Over the last decade, Louisiana has been ground zero for a global energy revolution - one that has established the United States as an energy superpower. Each day, ships nearly 4 football fields in length, leave Lousiana ports carrying natural gas to nations around the world - providing them with a safe, secure and cleaner fuel source. The management team at Tellurian Inc. has been responsible for many of the developments that have made this revolution possible. Tellurian CEO Octavio Simoes joins us to explain why Louisiana is home to this important industry, and what the future holds for his company and American LNG.
Got feedback or an idea for a future episode? Contact us at jason@frenchstrategicpartners.com or on twitter @jasontfrench.
Generously Sponsored by Louisiana Economic Development. Visit www.opportunitylouisiana.com to learn more.
Over the last decade, Louisiana has been ground zero for a global energy revolution - one that has established the United States as an energy superpower. Each day, ships nearly 4 football fields in length, leave Lousiana ports carrying natural gas to nations around the world - providing them with a safe, secure and cleaner fuel source. The management team at Tellurian Inc. has been responsible for many of the developments that have made this revolution possible. Tellurian CEO Octavio Simoes joins us to explain why Louisiana is home to this important industry, and what the future holds for his company and American LNG.
Got feedback or an idea for a future episode? Contact us at jason@frenchstrategicpartners.com or on twitter @jasontfrench.
Generously Sponsored by Louisiana Economic Development. Visit www.opportunitylouisiana.com to learn more.
Jason French 0:01
Louisiana powers the world. It's not a slogan. It's a fact. If the Pelican State were its own country, it would be the third largest exporter of liquefied natural gas in the world. 15 short years ago, that idea would have seemed like little more than fantasy. Back then, the United States was the poster child of global energy consumption, not production. Now, Louisiana more than any other state has established the United States of America as a global energy superpower. Today, we're joined by one of the most prominent leaders in the global LNG industry, Octavio Simoes, the CEO of Tellurian. And he will tell us what has made our states such a force in the world's energy markets, and what the future holds for this revolutionary Louisiana industry.
Dawn Cole 0:53
This is Louisiana global gumbo, a production of the World Trade Center of New Orleans. There are many ingredients necessary to build a global economic powerhouse, people, places, natural resources, entrepreneurial spirits. Join us as we explore the recipe that has made Louisiana force in the global economy. Here are your hosts, Jason French, and EdWeb.
Jason French 1:23
Well, folks, you get one more episode of me flying solo, but I can assure you that EdWeb my co host and the CEO of the World Trade Center will be back with us next week. Today's episode is special though, and it's near and dear to my heart. Before starting my own business earlier this year, I actually worked in the LNG industry, I worked for Cheniere Energy, the nation's first and largest exporter of liquefied natural gas. And then I joined the team at two Lorien as the Vice President of Government Affairs. Today's guest is the CEO of Tellurian, and that company is breaking ground on a $16 billion $16 billion LNG export facility this April. Let's put that in perspective. For a moment I often find that, you know, we see the number billions in the news and sometimes we lose perspective on how much money that really is. Well, the Superdome something everyone's familiar with here in Louisiana. If we were building another Superdome in any community in Louisiana, it would be a point of civic pride and on the front page of the paper nearly every day. Well, the fact is, is what Tillerson is building in Calcasieu parish is the equivalent of 14 Super domes. The size and scope of what this industry is doing is amazing. The impact of what this industry has meant to Louisiana and to the country has truly been revolutionary. That is not an exaggeration to say. You know, during my time in the LNG industry, which started back in around 2011. I spent a lot of time talking to members of the community to elected officials to educate them on what LNG actually was the the energy industry is full of acronyms. We like to make things It seems confusing at times. But LNG is simply liquefied natural gas. It's the same natural gas that comes into your home that you might use to heat a pot of water on the stovetop. LNG industry takes that gas and very large pipelines, 48 inch pipelines in some cases, it brings massive quantities of that gas into a facility that cools it down from 70 degrees to negative 260 degrees Fahrenheit.
What that cooling process does, it condenses the size of the natural gas from about a 600 to one ratio, meaning it's economic and viable to store and transport massive quantities of that natural gas across the oceans and cross across the world to our allies. And that's exactly what's been happening in Louisiana. That's what started happening when Cheniere Energy broke ground on the first export facility in Louisiana in 2012. And now with three operating companies and a number of companies developing LNG facilities, Louisiana has truly become ground zero for LNG exports and development in the United States. But why is this industry so important? Well, first, you can look at the domestic benefits. We've already mentioned what turions investment means in terms of $16 billion, and comparing that to Superdome as well. There are three operating LNG export companies in Louisiana today. Cheniere Energy, Cameron LNG and Venture Global's facility and Cameron parish. Combined those three facilities along with the Tillerson facility beginning construction in April, total over $50.5 billion of direct investment in Louisiana. Keeping up with the Superdome comparison, that's 56 Super domes. That's amazing. And that significant economic development for the state. significant employment to each one of these facilities takes about five years to build and employs anywhere from 678 1000 people during that time. construction period. When operational each requires several 100 people to operate, these are good paying jobs. So if you look at the domestic benefits, absolutely, you can't argue that but it's really what we're exporting to the world beyond simply those molecules of gas that I think might interest you. When folks talk about global global climate change, sometimes activists forget that there's an important word in that phrase, global. What we do in the United States matters to the globe. What happens in places like India and China also matters to the globe. What we're exporting from Louisiana shores are not just molecules of gas, we're exporting a clean burning fuel, a clean burning fuel that is replacing coal in places like India and China. The fact is, is that the greenhouse gas emissions of Louisiana natural gas are on average 50% less than coal being used around the world the fuel that it largely displaces, and that has significant significant environmental impacts for the world. Economic Impacts, environmental impacts cleaning the air around the world, but also their geopolitical impacts. It is significant for the world that Louisiana and United States have become an exporter of natural gas. Look to the news of the day. With Russia, seemingly poised to invade Ukraine. Look at how Vladimir Putin has yielded natural gas as a weapon against our NATO allies and across Europe, as he uses cuts off the natural gas spicket to achieve his domestic political ends. American allies are hungry for a safe, stable and secure source of energy, particularly our allies in Europe, and Louisiana natural gas can provide that and that benefit should not be overlooked in the discussion about what Louisiana LNG means for the world. Look, there are very few topics that we'll explore on this show about which I'll have more passion and interest than Louisiana's LNG industry. It has been transformative for our state for our country, and it's had such a significant impact on the world. It's truly not hyperbole, it can't be overstated. But you didn't come here today to hear from me you came here to hear from our guests Octavio Simoes, the CEO of Tellurian, Inc, building the driftwood LNG project and Calcasieu parish. Before coming to to Lorien Octavio was the president and CEO of Sempra LNG and successfully developed the Cameron LNG facility in southwestern Louisiana, truly a leader in the global LNG industry. And I think you'll have a lot to say that will interest you. So with no further ado, let's welcome our guest, Octavio Samoas. All right, well, this podcast is really about Louisiana business and Louisiana international trade. Perhaps there's no bigger story in US international trade, but certainly in Louisiana, there's no bigger story. Then LNG liquefied natural gas exports and what that's meant, given that the Tillery and team has such a rich history. Developing Louisiana LNG you've got Charif Soukii at Cheniere Martin Houston, Bg and then your work at Sempra. Given that history. Can you tell us a little bit about why Louisiana why Ellen, Louisiana is home to so much of this development in the LNG space?
Octavio Simoes 8:29
Sure. It's a combination of a couple of things. One, obviously it has the resources, human natural accessibility and skilled workforce, to its got a great environment and climate do business. The people starting with the residents are supportive going on to the local and state government. They enjoy seeing people invest in the state. And it makes us happy, it makes us comfortable. And as a result, the projects have been successful, no matter who has launched them. And that's the main reason Louisiana is a great place to do business and we're welcome.
Jason French 9:06
You've got operational companies now in the LNG space, obviously Cheniere Cameron LNG where you came from before venture global are all now operational in the state. There are a number of development projects in the works. Can you tell us why two Lorien is poised to succeed from that group of development projects and is there room for multiple of the development projects to go forward and succeed? Well, first
Octavio Simoes 9:30
to learn he is ready to start working right now. We have all the permits or the land arrangements, the EPC contract fully wrapped. We have the commercial contracts. We're just in the final throes of the financing. So we're ready to go whereas other projects still have their permits in front of the Federal Energy Regulatory Commission. They still have some commercial arrangements that are not completed. They may not have fully wrapped EPC engineering procurement, construction contracts. So we're ready to go. So and that's why we think We will be the next project in Louisiana to to launch. And as a matter of fact, we are on target to start construction of the BC work the EPC, engineering procurement contract contract, construction contract in April of this year. As far as multiple projects, we have to worry about whether the infrastructure behind it is there. So it's not enough to do a liquefaction export facility. You need pipelines to move the gas around the state, you need infrastructure to help that take care of. And so if that infrastructure doesn't get built, it will be difficult for other projects to go forward.
Jason French 10:36
How much capacity do you think the domestic market can stand to export? So when and that probably ties into a discussion that we've heard recently that LNG exports are the cause of rising natural gas prices in the Northeast? And I know you'll have some strong thoughts on that. But how much more natural gas do you think the US has capacity to export?
Octavio Simoes 10:55
Well, the US probably under the current infrastructure capability, will probably cap at about 100 million tons of exports of LNG to the world. As far as the combination of the correlation between LNG exports and pricing, it doesn't exist. The price of natural gas in the northeast, as you pointed out, was very high even before we had a single ounce of export of LNG to the world. It as a result of lack of infrastructure, as I mentioned before, that does not adequately supplied the Northeast with natural gas, which is one of the reasons why the Northeast is still importing LNG. And Everett in the Boston Harbor to meet its demand. And it's not enough.
Jason French 11:44
When you talk about the infrastructure limitations in the Northeast is what is that a product of is that is that the the political will there is it is it NIMBY nimbyism. What Why is there not sufficient infrastructure in the Northeast?
Octavio Simoes 11:57
And all of the above answer, there's no political will to do it. People know like, it's a highly congested area. So everybody has a say in whether there's a new natural gas pipeline going through their backyard or not. And as a result pipelines through New York to get to New England states don't not exist pipelines from candidates not necessarily where they would come from, since it's not an area that produces natural gas to bring forward with minor exceptions. So it is a problem of supply from areas in remembering Pennsylvania, they have plenty of gas, they could serve the New England market, they cannot build pipelines to deliver their gas and so they import LNG, which by the way they can import from the US terminals because of the Jones Act. And as a result, they import it from places like Russia.
Jason French 12:46
The driftwood LNG project, you mentioned that in April, you expect to go to EPC construction, I know that the company had made an announcement last week regarding what was called a limited notice to proceed. Can you tell us Can you explain what construction is going to begin in April and how that distinguishes from full notice to proceed? Or some of the other terms that we've heard fid notice to proceed? What does that mean for the company? It does, is that a positive step forward?
Octavio Simoes 13:12
We love our acronyms. So I'll try to keep it simple. The what we're going to start doing in April is de risking the project by prepping the side starting foundations builing, kind of the initial work that will take place until we complete the financing process for the whole project, we will have limited capability to issue purchase orders for long lead term items. So that will occur when we have financing in place. And we expect financing in place to take to occur sometime this year, probably before the end of the second quarter. But that's what we're working on. The good thing, the reason why we've had this little difference in what we thought we're going to do in what's really happening is because we had so much interest by parties to provide equity and debt financing, we have over 50 entities that are in non disclosure agreements with us right now, as part of that process. So we have to be judicious. We are publicly traded, we have to do what's best for the shareholders. And that's what we intend to do.
Jason French 14:12
You can't have a discussion these days about energy really anywhere in the globe without talking about co2 emissions. Can you talk a little bit about the role that natural gas and LNG can play in addressing global climate change issues?
Octavio Simoes 14:28
The role of natural gas in addressing co2 reductions is absolutely fundamental. It is the hydrocarbon that can displace higher carbon emitting fuels like coal, wooden oil, it is a clean fuel from also a an air pollution in terms of other particulate matter and other components that cause air pollution and smog and, and other problems around the world. So it is fundamental not just for global issue global climate issues but also for pollution issues. In terms of why is it so important? Natural gas emits 40% of these comparable co2 emissions from coal or oil in a power plant to produce electricity. So without natural gas to displace coal, we will not get there no matter what we do in any other sector.
Jason French 15:22
Okay. So tell us a little bit about, you know, today is as co2 emissions are a major issue, political leaders, customers, financing partners are all demanding that new hydrocarbon projects account for co2 emissions. Can you talk a little bit about what Tellurian's doing today and maybe steps that you're taking in the future to address your carbon footprint in Louisiana,
Octavio Simoes 15:45
I'd like to start by saying it's not what to learn is doing today, we've been doing stuff for four years, we have been some of the first folks to support the carbon pricing. We've been some of the first folks to do green completions of our Upstream production, which is to minimize, in some elements, some situations completely eliminate methane leaks is you know, methane is also one of the greenhouse gases. That is far more potent in its effect, albeit on a shorter term than co2. And so we've we continue to do this we continue, we just implemented and working with our partner Baker Hughes on monitoring of our Upstream activities to have full accounting of any potential leaks or fugitive emissions, we are looking at building pipelines fully electrical, which could come from renewable sources, we're also looking at including completely self contained compressors that would have zero methane leaks. So we've and we have invested significant amount of money in what we think is one of the great solutions, which is nature based solutions to reduce co2, we've committed $25 million to planting trees, it's just the beginning with the National Forest Foundation, some of them in Louisiana, the first 300,000 is if I remember correctly, there was they are devastated by one of the recent hurricanes. So we are doing everything we can, we are going to account for our emissions, we are going to do everything we can to offset our carbon footprint. But we're going to do it in a smart way in an efficient manner in a low cost. Because remember, you can do things to reduce co2 that cost a lot of money. And who ends up paying for that it's the customer. It's not a philanthropic exercise, the cost of producing energy can be higher or lower, depending on what strategies you use to reduce the carbon emissions. That's why That's what gas is so important.
Jason French 17:46
This podcast is brought to you by the generous support of our sponsors at Louisiana economic development. Louisiana's diverse landscapes include dense timber forests, and seafood rich coastlines. And every step along the way, you'll find a business environment that strong, diverse and ripe with opportunity need proof, Louisiana's where NASA and higher ed partners build rockets that will transport the first women and the first person of color to the moon, where the port system delivers the most domestic cargo in the United States, and Louisiana is home to the best workforce development program in the country. See what Louisiana economic development can do for you. Visit opportunity louisiana.com today. Let's let's move into some things specifically about your company to learn has really been an innovator in the marketplace. I think over the years since it's been in place, you're doing some things that are different from your competitors. And I wanted to ask you about a couple of those. And for one, you've been selling your natural gas, the three commercial agreements that you've announced are 10 years SBAS, as opposed sales purchase agreements, as opposed to some of the 20 year agreements that your competitors are still pursuing. Could you talk about that? And then maybe this will be a long answer, and that's fine. But the the other piece, your index to jKm, as opposed to Henry Hub us index? Could you talk about those differences between Tillery and the competitors and why you think that gives you an advantage or why that's been done? Sure.
Octavio Simoes 19:15
So as you just said, area is the US index, selling natural gas to Asia, Japan, Korea, China, on a US index is not necessarily what the customer likes, because their index in this particular case that I mentioned, is JKM, so JKM, which is Japanese Korean marker, that's the index that they like, because then they are risk free. When it comes to buying on an index that that's the index they sell in Europe is TTF. And you know, that's just a very long Dutch name. I'm not going to break the acronym. So we have the ability through our model to give the customers what they want, which is selling LNG on an index that's Next day live with, we found ways to mitigate their risk, because we live in the US. And that's why we have an integrated model where we'll be producing our own gas. If we produce our own gas, in an equivalent number of molecules, that's the same molecules, we sell LNG. We don't really care what in rehab is, because what we have is the cost of consumables and people and royalties and taxes in producing the gas. So we actually have LNG that's dollar based gives us the freedom to sell it at whatever index we want. And since the customers want their local index, we satisfy their requests. And that's why we sold our commercial contracts so quickly.
Jason French 20:39
And then regarding the 10 year versus 20 year agreements, the distinction between that and what that means in the marketplace,
Octavio Simoes 20:45
we do not need to have a 20 year revenue source at low margins, which is what happens in an infrastructure type of Tolan fee in order to pay the debt that is required to build the project. So by selling Dickey MTTF and producing our own gas, we create the kind of revenue margins that we need that we don't need 20 year contracts. And by the way, that's what the customers want. Because in this day of uncertainty, this age of uncertainty, they don't know if they're really going to need the LNG, 20 years or 25, because it takes five years to build the plan 25 years from now, so a 10 year contract is very, very attractive, it fits in their timeline of need and planning. And so between the right index and the right timeframe, we didn't really have to spend a lot of time, you know, making our contracts reality.
Jason French 21:35
So you've certainly been innovative in responding to the market and the customers. Do you think that that will make financing for your project any more difficult because you're based on a 10 year agreement, as opposed to a 20 year agreement, or I think
Octavio Simoes 21:47
that the financing these days is driven by the fact that the world is in an energy crisis, people are beginning to realize that. So a lot of attention, like I said, we had 50 entities interested in our financing, that demonstrates the interest that people have in that sector, to support the coming to the market of new sources of supply. The reason why we having such high cost of energy today is because for the last five years, because of narrative by government agencies, pundants, you name it, we've had a shortage of investment in the hydrocarbon area, the companies that could have done it, they were uncertainty whether or not they should do it. And as a result of shortage of supply, the prices have gone through the roof because the energy demand has not gone down. We have not been successful in conservation efforts. And we have growing populations, we have growing middle classes around the world. And they want the same standard of living that 20% of the world today has. So that requires energy just like it requires food and water. Those are the three pillars of anything in society. So the demand is there, and the investment needs to take place. And as you know, I drew carbons is not just about fuel to burn hydrocarbon is about plastics for electric cars, for our computers for our phones, because medics medication dies, you name it. It's a lot more than just something that we burn to keep warm or to drive our cars around.
Jason French 23:14
You use the term energy crisis, and certainly that has some geopolitical implications. I want to turn our attention to Eastern Europe, specifically Ukraine, and what's happening with Russia, obviously, that's big story in the news of the day. How is that unrest in Eastern Europe? And how is that impacting potential future development for LNG
Octavio Simoes 23:33
short so if you go back a few years, the issue of diversity of supply is always a key player in decision making. If you go back in 2008, the countries that supplied LNG to the World War Australia, Qatar, Indonesia, and the world wanted diversification because they don't want to be dependent. So the west with its evolution of the shale recovery, which allowed us to have so much gas we could share the resource with the world became a source of diversification. The fact that Europe was so dependent in Russia pipeline gas, when at the same time, the supply from the North Sea, or the supply from Groningen, or the supply from Norway or supply from Algeria, was being sometimes weakened, sometimes stopped, as created this maximum dependency of European Russia pipeline, which is not a good thing. So the crisis in Ukraine were a lot of the pipelines to Europe go through, just highlighted the need for Europe to diversify. At the same time. They thought that what they hoped to have, which was a fully solar wind solution for the energy needs, just really was not possible. And so they find themselves burning more coal they wanted and not having enough gas because they didn't invest in infrastructure to have natural gas available to their society. So I think it has highlighted the Need for more LNG, it has highlighted the need for more infrastructure in Europe to receive LNG. And as a result, you see the European governments reaching out to the US to have more LNG from the west. Unfortunately, at this point, we have not had strong signals from the administration to really say we are going to increase our production of LNG in order for Europe to have it as allies that they need it. Instead, we were reaching out to Qatar to give Europe more LNG, well, that's not really the answer. We have it, we could do it
Jason French 25:30
shifting directions just a little bit. As you know, I've worked in the LNG space as well with communities and one of the things that we've heard and obviously Louisiana has been incredibly supportive of LNG development, but one of the things you hear pop up from time to time, from someone objecting to the development of LNG are safety concerns. And and for me, one of the ones that is the is the most stereotypical is seeing the flyer with the mushroom cloud of the atomic bomb and you hear that LNG, an LNG tanker, an LNG tanker is as dangerous as having an atomic bomb in your community. If it were if something were to happen, I know that the story on this but can you share with the audience why that type of that type of dramatic display is not exactly accurate? You know, one of the things that sorry to interrupt but one of the things that we did it Cheniere is we ran the numbers of what your average coal train, your average coal train has the energy of four times the the atomic bomb that was dropped on Hiroshima, but folks are not afraid of a coal train. So that was always an analogy I used in the community. Can you just talk a little bit about anyone who might have concerns about the safety of LNG development in their community?
Octavio Simoes 26:32
Well, look, I'm an engineering by training. So I like to work on facts. There's been more accidents and destruction caused by hydrogen than by LNG, and we don't talk about it as a source of an issue. So let's let's let's stick to the facts, the real the whole LNG industry, started back in 1959, or first cargo 56. And so about 60 years in the making, we now have about 600 ships around the world transporting LNG on a daily basis, we have over 400 million tonnes or close to it, of LNG being produced annually. So it is not a single event. But we have not had a single accident, a single ship, people forget that LNG is stored that atmospheric pressure so there's nothing to blow LNG liquid, you can put your hands in it, if you ever tried, it's kind of fun, and nothing happens. It is not explosive. It's you know, it just those are fears that are unfounded. Unfortunately, there were some movies that Hollywood likes to exploit that I remember I was one LNG cargo that somehow became a bomb which was silly and completely incorrect, but you know, it made for good movie. It is just really not the fact and the more people hear about it and know about it. You know, we drive everyday in our car is a gasoline tank in our car is far more dangerous than than anything we can think of.
Jason French 28:04
Octavio, you've given us a great deal of information about the LNG industry, the LNG Industry and Trade in Louisiana, we appreciate that we, we on this podcast, try to make things a little bit more casual and fun as well. So I didn't prep you for this, but I'm going to go ahead and throw out. Is there anything you can tell us about yourself that maybe folks don't know a lot about you? I know you'd like to be on the water. But is there anything from a hobby, Pat, something interesting that maybe folks don't know about you?
Octavio Simoes 28:29
My grandfather was a guitar manufacturers, all the whole family of cousins, was forced to learn how to play the guitar. So that's one of my hobbies, and it's a great relaxing way to do it is just to have fun. I try to sing but usually when people are not in the room, right?
Jason French 28:47
What great you had you had it, you had an answer. Great. I appreciate that. Thank you so much for being with us. This is the work you're doing in Louisiana is so important that I'm glad you came with us to share the story of my budget. To support this podcast and the work of the World Trade Center, please rate review and subscribe wherever you get your podcasts. And if you have any recommendations for future shows, please contact us the information listed in the program notes
Transcribed by https://otter.ai