LNG

Gas group's Riedl talks supply glut's effect on exports, future of industry under Trump

As the market dynamics and politics surrounding liquefied natural gas exports shift, how is the industry adjusting to a changing outlook? During today's OnPoint, Charles Riedl, executive director of the Center for Liquefied Natural Gas, explains how recent moves by the Trump Department of Energy will position the U.S. LNG industry in the global competition for market share.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Charles Riedl, executive director of the Center for Liquefied Natural Gas. Charlie, thank you for joining me.

Charles Riedl: Thanks, Monica. I appreciate the invitation.

Monica Trauzzi: So Charlie, the game is changing for liquefied natural gas, as market dynamics and politics take some dramatic shifts. We've already seen some significant moves by the Trump administration on LNG. Overall, what do you believe the outlook is for your industry over the next four years?

Charles Riedl: Well, I think the outlook overall for the next four years is a positive one. If we were to sort of take a step back and look at where we've come from in the last couple of years, really it's been a very rapidly growing industry, and it's also important to understand where we're at currently — right? We've got one operational project on the Lower 48, doing commercial exports of natural gas.

And so, what I think is going to happen in the next four years, really, is a number of these projects coming online, starting to see new LNG exports ramp up here in the United States, and taking that gas out to other countries that are interested in using U.S. gas. So, I think that overall, from an industry standpoint, we are excited about where we're headed in the near term the next four years, if we really think about these projects. That's the near term for us.

Monica Trauzzi: The Obama DOE was largely supportive of moving forward with these projects. How do you think the Trump DOE will be the same or different?

Charles Riedl: Well, I think it's obviously going to be different. Anytime we talk about an administration change, there's going to be a different set of ideas implemented here. What I think is really a positive sign is what we saw happen this week with the announcement of the Golden Pass Terminal getting their non-free-trade agreement approval.

So, I think that we've seen some positive signals, even in the last couple of weeks, out of the White House, and the administration talking about the idea and desire to see more of the approval process for LNG, and also the announcement yesterday, or two days ago, from Secretary Perry, talking about Golden Pass. So, we're definitely, I think, anxious to see more of those types of announcements. I think we're anxious to continue to establish some relationships with the incoming folks at DOE, and we look forward to working with them.

Monica Trauzzi: How does the Golden Pass decision position the U.S. on LNG?

Charles Riedl: Well, so that project is, again, another approval. If you look at where we're currently at, we've got one — like I said, one project that is currently commercially operational. We've got five more that are under construction, and then a handful of additional projects that are currently approved but not under construction.

And so, this year, we'll see one additional project come online — that's Cove Point down in Maryland. That's Dominion's project. And then two more projects come online in '18 and then on down the line, we'll see the remaining two come online. So, we'll have six operational projects, I think, by 2020. And then, we'll see sort of where these other projects go with their final investment decisions.

Monica Trauzzi: And this is all happening during a supply glut?

Charles Riedl: It is. It is. But if we look at the length of these projects — the Golden Pass project's a great example. From the day that that project exports its first cargo of LNG — they have a 20-year contract, so we're not talking about the next two or three years for U.S. LNG exports, we're talking about the next 20-25 years, looking out towards 2040. When you look at those numbers, the demand begins to outpace supply somewhere in the mid-20s.

So, we're talking about the need to continue to build these projects. You think about how long it takes to build a project like this. It's something that is important that we continue to set up the regulatory framework to ensure that the next phase of these projects can quickly and easily come to a decision to build or not build.

Monica Trauzzi: FERC is obviously a major player in the approval process for export projects; for pipeline infrastructure. There's a lack of quorum right now at FERC. There's a backlog resulting from the lack of quorum. How is that affecting your industry, and how concerned are you about how that backlog is going to affect next steps?

Charles Riedl: Quite frankly, we're concerned. We've voiced some concern and support of filling those seats as quickly as possible. It's something that we are hopeful will happen very soon. What I would say is that FERC's continuing to do the legwork or the good work that they've been doing on processing applications. There are currently 14 applications for LNG projects before FERC, either in filing or pre-filing.

So, it is important for us. As you look at that number, that's a large number of potential projects. We're not exactly sure what the ripple effect might be on these projects, if they're delayed further or not. At this point, it's pretty — it's too early to tell if there's going to be an impact.

Monica Trauzzi: Let's go back to talking about the supply glut in the market that's happening right now. How do you course-correct at this moment, as that's happening?

Charles Riedl: Well, I think that to course-correct is really going to be a matter of where the market demand comes from, and that is going to just take some time to work out — right? You've got a confluence of projects coming online that it just so happened that that was sort of the nature. Add to it what we've got with the crude pricing right now.

The market will correct itself, and that's really where, not so much CLNG, but our members are focused on how they want to set up their transactions with their buyers. And that's really going to just take a little bit of time to work out. But I think that you look at where the numbers go. We get to call it 2022. I think we'll start to see the markets start to tighten up, and I think that you'll start to see demand start to outpace supply.

Monica Trauzzi: So, when we consider the Trump administration's views and actions so far on trade, specifically the TPP, what role do you think that's going to play in the growth potential of the industry? And I know that Latin America's looked at as a big potential market. How do the actions play into that?

Charles Riedl: Well, I think that you bring up a good point. The Latin American market, you look at 90-plus cargos that have left Sabine Pass. Something like 19 of those cargos have gone to Mexico. So, the number of cargos that are already heading into Latin America are proving that that's a market of opportunity. We look at the Asian market, and you look at sort of where exports are going.

Something like 30 percent of the exports right now are currently heading into the Asian market. I expect that number to continue to go upward. I think that the opportunity to — and the interest, quite frankly, from the Asian markets is one that has all of my members excited about the potential there.

Monica Trauzzi: And are you concerned about the Trump administration's views on trade?

Charles Riedl: No, not really. I think that really what we think the Trump administration's views and what we've heard out of the White House is exactly what we've been saying all along. It does a couple of things. One, it helps create jobs here in the U.S. It's a revenue stimulus here in the U.S. And then also, it helps secure — for energy security for our allies and other folks who are interested in transitioning to a cleaner fuel source. So, I think it does sort of — it aligns very well with what our key points are.

Monica Trauzzi: And so, you're continuing to seek a legislative solution to the DOE approval process? Why is that, and why don't you think a Trump DOE would be able to address the concerns that you have?

Charles Riedl: Well, I think we do think that a Trump DOE could potentially address the concerns that we have, but I think that, quite frankly, it just makes good, sound policy sense to have a regulatory framework in place for the long term. Again, I talked about the number of projects that are currently pending before FERC. Those projects are all interested in signaling to potential buyers what their expected time frame to reach a decision to build a project might be. And so, by creating a legislative solution and one that would provide clear guidance for the agencies on how the time frame that they need to act, would signal internationally what the U.S. market could potentially look like.

Monica Trauzzi: All right. We are going to end it right there on that note. Thank you for coming on the show.

Charles Riedl: Thanks so much, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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