Chinese gas buyers could begin reengaging with US LNG producers under the Biden administration after a hiatus, and the LNG industry needs to tackle acute underinvestment to maintain natural gas' role in the global energy transition, Vivek Chandra, chief executive of Texas LNG, said in an interview.
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Texas LNG, a 4 million mt/year LNG export project in the US awaiting final investment decision, was one of the many US LNG projects that was in talks with Chinese buyers before US-China trade tensions soured relations.
"I think America is already reengaging with the rest of the world in a different way than in the past," Chandra said. He said there could be progress on trade deals like the TPP, or Trans-Pacific Partnership Agreement, which is relevant to US LNG exporters because of its impact on American sales and commercial relationships.
"A lot of exciting things are happening in China. We don't see a monolithic buyer. We see many, many buyers. We see new emerging buyers. We see state-owned buyers, provincial-owned buyers, private entities. There's a lot of innovation going on, which is really exciting," Chandra said.
"I look forward to kind of a reset of the China relationship. I look forward to getting to commercial negotiations and away from the politics. And I think it's only inevitable that we're going to see more deals between Chinese entities and American suppliers," he said.
Chandra, however, added that Texas LNG is not dependent on any one market, and its parent Glenfarne Group, which operates power plants in South America, needs LNG feedstock and will account for some captive demand for some of its LNG output.
Texas LNG expects to reach FID around this time next year, and is in the final stages of picking its engineering joint venture partner, Chandra said.
LNG PRICE VOLATILITY
Chandra, who is also the author of 'Fundamentals of Natural Gas: An International Perspective', said the recent spike in LNG prices highlighted three key issues -- the LNG industry's evolution as a widely traded commodity that responds to supply-demand imbalances, the need for diversification in procurement strategies and complacency in the long-term investment cycle.
"LNG is behaving more like any other commodity, which is good. Supply-demand is sending the right signals to the price," he said. "But I think what is really quite crucial is the fact that it shows the fragility of our system."
A surge in winter demand and fuel shortages in North Asia had sent the Platts JKM benchmark for spot LNG prices to a record high $32.50/MMBtu.
"I think most people should not be fully exposed to the spot price. You need to have diversification. Maybe you want to expose a little bit (of your portfolio) to the spot price, but you can't be fully dependent on it," Chandra said, adding that there was also a need to have some "nice long-term stable contracts".
He said the price volatility and the wave of capital expenditure cuts by oil majors in 2020 in the natural gas space indicated that investment in gas was starting to peak, although peak demand is not apparent for another decade, potentially opening up a demand-supply gap.
"The discontinuity between the demand peak and the investment peak is what worries me," he said. "We have to still prepare for 15 or 17 years of growing gas demand. The industry has just not invested for the long-run," he said.
"We need to start looking at the big picture. We need to still plan for gas as the transition fuel. Gas is still going to be incredibly important," Chandra said.
DEMOCRATIZATION OF LNG
Chandra was bullish on the future of LNG. He said power generation is the biggest bucket for LNG demand growth, but also the most likely to get disrupted by a renewable energy source.
The big growth for LNG demand instead, is going to come from the non-power side -- industrial use, petrochemicals and city gas.
"Those are very sticky markets and those are markets that are growing very rapidly. Look at India. There are 10-15 city gas grids that are being built as we speak. And once you build a city gas grid you won't be putting coal down the gas pipes," he said.
But everyone from traditional energy financing institutions to the oil majors are ignoring investment into gas demand --- regasification FIDs are even scarcer than liquefaction FIDs, he said.
Chandra said this means the next phase of LNG development and innovation is going to come from the people that do not have a lot of baggage, and who can look at a clean slate to do things in a different way.
"I think it's going to be a really interesting year and I think it's going to be the year we finally see the steering wheel of LNG industry given away from the super majors to the next type of player like us," he added.