Cheniere Energy Inc., its former CEO Charif Souki and his business partner Martin Houston can all agree that the United States will be the low-cost provider of liquefied natural gas (LNG) to an expanding global market for decades to come. And that might be the end of it.

On Wednesday Cheniere sent out the first cargo from its Sabine Pass terminal in Louisiana — the first LNG cargo to depart from the Lower 48 states (see Daily GPI, Feb. 24). And on the same day Souki and Houston were in a hotel room, upstairs from IHS CERAWeek in Houston, talking up their plans for “mid-scale” LNG terminals on the Gulf Coast through a venture called Tellurian Investments LLC (see Daily GPI, Feb. 23).

Houston, a former BG Group plc executive, most recently was founder of Parallax Energy (see Daily GPI, Oct. 24, 2014), a mid-scale LNG venture that had been backed by Cheniere when Souki was its chief.

“We had a perfect arrangement,” Houston told NGI. “I was being funded by Cheniere, supported by Charif, and I was helping Cheniere with growth plans as well…It was perfect strategic positioning for Cheniere going forward beyond [its] Corpus Christi [terminal in Texas], beyond the next phase, owning the mid-scale…It all worked well. What changed is…”

“I got fired,” Souki interjected. He was sent packing at the behest of activist investor Carl Icahn, who sought to curb Cheniere’s robust spending and expansion plans (see Daily GPI, Dec. 14, 2015; Aug. 7, 2015). And then funding for Parallax was cut, putting Houston at loose ends, too. The LNG industry veterans, who have known each other for years, quickly decided to pick up where Parallax was forced to leave off and start Tellurian.

“Fundamentally, the reason Cheniere is in this space and I am in this space is because there is a growth of demand for natural gas on a global basis of 2% per year, and this is not going to change, especially because gas is becoming the hydrocarbon of choice on a global basis,” Souki said. “There’s going to be more growth in gas demand than there is in any other energy form.”

Gas will increasingly have to travel farther from the wellhead to get to market, meaning increasingly it will be liquefied and carried by ship rather than pipeline, Souki said. About 1,000 miles is the cutoff between pipeline transport and LNG.

“You have a growth of 2% per year for the natural gas business, a growth of 6-7% per year for the LNG business,” Souki said. “It’s been true for 35 or 40 years and it doesn’t show any signs of changing for the next 30 or 40 years. We may be a little bit oversupplied for the next two or three years, which is what is panicking everybody.

“From our standpoint, it was never a major issue. We’re not doing this for the short-term period. If we have to be out of the contracting business for a year or two because people are catching their breath and trying to refocus on where it’s going next, that’s OK.”

Tellurian has an option on land in Louisiana for its first terminal project. “We’re going through a fairly fast track process and it won’t be long before we have it locked down,” Houston said. More details should be available in a couple of weeks. “Financing is not a problem,” Souki said. “As I like to say, last time [with Cheniere] I was broke and I had $700 million in debt. This time I have a little bit of money and I have no debt, so it should be easier.”

Core to the Louisiana and other projects to come is driving out costs, Souki and Houston said. When the former talks about doing this at Cheniere, he still refers to the company as “we.”

“…Cheniere has been best in class in the United States, and we have six more trains that are coming way ahead of schedule and around the $500 a ton price for Sabine, where we had the storage tanks and docks already built, and around $600 a ton at Corpus Christi, which was a greenfield project,” Souki said.

For the last 18 months (initially as part of the Parallax venture) Souki and Houston have been working with Bechtel on driving construction costs down further. Chart Industries is the liquefaction technology partner. Mid-scale projects were chosen for their flexibility and manageability, Souki said. Component cost savings are expected to be minimal. “What is going to save you money is how you put it all together,” he said.

“…[C]ompared to other American projects, we probably can save 20% of the cost. It’s not enormous, but it is significant. But compared to global projects, it’s effective. It’s not just a small piece. It’s a multiple. We are two to three times cheaper than anything else that can be built around the world. So it gives a huge advantage to U.S. projects and a small advantage to the project that we’re putting together compared to other American projects.”

More significantly, backing up that cheaper liquefaction is cheap and plentiful U.S. natural gas. “Fundamentally, the U.S. has become the low-cost natural gas producer on a global basis,” Souki said. “You’ve got wells in Pennsylvania and Ohio that are now producing at a wellhead price of a dollar or less. The pipeline infrastructure already exists. The liquefaction business, as demonstrated by Cheniere, is the cheapest on a global basis.”

Globally, the LNG market is evolving. Oil price-indexation, once the favorite of LNG producers and the bane of Asian buyers, is now disliked by everyone.

“Nobody’s talking to you today about doing oil indexation anymore because the producers can’t make it work today and the consumers don’t want to be exposed to it tomorrow,” Souki said. “For the first time producers and consumers agree, for now. We don’t like oil indexation anymore. So what do you like instead? Well, we don’t know.”

While the LNG trading sector talks a lot about the increasing popularity of contracts with terms shorter than the customary 20 years, the Tellurian partners see that discussion as being of the past. Souki describes a world of increasing cargo fungibility.

“…[W]here are you taking the gas? They don’t know. They may need it for their home country. They may not have a home country. They may take it somewhere else. The reality is that five years from today, you’re going to have three cargoes available every day in the Gulf Coast, three cargoes available every day in Australia, three cargoes available every day in Qatar,” Souki said. Arbitrage on nearly a daily basis will be commonplace, a phone call away.

“…[You may have a long-term contract with a company anywhere… Australia, the United States…But it doesn’t really mean anything. All it means is you have access to the LNG and you can take it wherever you want.”

Buyers will still want to contract long term, the partners said. And Asian buyers say they want some kind of price indexation, but they haven’t been specific about what that means, Houston said.

“They put up an array of things and say we want something. But when you ask them, they can never tell you what it is. But they have price discovery right now,” he said. “They have as much of it as they want, and they will come to realize that when they fall back to [liquefaction] projects that they’re licking their chops over at the moment, perhaps in Mozambique, actually they’re going back to the old world and they’re going to have to pay the Asian premium to bring the projects on…

“But Henry Hub is as good as anything. You’ve got plenty of people at this conference telling you how long the tail is of gas for under $3.” Oil prices will remain volatile for decades, Houston said, and eventually the price of LNG will decouple from everything else to stand on its own, “which is probably the Marcellus plus transportation.”