September 14, 2025 • 28 mins
Energy Flux founding editor Seb Kennedy tours the Gastech exhibition while reflecting on the main themes from the four-day conference.
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Summary
In this episode of the Energy Flux podcast, host Seb Kennedy reflects on the Gastech 2025 event, discussing the rising US presence in the LNG market, the economic realities of pricing, and the political implications of US LNG exports.
He explores the future of US natural gas production and shares insights from his experiences at the event, emphasizing the complexities and challenges facing the energy sector.
Key topics & takeaways
- Gastech was a momentous event at a significant historical juncture
- The disconnect between public statements from industry leaders and market realities is widening
- Over-investment in LNG capacity is reshaping the global glut depth & duration outlook
- Transatlantic margins will face significant compression (as detailed in lastweek’s Hot Take)
- North-West Europe-TTF price dislocation as lead indicator for distressed LNG cargo pricing
- How merit order economics and cost inflation affect LNG investment attractiveness
- The history of LNG, and the difference between conventional integrated export projects vs US LNG second wave
- The political & economic implications of gas/electricity price inflation in the domestic US market
- Can US shale production growth keep up with competition for upstream gas resources (LNG vs data centres)?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:18):
Hi there, and welcome back to the Energy Flux podcast.
I'm your host Seb Kennedy, founding Editor of Energy Flux,
the energy newsletter analysing natural gas markets through the
lens of Europe's net zero journey and global geopolitics.
This is a very special walking talking podcast filmed live here
(00:42):
in gas tech on the final day. It's been an intense week and I
just wanted to give a little tour of the exhibition, although
it is in the middle of shutting down.
As you can see while talking through some of the themes that
have been discussed at the events, some of the
conversations I've been having with people behind the scenes
(01:04):
and the a kind of the, the vibe,if you like, because I feel like
this was a really momentous event on, on many levels.
We had a huge US presence, political and commercial.
The there was so much floor space taken up by the USLNG
(01:27):
crowd and a lot of that floor space used to be taken up by
Gazprom and the Russian contingent.
Instead, we had the likes of next Decade and Cheniere and
Venture Global with these massive pavilions, which I'm
going to see if I can show you as I walk over to the other hall
here. And we had not one, but two
(01:51):
American secretaries of state. We had Doug Burgum, the US
Secretary of the Department of the Interior, and Chris Wright,
the US Energy Secretary on stagedoing a kind of double whammy,
if you like. They did a press conference
where they took questions from the press.
They sort of tag teamed all of the, the, the, the kind of most
(02:15):
difficult questions, if you like.
They're very much prepared. And I'll talk a little bit about
some of the things they said. And of course, there was, there
was just this enormous push to to sell US LNG into Europe.
And I think the jury's out on exactly how successful that's
going to be. Although there has been a huge
(02:37):
amount of deal making, what we haven't seen here notably was a
huge amount of European buyers signing binding SP as with
American LNG exporters, althoughthat's not to say what happened.
And there have been deals leading up to the event.
(02:57):
And I'm sure there'll be more deals coming down the line.
Let's see if I can walk through next decade because they took a
final investment decision on train four, I think it was of
the Rio Grande LNG project. And they have excellent coffee.
These guys are great. The cafeteria, I mean, the, the,
(03:18):
the coffee makers, they're excellent.
And he is Venture Global WHO? Who's Mike?
Who's CEO? Mike Sable had some really quite
extraordinary things to say, I might add.
He took to the stage to make allthese arguments about how
(03:39):
there's not going to be an LNG glut, how prices won't come down
if there's oversupply. It really was kind of flying in
the face of economic reality. There's that old phrase about
how if somebody's it's very difficult to convince somebody
of the truth when their salary, their their salary, it's
contingent upon them doing the opposite.
(04:00):
That phrase sprang to mind when I was watching Mike Sable speak
because, you know, he was, he was just saying, no, if there's
if, if there's a little bit of excess supply, then we just
don't subscribe to the view thatprices will come down, which is
just economics one O 1 really, isn't it?
But then I was saying in the same breath he would say, Oh
(04:22):
yeah, no prices. They they could come down a bit,
but you know, if they go down low enough, then there's
essentially unlimited demand, low enough prices.
And I was left thinking, well, what's that price then, Mike?
Because is it like minus $10 perM MB CU?
Because how low the gas prices have to go for demand to be
infinite? He he said, like if you can
(04:42):
generate electricity for six or seven cents per kWh, then you're
just going to have unlimited demands.
And I thought it's interesting that he used electricity as the
example of his kind of low priceequals infinite demand argument,
because in Europe we have negative pricing on an
increasingly frequent basis whenbasis when wind and solar
generation exceeds demand and you have no, no residual demand
(05:07):
on the system and prices go negative.
So I don't know if Mike Sable isaware of that if he chooses to
ignore it. But I think this is very telling
that you get these so many statements being said from the
stage here, which really don't seem to acknowledge reality.
I do feel like the kind of public statements, this is like
the big exhibitors who also all,all of whom are trying to
(05:31):
obviously sell their wares. They just don't want to seem to
to just acknowledge anything really that that that there
could be any problem coming downthe line from this kind of
humongous wave of LNG oversupply, which is baked into
the system. On top of which you've got
additional capacity volumes entering the markets in the late
(05:55):
twenty 30s from the deals being done here at gas tech in the
lead of the gas tech. And inevitably in the weeks and
months that follow, we'll see more deals, more investment
flowing into more capacity additions and all of which is
going to kind of deepen the glutitself and prolong it into the
20 thirties. Because before this event, I was
very much of the view that, you know, the IEA says I could be a
(06:16):
glut until 2040. I thought that was a bit, a
little bit extreme and but you know, the likes of rice dad were
very bullish and said there'll be barely any glut at all.
And we used to worry about the, the kind of undersupply in the
twenty 30s. And I thought that was
excessively bullish. And so I was kind of like, well,
I think there's going to be a glut.
It's going to be deep, but it'llprobably be mopped up by 20-30.
(06:36):
But now I'm having second thoughts and I'm really thinking
that, you know, if all these projects come to fruition, big
if mind you, because there were lots of reasons why they could
fail. But if they do, then we could be
veering more towards the IA perspective on this, which is
that they could be very deep gluts for a very long time,
which goes like well into the 20thirties, which has huge
(06:59):
repercussions for gas and electricity markets the world
over. So let me just kind of gather my
thoughts here for a second. Well, what does that mean?
You know, like significantly lower for longer gas prices.
I I think that, and I have a theory which is, you know,
(07:19):
because obviously all this investment is still flowing into
the liquor liquefaction side. Why would you do that if
margins, it's going to depress margins for longer, If it's
going to, yeah, reduce the, the,the attractiveness of those LNG
investments, why would you keep putting more money in?
Would you not want to see kind of how the current expansions
(07:40):
already baked into the system? How are they going to pan out?
But no, apparently not everybodywants to do a deal now.
So there's there's a few reasonswhy I think the deals are going
through, you know, kind of in, in spite of the kind of
mountainous expansion that's already coming down the line.
I think a lot of it is it's driven by politics because, you
know, there's it's not always the case that the political
(08:03):
panorama in the world favours fossil fuel deal making.
And we absolutely have AUS administration which is in
favour of that and full throatedsupport for, for those kind of
liquefaction investments and forfor deal making in, in natural
gas. So I think that's a part of it.
So these guys are going to cashing in on the political
(08:24):
moment that supports USLN G+. You know, everybody gets a
bonus, right? When you take FID that unlocks
finance. And a lot of the guys who are
leading these, these big LNG companies, they will, they will
get no bonuses. They'll unlock fees on
development fees when, when FID is taken.
(08:46):
So they are, you know, all gunning to, to do that because
that's their, that's their paycheck, isn't it?
You know, they get stock optionsas well.
They can sell, they can sell their, their stock down the line
if they get a nice share bump. Although notably, next decade
suffered another share price wobble after it took FID on
train 4, presumably because the terms of the finance were not
(09:09):
particularly favourable to to existing shareholders.
So buyer beware I'd say and thatand that holds true across this
whole kind of investment wave. I think it very is very much
caveat emptor. If you're looking to get
involved at this late stage in the investment cycle in an LNG
investment or you're, you're looking to off take volumes at a
(09:31):
price that makes a high cost base project economic, then you
are inviting trouble upon yourself.
And why do I say that? Well, because the market's going
to turn and as you go up, you know like the all the most
competitive projects take FID first.
There is a merit order to these things and LNG projects that is
(09:52):
taking FID now having followed all the other ones is not going
to be the most lowest cost base.Most economic projects you're
going to have to sell their LNG at prices that are maybe
slightly higher, incrementally higher than than projects that
are already further ahead in thedevelopment phase.
So what does that mean? Well, if you're exposed to
(10:14):
market pricing and if you're USLand job taker, then you almost
certainly are. Then when the price has come
down and the cost base remains the same on that project, then
what happens? Your margins get crushed.
So if you look at the forward price of TTF, the Dutch title
transfer facility, which is the,the, the benchmark European gas
(10:37):
price, look at the future price of TTF in 20/27/2028.
And you look at the full price of Henry Hub, which is the cost
base for gas which is liquefied on the US Gulf Coast and the
cost of liquefaction. And you add on the cost of
shipping the, the, the gas over the Atlantic and regassifying it
(10:57):
in, in a European terminal, thenyou're going to see a
convergence, right? So the delivered cost of US
energy in Europe is going to be about the same as the Hub price
of LNG of of natural gas tried traded on on Henry Hobbins
20272028. And that's before markets price
(11:19):
in the kind of full wave of supply that's coming down the
line. And that's significant because I
think that the markets are getting a kind of non delivery
risk premium of pricing because they know that some projects
they will not not be built. There will be delays.
There will be, yeah, problems down the line.
(11:40):
Many things could happen that cost inflation was actually one
of the things discussed in in some of the sessions.
And I think even Venture Global mentioned that as as an issue
that, you know, the cost of raw materials is going up.
And if you have a project that'sonly marginally profitable and
then your your cost base double s, which we saw post COVID with
like wind farms and LNG projectsand all sorts of commodities
(12:03):
came more expensive and buildingstuff became more expensive.
And that's still a problem. Inflation is a problem.
So if you have more expensive late materials and plus that
they could be a labor shortage on US Gulf Coast.
So, you know, it can be difficult to to to Marshall the
the number of workers into building these projects when
(12:24):
they're when they need to be built.
So there there are those kind ofthose constraints upon
construction and things that candrive up the cost base.
But you know, if you're sure, ifyou're taking off, taking gas
that's very has a very high costbase and then you're able to
sell it above market rates, thenyou might find that the, the,
(12:45):
you know, these, these cargoes are going to be unprofitable.
You know, you take the cargo at a certain price, you want to
sell it into an end market. Well, you want to be able to
make a margin on that after paying for the gas, the
liquefaction, the the shipping, the regasification and make some
profit, right? There's going to be a little bit
(13:07):
leftover. That's not going to happen
because if the spreads compress in the way that the futures
markets are already pricing in, and I think that you're going to
see further, much, much deeper compression of those
transatlantic spreads, You're going to see cargoes at sea,
which will be essentially, you know, unprofitable or marginally
(13:29):
profitable. And you know, in the past, there
have been times when you can sort of float a cargo from say
August until October and benefitfrom an uptick in winter
pricing. You know, that's like
complaining the time spread using an LNG vessel is floating
storage to capture higher pricesin higher demand periods.
(13:50):
I think that play is going to bereally, really tricky because if
the, if the spreads are flat andwe've already seen very flat
spreads, seasonal spreads in recent years and that's going to
continue, then you're going to have an LNG vessel sitting out
like in the Bay of Biscay boiling off because that's what
it does. LNG boils off.
It needs to be recaptured, reliquified and and used for
(14:12):
propulsion or put back into the cryogenic tank.
But if you're kind of boiling off value for weeks or months at
a time, there's no place to haveto be had there.
If the spreads are flat, you can't get a higher price.
So you're going to see, I predict we are going to see
distressed LNG cargoes at sea inthe depths of the glut, cargoes
that simply can't be resold for a profit.
(14:35):
And so you got to ask the question, what's going to happen
to pricing? And one, I think the really
important price to keep an eye on is not just the TTF itself,
but also the the price of LNG onthe water because that's where
the glut is going to occur on the water.
The TTF is important and it and it is a reference and it will
(14:56):
come down with excess LNG production, but there will be
once there's kind of more energyon the water than there is now
you're going to see competition for regasification slots in
Europe. And when that happens then not
not every vessel will be able toto be able to dock.
(15:17):
So where's the pinch point on the RE gas?
The RE gas terminals will be happy because they'll be having
very high utilization rates, they'll be earning lots of
money, but the LNG vessels themselves see that can't dock
or have to wait. They're going to be like kind of
burning of value and you're going to see some, some
distressed pricing there. Where will we see that manifest
(15:38):
in the Northwest Europe LNG price?
So there's actually a different price for LNG in Northwest
Europe compared to TTF. It's very close to correlated,
especially, you know, when the, when there's kind of excess RE
gas capacity, then you know, theprice of energy underwater is
very similar to the price of TTF.
But I think you'll see a big dislocation between the two
(15:59):
because if the, if the, if the regas terminals are full and
they, there's more LNG on the water that can actually get
through the liquid, the regasification bottleneck, then
the price of LNG on the water will fall.
TTF will be falling too, becausethere'll be lots of supply.
But I think the Northwest EuropeLNG price will fall even
further. And so keep an eye on that
(16:20):
dislocation between Northwest Europe and and the TTF because
you're 1 is on like 2 price indexes on either side of the
the regasification bottleneck. And so that's, that's something
I'll be tracking very closely inenergy flux over the coming
years. And and yeah, that's, that's one
(16:41):
prediction I have. The other one I have relates to
the domestic U.S. market. Now, this kind of comes back to
the political question and the the the the duo of Wright and
Bergen who stood in front of thepress, the press conference
yesterday. And you know, one of the
questions was along the lines of, and this is a question I've
(17:03):
been asking myself for many years.
What are you politicians going to say to your MAGA base that
make America great again? America first patriots, right,
who don't want to, you know, give away American value to, to
help overseas allies. They want everything from
America, America first. What are you going to say to
(17:23):
those guys if and when I say if,because it might not happen, but
if and when. The domestic price of American
natural gas and therefore electricity and broader energy
prices spike because the the market's been tightened by a
kind of uptick in demand. Demand coming from LNG exports,
(17:45):
AI data centers that need a hugeamount of electricity to run.
Plus you have pipeline exports to Mexico to to Canada, all of
which you know, in, in certain scenarios could make the
American domestic natural gas price spike or at least rise
sharply from where it is currently around about $3 per
(18:08):
Mmbtu. If that double s up to sort of
5-6, then that's going to manifest in much higher retail
prices. And retail prices have already
been rising for a long time for households and industrial
consumers. They, they get a lot, a lot of
differentiation between the states.
But on the whole the trend is upwards lower cost inflation.
And my prediction for the next sort of three years around about
(18:32):
the time of the, the, the next presidential election actually
is that you're going to see an almighty bun fight between
different vested interests over who can apportion blame for high
energy costs in the US. And there's going to be some
people pointing the finger LNG, some AI data centers, some of
(18:53):
the regulator, some of the utilities are fading to invest
in grid. It's going to be just an
unedifying kind of lobbying fest.
And you got a question, well, where, where is the blame going
to land? And it's very easy to see LNG
exports as falling foul of the the MAGA vision.
(19:15):
You know, they're not compatible, is it?
You've been exporting all of ourfreedom molecules to, to those
allies overseas who we don't care about anymore.
We don't care about transatlantic alliances.
Why are we bailing out Europe sothat they can, you know, not
have to buy Russian gas, that the Ukraine is not our war?
Why? Why are we paying more on our
energy bills so that we can helppeople in faraway places?
It's going to be hard for presumably JD Vance, who will
(19:39):
run to replace Trump to kind of appease the, the MAGA core if
he's seen as having kind of screwed them over basically by
making their energy much more expensive or, you know, making
industrial output less competitive with higher energy
costs and therefore resulting inlayoffs.
Combined, of course, with the Trump administration's insane
(20:01):
tariff policy, its trade policy,you know, all these things that
it's done to, to essentially. Reduce the standing and
competitiveness of America Inc on the global stage that they
have all these things to answer for.
So I'm, I, I think there's a kind of political warning or
(20:22):
risk attached to the, the US LNGexport bonanza because it really
is a bonanza. It's just, it's this absolutely
massive, massive supply wave coming down the line.
So, yeah, you've got the the domestic American gas price
question, and then there's the the kind of price dislocation of
(20:42):
like distressed cargoes on the water.
Well, I think if push comes to shove, if you know, the if the
domestic American market becomesreally, really, really hot,
really overheated, now what's going to happen?
I don't think it matters who is in the White House.
If it means that they're going to be fighting fires at home and
(21:03):
it will improve their popularity, then any president
will simply issue an executive order and reduce or even cap
USLNG exports, because that is kind of very low on the domestic
priority pecking order, isn't itreally?
And if you bear in mind that thecontracts that support USLNG are
(21:25):
take or pay contracts, then you might actually find that the
investors in the, the plants themselves might be protected
from, you know, executive order decree limiting the, the exports
of USLNG to overseas customers. Because if they, if they can
say, well look to their buyers, that is, they can say, look,
(21:48):
you're still on the hook for your liquefaction fee, then
they're still making their money.
And the the customers are the ones that lose out.
So the off takers of US energy, many of whom will be European
utilities suppliers, maybe even industrial companies are paying
for gas that they cannot lift, but which would have been
(22:10):
profitable potentially. That would be a real disaster
for US energy off takers. And you've got to ask if they're
exposing themselves to to that risk, that kind of political
economic risk by by sort of going along on USLNG at this
stage in the market remains to be seen.
(22:30):
You know, there's a big debate about the the lower 48 states,
their ability to to increase production from from from the
shale gas fields of the Permian Basin and other shale plays.
The Energy Secretary, Chris Wright was just categorical that
there's no geological risk associated with the upstream.
(22:52):
The the shale production is essentially infinite.
And that's when there's demand, there is investment in the
upstream and more gas comes and we're so innovative and we can,
you can squeeze more energy out of every single square meter of
shale resource. And he might be right.
We'll see. But the decline rates on shale
(23:12):
fields and some of the the kind of mood music coming out of the
upstream crowd in the shale patch doesn't always support
that view. History is on Chris Wright's
side. I mean, the the shale boom has
just changed the world. It changed the world, it changed
Europe, it changed America, it changed the whole energy system.
(23:33):
And so you can't discount human innovation.
So I'm cautious, but cautious not to be overly cautious if you
like. But at the same time, yeah, the
decline rates concern me. And I think that the sheer
volume of feed gas that's neededto feed these Greenfield energy
(23:54):
projects is such that is it going to be there, Is the feed
gas going to be there? And if so, at what price?
Because if all the prime acreageis being drilled out, then
again, you're looking at merit order economics, the merit order
of natural gas coming out of theground being drilled out from,
you know, second or third tier shale acreage, it might not be
(24:16):
as cheap as it is currently. Because let's just think back to
the history of LNG, right? Think about the history of LNG.
What was it used for originally?Well, often there was a lot of,
you know, trapped gas, so associated gas coming out the
ground with oil. What do we do with it?
Flare it off LNG came along was actually a big solution to
(24:36):
flaring originally. So like places like Nigeria,
which Nigeria still flares a lotof gas, you know, let's be
clear. But you know, they, they did
reduce their flaring from an even higher level by using LNG,
producing LNG with it. So it was like this kind of free
resource, you know this, I monetized this free resource and
(24:57):
you know, put it, put a train down for like 20-30 years.
When the oil field depletes, then the gas runs out and that's
fine. We just pack up.
We had our money, infrastructuredid its job and we exported the
LNG rather than flaring off all of that gas.
So it's kind of, it's an improvement on a very bad
situation. But the LNG projects that are
being developed now are different.
(25:19):
These are not LNG projects that are tapping into a kind of
discrete resource. They are requiring additional
gas. Some of them would just draw gas
out the grid and pay the going rate on Henry Hub or they might
have some sort of supply agreement with a an upstream
producer, but it's not integrated to the plant.
(25:40):
You know, it's not like going toPapua New Guinea and you've got
a kind of isolated gas field there and you just plug in your
liquefaction train, liquefy, export it, everybody's happy.
No, this is this is like along the Gulf Coast, one of the most
industrialized parts of America,which has a very developed
natural gas network, pipelines and things all connected to
(26:05):
upstream fields. But it's like, you know, like
how much of this liquefaction capacity is going to be in
competition with other uses of that gas?
Like they're drawing gas out of the gas grid.
And I don't know the answer, frankly, but people are telling
me that this is a big risk that when the US energy boom comes
(26:28):
into having to compete the molecules in the upstream, then
we might see much, much more expensive, how many, how many
hub pricing and then all the problems that I described
earlier. So that's the way I see the LNG
trends unfolding over the comingyears.
Those are some of the the themesI picked up from coming to gas
(26:50):
tech. It was well worth being here.
It was, it was an intense week of networking and chatting and
long conversations with very knowledgeable people and, you
know, kind of drifting in and out of conference sessions that
were very interesting. And of course I got to present
myself. I'll do a separate episode about
(27:12):
my presentation. I'll I'll share my slides and
talk more about those themes, which are quite separate to the
kind of whole LNG outlook which I've just given.
But but yeah, like presenting a gas tech was, it's a real buzz.
It was a real buzz. I was really nervous, but I
think it went all right. And I think it went very well.
(27:32):
It went very well. And I got lots of compliments
afterwards and I even met some of my subscribers, which was
brilliant. And I must do more of that.
I must meet more of the Energy Flux readers because there are
so many interesting, diverse intelligence people who who read
it and who, who engaged with me and help me with my knowledge
(27:54):
of, of this industry. So, but shout out to all of the
Energy Flux people who are here here at Gas Tech.
And he came up to say hi, thank you guys.
And yeah, let's, let's just keepgoing, keep watching these
markets. It's going to get very, very
interesting over the coming years, right?
(28:16):
I think we're going to call it aday.
Gas tech's calling it a day. Everything's been taken down.
I've got a flight to catch. Thank you for listening and
watching, and I'll see you soon.
Hi there, and welcome back to the Energy Flux podcast.
I'm your host Seb Kennedy, founding Editor of Energy Flux,
the energy newsletter analysing natural gas markets through the
lens of Europe's net zero journey and global geopolitics.
This is a very special walking talking podcast filmed live here
(00:42):
in gas tech on the final day. It's been an intense week and I
just wanted to give a little tour of the exhibition, although
it is in the middle of shutting down.
As you can see while talking through some of the themes that
have been discussed at the events, some of the
conversations I've been having with people behind the scenes
(01:04):
and the a kind of the, the vibe,if you like, because I feel like
this was a really momentous event on, on many levels.
We had a huge US presence, political and commercial.
The there was so much floor space taken up by the USLNG
(01:27):
crowd and a lot of that floor space used to be taken up by
Gazprom and the Russian contingent.
Instead, we had the likes of next Decade and Cheniere and
Venture Global with these massive pavilions, which I'm
going to see if I can show you as I walk over to the other hall
here. And we had not one, but two
(01:51):
American secretaries of state. We had Doug Burgum, the US
Secretary of the Department of the Interior, and Chris Wright,
the US Energy Secretary on stagedoing a kind of double whammy,
if you like. They did a press conference
where they took questions from the press.
They sort of tag teamed all of the, the, the, the kind of most
(02:15):
difficult questions, if you like.
They're very much prepared. And I'll talk a little bit about
some of the things they said. And of course, there was, there
was just this enormous push to to sell US LNG into Europe.
And I think the jury's out on exactly how successful that's
going to be. Although there has been a huge
(02:37):
amount of deal making, what we haven't seen here notably was a
huge amount of European buyers signing binding SP as with
American LNG exporters, althoughthat's not to say what happened.
And there have been deals leading up to the event.
(02:57):
And I'm sure there'll be more deals coming down the line.
Let's see if I can walk through next decade because they took a
final investment decision on train four, I think it was of
the Rio Grande LNG project. And they have excellent coffee.
These guys are great. The cafeteria, I mean, the, the,
(03:18):
the coffee makers, they're excellent.
And he is Venture Global WHO? Who's Mike?
Who's CEO? Mike Sable had some really quite
extraordinary things to say, I might add.
He took to the stage to make allthese arguments about how
(03:39):
there's not going to be an LNG glut, how prices won't come down
if there's oversupply. It really was kind of flying in
the face of economic reality. There's that old phrase about
how if somebody's it's very difficult to convince somebody
of the truth when their salary, their their salary, it's
contingent upon them doing the opposite.
(04:00):
That phrase sprang to mind when I was watching Mike Sable speak
because, you know, he was, he was just saying, no, if there's
if, if there's a little bit of excess supply, then we just
don't subscribe to the view thatprices will come down, which is
just economics one O 1 really, isn't it?
But then I was saying in the same breath he would say, Oh
(04:22):
yeah, no prices. They they could come down a bit,
but you know, if they go down low enough, then there's
essentially unlimited demand, low enough prices.
And I was left thinking, well, what's that price then, Mike?
Because is it like minus $10 perM MB CU?
Because how low the gas prices have to go for demand to be
infinite? He he said, like if you can
(04:42):
generate electricity for six or seven cents per kWh, then you're
just going to have unlimited demands.
And I thought it's interesting that he used electricity as the
example of his kind of low priceequals infinite demand argument,
because in Europe we have negative pricing on an
increasingly frequent basis whenbasis when wind and solar
generation exceeds demand and you have no, no residual demand
(05:07):
on the system and prices go negative.
So I don't know if Mike Sable isaware of that if he chooses to
ignore it. But I think this is very telling
that you get these so many statements being said from the
stage here, which really don't seem to acknowledge reality.
I do feel like the kind of public statements, this is like
the big exhibitors who also all,all of whom are trying to
(05:31):
obviously sell their wares. They just don't want to seem to
to just acknowledge anything really that that that there
could be any problem coming downthe line from this kind of
humongous wave of LNG oversupply, which is baked into
the system. On top of which you've got
additional capacity volumes entering the markets in the late
(05:55):
twenty 30s from the deals being done here at gas tech in the
lead of the gas tech. And inevitably in the weeks and
months that follow, we'll see more deals, more investment
flowing into more capacity additions and all of which is
going to kind of deepen the glutitself and prolong it into the
20 thirties. Because before this event, I was
very much of the view that, you know, the IEA says I could be a
(06:16):
glut until 2040. I thought that was a bit, a
little bit extreme and but you know, the likes of rice dad were
very bullish and said there'll be barely any glut at all.
And we used to worry about the, the kind of undersupply in the
twenty 30s. And I thought that was
excessively bullish. And so I was kind of like, well,
I think there's going to be a glut.
It's going to be deep, but it'llprobably be mopped up by 20-30.
(06:36):
But now I'm having second thoughts and I'm really thinking
that, you know, if all these projects come to fruition, big
if mind you, because there were lots of reasons why they could
fail. But if they do, then we could be
veering more towards the IA perspective on this, which is
that they could be very deep gluts for a very long time,
which goes like well into the 20thirties, which has huge
(06:59):
repercussions for gas and electricity markets the world
over. So let me just kind of gather my
thoughts here for a second. Well, what does that mean?
You know, like significantly lower for longer gas prices.
I I think that, and I have a theory which is, you know,
(07:19):
because obviously all this investment is still flowing into
the liquor liquefaction side. Why would you do that if
margins, it's going to depress margins for longer, If it's
going to, yeah, reduce the, the,the attractiveness of those LNG
investments, why would you keep putting more money in?
Would you not want to see kind of how the current expansions
(07:40):
already baked into the system? How are they going to pan out?
But no, apparently not everybodywants to do a deal now.
So there's there's a few reasonswhy I think the deals are going
through, you know, kind of in, in spite of the kind of
mountainous expansion that's already coming down the line.
I think a lot of it is it's driven by politics because, you
know, there's it's not always the case that the political
(08:03):
panorama in the world favours fossil fuel deal making.
And we absolutely have AUS administration which is in
favour of that and full throatedsupport for, for those kind of
liquefaction investments and forfor deal making in, in natural
gas. So I think that's a part of it.
So these guys are going to cashing in on the political
(08:24):
moment that supports USLN G+. You know, everybody gets a
bonus, right? When you take FID that unlocks
finance. And a lot of the guys who are
leading these, these big LNG companies, they will, they will
get no bonuses. They'll unlock fees on
development fees when, when FID is taken.
(08:46):
So they are, you know, all gunning to, to do that because
that's their, that's their paycheck, isn't it?
You know, they get stock optionsas well.
They can sell, they can sell their, their stock down the line
if they get a nice share bump. Although notably, next decade
suffered another share price wobble after it took FID on
train 4, presumably because the terms of the finance were not
(09:09):
particularly favourable to to existing shareholders.
So buyer beware I'd say and thatand that holds true across this
whole kind of investment wave. I think it very is very much
caveat emptor. If you're looking to get
involved at this late stage in the investment cycle in an LNG
investment or you're, you're looking to off take volumes at a
(09:31):
price that makes a high cost base project economic, then you
are inviting trouble upon yourself.
And why do I say that? Well, because the market's going
to turn and as you go up, you know like the all the most
competitive projects take FID first.
There is a merit order to these things and LNG projects that is
(09:52):
taking FID now having followed all the other ones is not going
to be the most lowest cost base.Most economic projects you're
going to have to sell their LNG at prices that are maybe
slightly higher, incrementally higher than than projects that
are already further ahead in thedevelopment phase.
So what does that mean? Well, if you're exposed to
(10:14):
market pricing and if you're USLand job taker, then you almost
certainly are. Then when the price has come
down and the cost base remains the same on that project, then
what happens? Your margins get crushed.
So if you look at the forward price of TTF, the Dutch title
transfer facility, which is the,the, the benchmark European gas
(10:37):
price, look at the future price of TTF in 20/27/2028.
And you look at the full price of Henry Hub, which is the cost
base for gas which is liquefied on the US Gulf Coast and the
cost of liquefaction. And you add on the cost of
shipping the, the, the gas over the Atlantic and regassifying it
(10:57):
in, in a European terminal, thenyou're going to see a
convergence, right? So the delivered cost of US
energy in Europe is going to be about the same as the Hub price
of LNG of of natural gas tried traded on on Henry Hobbins
20272028. And that's before markets price
(11:19):
in the kind of full wave of supply that's coming down the
line. And that's significant because I
think that the markets are getting a kind of non delivery
risk premium of pricing because they know that some projects
they will not not be built. There will be delays.
There will be, yeah, problems down the line.
(11:40):
Many things could happen that cost inflation was actually one
of the things discussed in in some of the sessions.
And I think even Venture Global mentioned that as as an issue
that, you know, the cost of raw materials is going up.
And if you have a project that'sonly marginally profitable and
then your your cost base double s, which we saw post COVID with
like wind farms and LNG projectsand all sorts of commodities
(12:03):
came more expensive and buildingstuff became more expensive.
And that's still a problem. Inflation is a problem.
So if you have more expensive late materials and plus that
they could be a labor shortage on US Gulf Coast.
So, you know, it can be difficult to to to Marshall the
the number of workers into building these projects when
(12:24):
they're when they need to be built.
So there there are those kind ofthose constraints upon
construction and things that candrive up the cost base.
But you know, if you're sure, ifyou're taking off, taking gas
that's very has a very high costbase and then you're able to
sell it above market rates, thenyou might find that the, the,
(12:45):
you know, these, these cargoes are going to be unprofitable.
You know, you take the cargo at a certain price, you want to
sell it into an end market. Well, you want to be able to
make a margin on that after paying for the gas, the
liquefaction, the the shipping, the regasification and make some
profit, right? There's going to be a little bit
(13:07):
leftover. That's not going to happen
because if the spreads compress in the way that the futures
markets are already pricing in, and I think that you're going to
see further, much, much deeper compression of those
transatlantic spreads, You're going to see cargoes at sea,
which will be essentially, you know, unprofitable or marginally
(13:29):
profitable. And you know, in the past, there
have been times when you can sort of float a cargo from say
August until October and benefitfrom an uptick in winter
pricing. You know, that's like
complaining the time spread using an LNG vessel is floating
storage to capture higher pricesin higher demand periods.
(13:50):
I think that play is going to bereally, really tricky because if
the, if the spreads are flat andwe've already seen very flat
spreads, seasonal spreads in recent years and that's going to
continue, then you're going to have an LNG vessel sitting out
like in the Bay of Biscay boiling off because that's what
it does. LNG boils off.
It needs to be recaptured, reliquified and and used for
(14:12):
propulsion or put back into the cryogenic tank.
But if you're kind of boiling off value for weeks or months at
a time, there's no place to haveto be had there.
If the spreads are flat, you can't get a higher price.
So you're going to see, I predict we are going to see
distressed LNG cargoes at sea inthe depths of the glut, cargoes
that simply can't be resold for a profit.
(14:35):
And so you got to ask the question, what's going to happen
to pricing? And one, I think the really
important price to keep an eye on is not just the TTF itself,
but also the the price of LNG onthe water because that's where
the glut is going to occur on the water.
The TTF is important and it and it is a reference and it will
(14:56):
come down with excess LNG production, but there will be
once there's kind of more energyon the water than there is now
you're going to see competition for regasification slots in
Europe. And when that happens then not
not every vessel will be able toto be able to dock.
(15:17):
So where's the pinch point on the RE gas?
The RE gas terminals will be happy because they'll be having
very high utilization rates, they'll be earning lots of
money, but the LNG vessels themselves see that can't dock
or have to wait. They're going to be like kind of
burning of value and you're going to see some, some
distressed pricing there. Where will we see that manifest
(15:38):
in the Northwest Europe LNG price?
So there's actually a different price for LNG in Northwest
Europe compared to TTF. It's very close to correlated,
especially, you know, when the, when there's kind of excess RE
gas capacity, then you know, theprice of energy underwater is
very similar to the price of TTF.
But I think you'll see a big dislocation between the two
(15:59):
because if the, if the, if the regas terminals are full and
they, there's more LNG on the water that can actually get
through the liquid, the regasification bottleneck, then
the price of LNG on the water will fall.
TTF will be falling too, becausethere'll be lots of supply.
But I think the Northwest EuropeLNG price will fall even
further. And so keep an eye on that
(16:20):
dislocation between Northwest Europe and and the TTF because
you're 1 is on like 2 price indexes on either side of the
the regasification bottleneck. And so that's, that's something
I'll be tracking very closely inenergy flux over the coming
years. And and yeah, that's, that's one
(16:41):
prediction I have. The other one I have relates to
the domestic U.S. market. Now, this kind of comes back to
the political question and the the the the duo of Wright and
Bergen who stood in front of thepress, the press conference
yesterday. And you know, one of the
questions was along the lines of, and this is a question I've
(17:03):
been asking myself for many years.
What are you politicians going to say to your MAGA base that
make America great again? America first patriots, right,
who don't want to, you know, give away American value to, to
help overseas allies. They want everything from
America, America first. What are you going to say to
(17:23):
those guys if and when I say if,because it might not happen, but
if and when. The domestic price of American
natural gas and therefore electricity and broader energy
prices spike because the the market's been tightened by a
kind of uptick in demand. Demand coming from LNG exports,
(17:45):
AI data centers that need a hugeamount of electricity to run.
Plus you have pipeline exports to Mexico to to Canada, all of
which you know, in, in certain scenarios could make the
American domestic natural gas price spike or at least rise
sharply from where it is currently around about $3 per
(18:08):
Mmbtu. If that double s up to sort of
5-6, then that's going to manifest in much higher retail
prices. And retail prices have already
been rising for a long time for households and industrial
consumers. They, they get a lot, a lot of
differentiation between the states.
But on the whole the trend is upwards lower cost inflation.
And my prediction for the next sort of three years around about
(18:32):
the time of the, the, the next presidential election actually
is that you're going to see an almighty bun fight between
different vested interests over who can apportion blame for high
energy costs in the US. And there's going to be some
people pointing the finger LNG, some AI data centers, some of
(18:53):
the regulator, some of the utilities are fading to invest
in grid. It's going to be just an
unedifying kind of lobbying fest.
And you got a question, well, where, where is the blame going
to land? And it's very easy to see LNG
exports as falling foul of the the MAGA vision.
(19:15):
You know, they're not compatible, is it?
You've been exporting all of ourfreedom molecules to, to those
allies overseas who we don't care about anymore.
We don't care about transatlantic alliances.
Why are we bailing out Europe sothat they can, you know, not
have to buy Russian gas, that the Ukraine is not our war?
Why? Why are we paying more on our
energy bills so that we can helppeople in faraway places?
It's going to be hard for presumably JD Vance, who will
(19:39):
run to replace Trump to kind of appease the, the MAGA core if
he's seen as having kind of screwed them over basically by
making their energy much more expensive or, you know, making
industrial output less competitive with higher energy
costs and therefore resulting inlayoffs.
Combined, of course, with the Trump administration's insane
(20:01):
tariff policy, its trade policy,you know, all these things that
it's done to, to essentially. Reduce the standing and
competitiveness of America Inc on the global stage that they
have all these things to answer for.
So I'm, I, I think there's a kind of political warning or
(20:22):
risk attached to the, the US LNGexport bonanza because it really
is a bonanza. It's just, it's this absolutely
massive, massive supply wave coming down the line.
So, yeah, you've got the the domestic American gas price
question, and then there's the the kind of price dislocation of
(20:42):
like distressed cargoes on the water.
Well, I think if push comes to shove, if you know, the if the
domestic American market becomesreally, really, really hot,
really overheated, now what's going to happen?
I don't think it matters who is in the White House.
If it means that they're going to be fighting fires at home and
(21:03):
it will improve their popularity, then any president
will simply issue an executive order and reduce or even cap
USLNG exports, because that is kind of very low on the domestic
priority pecking order, isn't itreally?
And if you bear in mind that thecontracts that support USLNG are
(21:25):
take or pay contracts, then you might actually find that the
investors in the, the plants themselves might be protected
from, you know, executive order decree limiting the, the exports
of USLNG to overseas customers. Because if they, if they can
say, well look to their buyers, that is, they can say, look,
(21:48):
you're still on the hook for your liquefaction fee, then
they're still making their money.
And the the customers are the ones that lose out.
So the off takers of US energy, many of whom will be European
utilities suppliers, maybe even industrial companies are paying
for gas that they cannot lift, but which would have been
(22:10):
profitable potentially. That would be a real disaster
for US energy off takers. And you've got to ask if they're
exposing themselves to to that risk, that kind of political
economic risk by by sort of going along on USLNG at this
stage in the market remains to be seen.
(22:30):
You know, there's a big debate about the the lower 48 states,
their ability to to increase production from from from the
shale gas fields of the Permian Basin and other shale plays.
The Energy Secretary, Chris Wright was just categorical that
there's no geological risk associated with the upstream.
(22:52):
The the shale production is essentially infinite.
And that's when there's demand, there is investment in the
upstream and more gas comes and we're so innovative and we can,
you can squeeze more energy out of every single square meter of
shale resource. And he might be right.
We'll see. But the decline rates on shale
(23:12):
fields and some of the the kind of mood music coming out of the
upstream crowd in the shale patch doesn't always support
that view. History is on Chris Wright's
side. I mean, the the shale boom has
just changed the world. It changed the world, it changed
Europe, it changed America, it changed the whole energy system.
(23:33):
And so you can't discount human innovation.
So I'm cautious, but cautious not to be overly cautious if you
like. But at the same time, yeah, the
decline rates concern me. And I think that the sheer
volume of feed gas that's neededto feed these Greenfield energy
(23:54):
projects is such that is it going to be there, Is the feed
gas going to be there? And if so, at what price?
Because if all the prime acreageis being drilled out, then
again, you're looking at merit order economics, the merit order
of natural gas coming out of theground being drilled out from,
you know, second or third tier shale acreage, it might not be
(24:16):
as cheap as it is currently. Because let's just think back to
the history of LNG, right? Think about the history of LNG.
What was it used for originally?Well, often there was a lot of,
you know, trapped gas, so associated gas coming out the
ground with oil. What do we do with it?
Flare it off LNG came along was actually a big solution to
(24:36):
flaring originally. So like places like Nigeria,
which Nigeria still flares a lotof gas, you know, let's be
clear. But you know, they, they did
reduce their flaring from an even higher level by using LNG,
producing LNG with it. So it was like this kind of free
resource, you know this, I monetized this free resource and
(24:57):
you know, put it, put a train down for like 20-30 years.
When the oil field depletes, then the gas runs out and that's
fine. We just pack up.
We had our money, infrastructuredid its job and we exported the
LNG rather than flaring off all of that gas.
So it's kind of, it's an improvement on a very bad
situation. But the LNG projects that are
being developed now are different.
(25:19):
These are not LNG projects that are tapping into a kind of
discrete resource. They are requiring additional
gas. Some of them would just draw gas
out the grid and pay the going rate on Henry Hub or they might
have some sort of supply agreement with a an upstream
producer, but it's not integrated to the plant.
(25:40):
You know, it's not like going toPapua New Guinea and you've got
a kind of isolated gas field there and you just plug in your
liquefaction train, liquefy, export it, everybody's happy.
No, this is this is like along the Gulf Coast, one of the most
industrialized parts of America,which has a very developed
natural gas network, pipelines and things all connected to
(26:05):
upstream fields. But it's like, you know, like
how much of this liquefaction capacity is going to be in
competition with other uses of that gas?
Like they're drawing gas out of the gas grid.
And I don't know the answer, frankly, but people are telling
me that this is a big risk that when the US energy boom comes
(26:28):
into having to compete the molecules in the upstream, then
we might see much, much more expensive, how many, how many
hub pricing and then all the problems that I described
earlier. So that's the way I see the LNG
trends unfolding over the comingyears.
Those are some of the the themesI picked up from coming to gas
(26:50):
tech. It was well worth being here.
It was, it was an intense week of networking and chatting and
long conversations with very knowledgeable people and, you
know, kind of drifting in and out of conference sessions that
were very interesting. And of course I got to present
myself. I'll do a separate episode about
(27:12):
my presentation. I'll I'll share my slides and
talk more about those themes, which are quite separate to the
kind of whole LNG outlook which I've just given.
But but yeah, like presenting a gas tech was, it's a real buzz.
It was a real buzz. I was really nervous, but I
think it went all right. And I think it went very well.
(27:32):
It went very well. And I got lots of compliments
afterwards and I even met some of my subscribers, which was
brilliant. And I must do more of that.
I must meet more of the Energy Flux readers because there are
so many interesting, diverse intelligence people who who read
it and who, who engaged with me and help me with my knowledge
(27:54):
of, of this industry. So, but shout out to all of the
Energy Flux people who are here here at Gas Tech.
And he came up to say hi, thank you guys.
And yeah, let's, let's just keepgoing, keep watching these
markets. It's going to get very, very
interesting over the coming years, right?
(28:16):
I think we're going to call it aday.
Gas tech's calling it a day. Everything's been taken down.
I've got a flight to catch. Thank you for listening and
watching, and I'll see you soon.
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