US gas company Tellurian bets on LNG future as a traded commodity

Gas now flared in the Permian could be sold as LNG if sufficient pipeline and export processing infrastructure can be built.

Tellurian, an upstart U.S. integrated gas company financed in part by Total, envisions changes in the global gas business that will see LNG commodity traded.

“Frankly, I’ve never been more bullish about the future of LNG,” Renee Pirrong, manager of research and analysis at Tellurian Inc., said during a technical session at the Offshore Technical Conference (OTC).

The Houston-based company is currently developing a portfolio of natural gas production, LNG trading and infrastructure that includes a roughly 27.6-mtpa LNG export facility named Driftwood LNG near Lake Charles, La. Former Cheniere Energy frontman Charif Souki and former BG Group C.O.O. Martin Houston launched Tellurian in 2016 It merged with Magellan Petroleum Corp. and debuted on the stock market in February 2017.

Pirrong, who took part of a panel at OTC on the LNG transition, said three major macro trends are transforming the LNG market today:

  • Supply push from the U.S. where an abundance of natural gas production cannot be consumed domestically;
  • Demand pull coming from the rest of the world driven by economic development and emissions targets; and
  • A shift to a commoditized LNG market.

Natural gas production in the U.S. continues to reach record levels. Dry-gas production through year-end 2018 was 24.6 billion cubic feet per day (Bcf/d) more than in 2010, according to Drillinginfo data.

Last year, the U.S. produced about 83 Bcf/d of natural gas, which is up 11 percent on the year. Pirrong said Tellurian sees production growth continuing into the future, driving export growth.

Tellurian anticipates the U.S. will see about 20 Bcf/d of excess gas or incremental gas production occurring by 2025. “And all of this gas will need a home,” Pirrong said.

Most of the production growth in the U.S. is coming from a handful of shale basins. In particular, Pirrong noted the surge of natural gas production in the Permian Basin.

The problem, however, is a lack of infrastructure available in the basin to absorb all of the gas and transport it to market. As a result, roughly half a billion cubic foot a day of gas is flared in the Permian Basin every day, Pirrong said.

“Now to put that into an LNG perspective, that’s equivalent to about 4 million tons of LNG, which is equivalent to Thailand’s entire LNG demand this past year in 2018,” she said.

“We need to develop the new infrastructure, both pipelines and LNG terminals to get that gas to market,” Pirrong said. LNG also is likely to become commodity traded.

Ultimately, by the end of 2019, she said Tellurian expects there to be about another 30 million to 40 million tons of LNG absorbed into global markets.

Pirrong added Tellurian is also working to build pipeline infrastructure to reach into the Permian Basin to access that low-cost natural gas, which has been trading at negative prices this year.

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