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Cheniere Exec: Sabine to Produce ‘First Drop of LNG’ Next Month

Cheniere Energy Inc.’s Sabine Pass liquefied natural gas (LNG) terminal will begin operation in December, according to Vice President of Finance Tarek Souki.

Souki made the announcement during Tuesday’s Natural Gas Roundtable, hosted by the American Gas Association in Washington, DC.

“We are producing our first drop of LNG next month. That, for us, is momentous,” Souki said. “We are so excited about that. We are so fired up. And then four to six weeks following that we will have our first cargo from Sabine Pass. In fact, the first [LNG] cargo the U.S. will ever export from the lower 48.”

Cheniere currently has seven LNG trains under construction at Sabine Pass in Cameron Parish, LA, that equate to 4.5 Bcf/d, with another two trains (1.5 Bcf/d) permitted, according to Souki. Other U.S. LNG exporters are at work on LNG trains that would carry 4-6 Bcf/d, he said.

Souki shared his outlook on the growth potential in global LNG demand over the next decade and how the United States is positioned to emerge as a leading exporter.

“The global market is in a big state of change,” he said. “Everybody’s trying to figure out what the optimal fuel mix is. Do we use more coal? Do we use less coal? Do we use renewables? If we use renewables, what do we have to use for our base load, or are you just going to be in denial and say you can use renewables forever without having something to underpin that?”

Souki, who works for Houston-based Cheniere in London, said Europe is looking to diversify and reduce dependence on Russian gas in part because of political tensions. He said Europe also has the potential for a lot of coal-to-gas switching as nations such as Germany and the United Kingdom figure out how they will respond to climate change.

“Germany is a perfect paradox of all these things. They have 40% of their installed capacity [powered by] renewables, wind and solar, yet they burn lignite on the margin, and so whereas they had a huge decline in their carbon footprint the last decade, now they’re sitting in a position where it’s flattened off and no matter how many more solar plants you throw at it you still need to run your base load,” Souki said.

“So if you’re going to lead on climate change in Europe today, are you going to be able to say, ‘Well, we’re going to continue to burn hard coal and lignite and we’re just going to increase renewables. That’s our solution.’ That’s really not going to fly for some of the other neighbors of theirs that are looking for them to lead.”

And China, despite its slowdown, has potential for new demand since it’s still under pressure to burn less coal due to concerns about the health impacts of pollution on its population, Souki said.

Meanwhile, many of the world’s incumbent producers of natural gas aren’t in a position to grow LNG exports, and competing nations like Australia and Russia don’t have the same cost advantages as the United States when it comes to building export capacity in response to demand growth, he said.

“I don’t think you’re going to get incremental capacity able to come on anywhere in the world over the next 10 years that’s going to be able to compete with what the United States can do,” Souki said.

“The picture that paints is by the middle of the next decade, we could be in a situation where we’ve got 13-14 Bcf/d of new demand for today’s oversupplied U.S. gas industry, and where that ranks us in the rest of the world on an LNG basis, that will put us as one of the top three producers in the world by the end of this decade, and probably the single largest in the next one.

“This is coming from a country that really was a price taker and a consumer of energy on a net basis, so the political, geopolitical and economic impacts of this are pretty significant.”

In recent months, analysts have been skeptical of the prospects for U.S. LNG exports. Last month, Raymond James & Associates Inc. cited concerns over slow demand growth in Asia and Europe, thinner margins for LNG because of low oil-indexed prices overseas and a crowded field of prospective U.S. exporters (see Daily GPI,  Oct. 26).

“If there were too many LNG [export] wannabes a year ago, we would argue that is doubly true today,” Raymond James analysts said.

But Souki sounded bullish during Tuesday’s roundtable, frequently speaking about the long-term prospects for exports.

“It’s easy to get lost in the noise of the downturn, right? You see lots of oil prices going down, gas prices going down, and people say, what does this all mean? China’s slowing down, the sky is falling,” Souki said. “It’s one of these things where any of us who’ve been in the commodity markets a while know it’s cyclical.”

Fielding a question about claims that a lack of long-term contracts may impact financing of expansions at Sabine Pass, Souki again downplayed analysts’ concerns, saying Cheniere management is looking at the bigger picture.

“The analysts will say what they’ll say, and they tend to manage the expectations of the current market, where we’re thinking 10-20 years ahead, how we’re going to develop this infrastructure for the coming generation, not for the next quarter’s analyst report,” Souki said. “So I think very much so, we’ll be able to do this out of cash flow for the future or change our financing mix when the market signals that it’s right for it.”

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