If Tellurian’s Charif Souki Is Right, LNG’s Prospects Are Golden
Not so long ago, the United States was short of natural gas, making it harder to feed a flourishing nation. Imports would be the key: liquefied natural gas, or LNG, which is frozen before it is shipped and re-gasified. Remarkably, the shale gas revolution changed that paradigm in 2009. The U.S. would no longer need such imports; rather, it would become a global LNG export magnate.
But that transition was not painless. And one of the Founding Fathers of the LNG movement has been Charif Souki, a Lebanese-born investment banker turned energy pioneer. Souki is an explorer, no pun intended: he is in a perpetual search for natural gas deposits to integrate with his liquefaction facilities — a trailblazer who has been kicked down but who continues to get up and forge ahead. At age 68, he has altered America’s economy by transforming it into an energy powerhouse.
For all of his contributions, Souki was awarded the U.S. Energy Award by the United States Energy Association — the organization’s highest award and a recognition of his services to humanity. This reporter was honored to serve as the event’s master of ceremonies last week.
“I am a businessman trying to maximize profits,” Souki told this writer in an interview. “As a business person, I’m trying 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, it 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 to 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 as an offshore exploration enterprise. That company went on to build LNG receiving terminals in 2008 for $2 billion. But when U.S. shale gas production was unleashed, the dynamics reversed: Souki had made the wrong bet and — figuratively — he had to turn around that hulking ship and create an export facility, at 10-times the original price.
But the visionary persisted. In 2016, Cheniere’s Sabine facility officially became an export terminal. Today, Cheniere 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 an engineering and regulatory triumph.
“We are one of the big three,” referring to the globe’s biggest LNG exporters: the United States, Qatar, and Australia, says Daniel Yergin, vice chair of IHS Markit at the awards ceremony. “This innovation has contributed in so many different ways, including the balance of payments” — the difference in value between payments into and out of a country over a period of time. “It saves us $400 billion a year. What a contribution to the U.S. economy and to energy security.”
But it has been a turbulent ride. 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 cracked open the shale gas market, those prices tumbled a year later to $4 per million BTUs. And the company’s stock price fell from $40 to $1.12 a share during that time.
Undeterred, he transformed the receiving terminal into a liquefaction facility and the first exports left port in 2016 for Brazil and China. The stock then rose over five years from $1.50 in 2010 to $80 in 2015. And during this time, Carl Icahn, a corporate raider and activist investor, got involved and bought 15% of Cheniere. Souki wanted to reinvest profits and to expand while Icahn preferred a conservative course and greater dividend payouts. Icahn won and boxed out Souki.
But Souki became even more emboldened. Just a year later, he founded Tellurian Inc., which explores for natural gas. It is now delivering that fuel to U.S. markets and it will soon be sending it overseas. French oil giant Total has invested $200 million while General Electric has plowed-in $25 million in the company.
Tellurian will build an LNG production and export facility in Lake Charles, La. When the $20 billion “Driftwood” terminal is complete in five years, it will be capable of sending 28 million tons of LNG per year around the globe. The Bechtel Group is engineering the site and next year, construction on the facility will start.
The timing would appear to be impeccable. Natural gas prices are rising around the world, including in the United States — a combination of rebounding economies and supply chain disruptions. In this country, prices jumped from $2 per million BTUs to $6. Europeans are paying $25 and Asians are paying $30. A brutal winter will cause prices to spike even more. As for Europe, at least Russia’s Nord Stream II is coming online to ease constraints. But there’s room for more players.
“The world is so tight for energy that everything is needed,” Souki told this writer. “We have gone through a period of very low prices — until this summer. We have become complacent and have thought it would always be the case. But the reality is that 15% of the world uses 40% of the world’s energy. For the other 85%, they aspire to the same living standards. The demand for energy on a global basis will outpace our ability to supply it. This country has an enormous amount of natural gas and our business model — arbitrage — will work out just fine.”
Souki, though, expects the current crunch to be relatively short-lived. Natural gas prices will peak this winter, he adds, because there is too little fuel now in storage. But high prices will lead to more production and by the end of 2022, prices will moderate. Global markets should also benefit given that the United States has seven LNG export terminals that especially benefit Asia. They could also provide fuel to Europe.
Russia now supplies 39% of Europe’s natural gas. The United States supplies 3.5%, although a third of all U.S. LNG went to the European Union between January and November 2019, the European Commission says. And now Nordstream II will permit Russia’s Gazprom to double its natural gas capacity headed to Europe. Can U.S. LNG compete with Russian natural gas?
“I’m worried,” Souki says. “The world will need a lot more gas and we may not be able to supply it.”
He points to supply shortages in Europe that are leading to painfully high natural gas prices. It can’t be blamed on the Russians. And it is not the fault of Covid. The responsibility lies with the European leadership, he says, because it has “failed to plan” and it has “gotten enamored with renewables” — at the cost of foregoing natural gas development and even decommissioning nuclear plants.
Climate change is real and it must be addressed, Souki emphasizes. For starters, nuclear energy is already working — a carbon-free fuel that runs around the clock. Meantime, natural gas is now supplanting coal use. If natural gas replaces all the coal plants in the world, he says that it would displace 6 billion tons of CO2.
But the most far-reaching thing governments can do is to put a price on carbon to discourage the use of hydrocarbons, Souki continues. The proceeds from those carbon fees would help fund the development of new technologies or be used to help lower-income residents pay their electricity bills.
Renewables are valued and essential. But, he says, that it is unrealistic to think that global electricity networks will run entirely on wind and solar — a function of changing weather conditions and an inadequate transmission infrastructure. Natural gas, in fact, is complementing wind and solar: those electric generators can rev up and seamlessly support sustainable power sources. Moreover, he thinks that the need for universal energy access is paramount.
“Charif was one of the first to see the opportunity of liquefying abundant U.S. shale gas and exporting it around the world as LNG,” says Jack Futcher, vice-chair of the Bechtel Group during the ceremony. “He was not considered an industry player or an insider. In fact, many were skeptical and dismissive of his vision. I can’t think of a greater example of entrepreneurial instincts, courage, and vision.”
Indeed, Souki’s dreams and determination have made a huge difference. The United States has gone from being a net importer of natural gas to being a net exporter of it. And in doing so, the nation has become more self-reliant while also helping to empower other energy-thirsty countries. Tellurian is a vehicle for further change, says Souki — a venture that can address climate change and deliver power and prosperity to those without it.