From Oil and Gas Investor Editor-in-Chief: Souki’s Optimism

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Even at $5 per Mcf, gas prices are cheap, says Charif Souki, co-founder and executive chairman of Tellurian Inc. That’s because the rest of the world is paying $22 to take it off your hands. And that arbitrage will continue pulling gas from U.S. producers for decades to come, he projects—despite the noise that says otherwise.

“You would think $5 gas is expensive, but it’s cheap on a global basis,” he said. “The American producer has to think in terms of a global marketplace, not simply an American marketplace. We’re blessed with an incredibly large resource base. It gives us an enormous inherent advantage.”

Souki shared his perspective with the Houston Producers Forum in September. His $15.5 billion, 27.6 mtpa Driftwood LNG project in Louisiana is expected to reach a final investment decision early next year.

That advantage presumes the world will still need U.S. natural gas for decades to come. And that noise presumes it won’t with an ongoing energy transition to nonhydrocarbon fuels.

Low prices exacerbated the noise, he said. People became complacent and were perfectly happy to sanction “almost religious beliefs” in what should happen regarding fossil fuels. “What are you going to choose to believe without any real thought into the realities of what is going to happen?”

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Hydrocarbons, he reminds, provide 80% of the world’s energy. “When we talk about the transition, the question is, transition to what?” He likens the transition to nonfossil fuels as an incomplete bridge over water. “This bridge is not very useful.”

As an example, Souki points to the energy crisis occurring in Europe today as a model for what is going to happen around the rest of the world. In less than 12 months the European Union has gone from a position of oversupply to one facing “potentially catastrophic disruptions.” In their efforts to drive coal and natural gas out of the system, replacing them with wind and solar, they overshot, said Souki. Now when the renewables are not pulling the load, the fossils are in short supply.

European consumption of coal has risen 20% this year, counterintuitive to the overall goal. Natural gas supplies are at historic lows going into the winter—and Russia may not have the spare capacity to bail them out.

“It’s not simply an issue of price because they accept that it’s going to be very expensive this winter. It’s more fundamental than this. What if they just can’t get the molecules to the customers?

“Everybody’s looking for a scapegoat, but the scapegoat is the system—bad policies. They took everything for granted.”

And sky high prices in Europe will drive up natural gas prices across the globe.

Another critical data point: 15% of the world’s population consumes 40% of the world’s energy. If the rest of the world is to catch up to half of the standards that are in the Western world, the world will need an additional 100 million barrels equivalent, he surmised. Not less.

“When you travel around the world and tell other people, especially in China and India, 40% of the rest of the world, that they’re not entitled to the same living standards as we have in the U.S. and the Western world, you’re not taken very seriously.”

And they’re not going to walk away from it, he said. “The best allies we have here today, because we are now a major hydrocarbon producer on a global basis, are going to be all the governments around the world that are relying on our behavior in terms of developing affordable energy to the rest of the world.”

Souki believes the debate of hydrocarbons’ role in the energy transition is reaching an inflection point. “Denying the necessity of continuing to rely on hydrocarbons for the next few decades is ridiculous. It just goes in the face of history of every evolution from one energy source to the next one.”

Even biomass, once the predominant source of world energy, has grown in demand over the last century, he noted, albeit a lower percentage of the energy stack. So rather than a transition, “there is an evolution,” he said. “We are not going to get away from hydrocarbons. We’re going to add to hydrocarbons.

“So if you have these views that you want to deal with climate, there are ways to do it that are intelligent where reality isn’t going to come back and bite you because you miscalculated.”

Souki anticipates a global shortage of LNG in the near future about the time Driftwood is set to come online in the mid2020s, which is why he is an optimist for the industry.

“My message is the future is bright. But the future is not local anymore because the people who really need you are all around the world.”