for meeting those goals, particularly that we will have obviously a huge infrastructure investment 25 billion dollars of investment that actually will come in 2019 in the form of foreign direct investment that will benefit the balance of trade. We will have about 14000 direct jobs building the terminal and the pipelines and probably 50000 indirect jobs in and around the country. We will have manufacturing from I think over 30 states that have some small and some large orders including our refrigeration units that come from Wisconsin and about a billion dollars of GE equipment, so happy to have a pretty significant Made in America stamp.
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Bill Loveless: Why mention that though Meg I mean we’re talking about tariffs and Trade Wars and all kind of stuff. There are tariffs on steel now I mean does this affect is this is a big cost factor for you?
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Meg Gentle: We created a contingency in our budget for whatever ends up being the final outcome on steel tariffs. So it will not increase the budget that we’ve estimated thus far we’ve provided for that. It will impact us, but probably less than three percent.
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Bill Loveless: You know again back on the -- so it sounds like you’re -- you’re okay with the way the approval process both at the Federal Energy Regulatory Commission and the Department of Energy for LNG projects the pace at which it takes place you’d always want it faster than it maybe going, but you think more or less it’s -- it’s working well?
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Meg Gentle: We’ve always enjoyed our working relationship with the FERC and have an enormous respect for FERC staff who have been very organized and efficient on evaluating the project and reviewing all of the engineering submissions and the portions that are completed by the other agencies. And so we find that the FERC process is fairly transparent and procedural and we’ve been very proud to always submit to FERC a very, very robust filing and have a very experienced team on the regulatory side. I would say that so far the permitting process is going slower than we experienced when you know our same team permitted Sabine Pass and already it’s taking almost twice as long.
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Bill Loveless: What do you think that’s happening?
[00:26:33]
Meg Gentle: I think we had some vacancies in FERC staff early in the administration, so there was some building up of work. There was also a freeze on hiring at a time when FERC was getting more LNG applications and probably needed to be adding staff that’s getting rectified now especially in the engineering group.
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Bill Loveless: You know building pipelines and other infrastructure is critical to expanding the LNG business in the United States, but that’s not always easy just given the levels of -- approval that are required at the federal and the state level and you know the potential for public opposition in some cases. Is that a significant impediment to U.S. LNG trade right now?
[00:27:16]
Meg Gentle: We have a very important philosophy which is that we should build infrastructure in communities that welcome the infrastructure being there. And this has been something that we’ve worked on even when we were developing infrastructure for Cheniere and then the relationship in that community is also very important. The facility needs to be like part of the family of the people that live there. And we want the community to be proud that we are working with them and to have people that are in their family working at the facility.
So developing those skills among the local community so that they can work in various jobs and management positions at the terminal itself is critical and going early to listen to concerns that the community has is the first step in making sure we don’t have friction. I was at the site just last week doing exactly that so I met with our neighbors and all the community leaders to understand their concerns which for now are largely focused on increased impact to them of traffic. So we do not find local communities to be an impediment to -- to our development, but that’s in large part due to the various important investment that we make in that relationship.
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Bill Loveless: Right. What about pipelines? I mean I hear a lot about the need for new pipeline capacity in the shale basins in Texas, Louisiana that it’s simply with the boom in production that’s taken place. There is a tremendous need for pipelines to drain those fields and get in this case gas to market whether it be in the U.S. or for LNG export. There are a bunch of applications pending. Is that -- pipelines being approved fast enough to support the growth in the LNG market going forward in the next few years?
[00:29:23]
Meg Gentle: We do believe that there will need to be over a 100 billion dollars of investment in pipelines to re-optimize gas production around the country because the network of pipelines was built to take gas from the Gulf Coast to the market areas on the west coast mid continent and of course the east coast and now those are needing to be reversed, so the telescoping you know diameter is all -- all wrong. And -- and of course the permitting process could always go faster from the industry point of view, but it’s really important that we have like proper attention to you know safety and environmental consideration.
So in general yes I believe that the pipelines will get built. We expect to see some dislocations like what you’re seeing today where gas in the Permian is pricing at Henry Hub minus a dollar of 60 which is way wider of a basis than would be required if there were ample infrastructure. So we will have temporary dislocations like that and it’s really incumbent upon industry to get our projects filed with the FERC so they can get started.
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Bill Loveless: Yeah. I mean do you think the FERC you mentioned before they had been perhaps a shortage of personnel there and all that may have delayed consideration of some of the export -- export projects do you think that may also be the case with the with pipelines?
[00:30:55]
Meg Gentle: The pipeline staff is more robust anyway to handle pipeline projects and they are less specialized than you know the engineers after review the LNG engineering. So I don’t think the staffing requirement will be as acute.
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Bill Loveless: You know I want to shift the focus a bit before we wrap up and that’s you know you’re at the top of a field where there a very few women executives. According a 2017 report by the World Petroleum Council and Boston Consulting Group women account for just 22% of the workforce in oil and gas. What do you make of that situation and is it likely to change anytime soon?
[00:31:36]
Meg Gentle: I do see it changing because more young women are working at you know the base levels of companies so as we go forward in time you know there was a higher percentage of women going up to the top. There is also an interesting push throughout the Middle East to bring more women into the workforce just to add to GDP growth.
So and I spend some time in Abu Dhabi I learned a little bit about that and was just impressed by the focus on -- on increasing the workforce productivity. So clearly we have a tremendous opportunity in the energy business. And hopefully we who are already here can be an inspiration to women to stay in industry and we can be flexible as people are you know growing families and -- and providing flexible work environments to encourage people to stay in the industry.
[00:32:41]
Bill Loveless: That’s certainly something well worth encouraging going forward. Meg Gentle, thanks again for joining us on the Columbia Energy Exchange.
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Meg Gentle: Thank you Bill for having me. And I hope you have a good week here in Washington.
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Bill Loveless: Thanks. And thanks to our listeners as well. If you have a few moments give us a rating on iTunes or your favorite podcast platform and tell us what you think of the program. Co-host Jason Bordoff and I love to get the feedback. And for more information on the center on global energy policy go to our website at energypolicy.columbia.edu or follow us on social media at columbiauenergy. For the Columbia Energy Exchange I am Bill Loveless. We’ll be back again next week with another conversation.
