Martin Houston of Tellurian shares his views on the impact of Liquid Natural Gas (LNG) in Asia
1. The commoditisation of LNG is accelerating - How is Tellurian capitalising on these developments?
It is a privilege to participate in Singapore International Energy Week, which brings together energy stakeholders to discuss issues of global significance. The overarching challenge in Asia and the world is to meet growing energy demand while investing in renewable and low-emission energy sources that are safe, affordable and reliable.
The commoditisation of LNG is indeed accelerating. The past year saw an increase in the reliance of spot LNG pricing and decreased correlation with Brent – and Henry Hub – linked contracts. Indeed, in 2018 Tellurian signed an MOU with Vitol to sell LNG at a JKM-linked price, the first such announced contract to be priced at a true LNG index. At the same time, technological advances in LNG shipping have led to greater-than-ever destination flexibility – the ability to turn cargoes at sea to serve new demand, while ensuring that obligations to longer term buyers continue to be met. This has led to increased LNG spot market trade and new opportunities for market participants.
Tellurian is advancing the 27.6 MTPA Driftwood LNG project to capitalize on changing market conditions and the interests of buyers who are seeking greater transparency in keeping with LNG’s emergence as a global energy commodity.
2. Tellurian plans to build a full vertical of LNG infrastructure – Can you share more about this business proposition?
There are a number of LNG business models, with most prices linked to traditional energy commodities (for instance, Brent crude or Henry Hub gas). These fail to provide the buyer with true cost transparency. Our Driftwood LNG project follows a different approach. Because customers hold equity in the interconnected components of the LNG development chain – an upstream position in the Haynesville, pipeline investments in Texas and Louisiana and the Driftwood liquefaction facility in Louisiana – they are given an unparalleled view of their costs. And by tightly managing all of these components, we are able to reduce construction risk, basin risk and basis risk to help achieve our goal of producing LNG delivered FOB on the U.S. Gulf Coast at between $3 and $4.50 per mmBtu, a price that we believe will competitive over the life of the project.
3. In your view, what is driving the next wave of LNG exports and how will this impact Asia?
The key driver is growing global demand. Since 2015, LNG global demand has grown at a rate of 9.3% per year, a trend that is expected to continue. LNG industry stakeholders project the need for as much as 250 million tonnes per annum (mtpa) in new supply – above and beyond what’s currently under construction – to meet demand expected by 2025. Given the current rate of growth, any market surplus will soon be absorbed.
In addition, the growth of U.S. Permian oil production is definitely contributing to the next phase of U.S. LNG exports. Oil drilling there is expected to double natural gas production and unfortunately much of the gas is flared because of the lack of pipeline infrastructure needed to evacuate the gas. In 2018 alone, the U.S. flared 14 bcm of natural gas, which if exported, could have produced 10 mtpa of LNG. The wastes valuable energy resources and is clearly causing environmental harm. LNG exports are the answer to this natural gas push.
Moreover, the U.S. is an attractive supply option for Asian buyers due to the immense size of the natural gas resource – proven reserves in excess of 8 trillion cubic meters – combined with low production costs. Today, Asian customers can secure U.S.-sourced LNG with more diverse and innovative contractual terms than “first wave” U.S. projects that were largely linked to Henry Hub prices.
4. What are your views on the growth of small-scale LNG in Asia?
The same factors that make LNG ideal for large-scale users – its safe track record, low emission characteristics and affordability – position LNG for expanded small-scale utilisation particularly in the bunkering, commercial road transport and power generation sectors. In Singapore, SLNG has expanded its capabilities to receive and reload smaller LNG carriers, a development that enables cargo deliveries to more remote, off-grid power generation resources, as well as to bunkering terminals.
5. The theme for SIEW 2019 is Accelerating Energy Transformation - what do you hope to discuss at SIEW this year?
The global energy landscape is rapidly changing. While renewables warrant continued support and investment, there are significant expansion opportunities for natural gas – both as a partner with renewables and a fuel of choice for utility and industrial users.
We are pleased to maintain our presence and share our views at this year’s event. Singapore is uniquely positioned as a key Asian hub for LNG growth and trade, making SIEW 2019 an event of paramount importance for the energy industry.
About Martin Houston, Vice Chairman, Tellurian Inc.
Following his studies which commenced with a bachelor’s degree in geology from Newcastle University in 1979 and then a petroleum geology master’s degree from Imperial College London in 1983, Martin was employed by BG Group plc and its predecessor companies, retiring after 32 years in February 2014 as chief operating officer and a member of the board of directors.
He’s managed all forms of enterprise in the energy industry, has established a strong external reputation in the international gas business and is largely credited with being the key architect of BG Group’s world class LNG business. In recognition of this, in 2011 he was the first recipient of the CWC LNG Executive of the Year award.
He was previously (2004 – 2009) a non-executive director of Severn Trent plc, an integrated water and environmental company. He is a former director of SIGTTO, the international organization representing gas tanker and gas terminal operators worldwide. From 2008 to 2014 he was the GIIGNL regional vice-president for the Americas. Between 2015, and 2018 he was the chairman of TPH International, a boutique investment bank based in Houston, Texas.
In January 2014, he was appointed as a non-executive director of BUPA, an international healthcare group. He sits on the nominations committee and is chairman of the remuneration committee. In June 2014, he was appointed a non-executive director of CCC Energy, a private E&P company with 40,000 bbl/d oil production in Oman. In February 2016, he co-founded Tellurian Inc. with Charif Souki and is now the vice chairman. In June 2016, Martin was appointed as vice-chairman of Hakluyt North a company which provides independent, strategic advice to the world’s leading multinationals and financial institutions on complex issues. In February 2018 he was appointed by Moelis and Company as Chairman of its global energy group.
Martin’s other activities include:
- Council member of the National Petroleum Council of the United States of America
- Fellow of the Geological Society of London.
- Member of the Development Committee of the Royal Opera House of London.
- Member of the advisory board of the Global Energy Policy unit at Columbia University’s School of International and Public Affairs, New York.
- Member of the advisory board of Radia Inc.