With Laurent's segle End from London and Gerard Reed from Berlin. This is redefining energy today.
On really think in LG we're going to talk about LNG liquefied natural gas and wonder if we are, as the oil and Gas company say, into the golden age of gas.
Or something else, and that's something else around could be that we actually have a boom in the next few years and then a complete bust as we've got a glot of everything across the whole gas industry, from LNG capacity to energy ships to gas itself.
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Back to the show, Yes child, So if I look at the statistic provided by the IA our friend Greg Molnar. He said that this year, in two twenty five, the FIDS for new liquefaction capacity will reach fifty five million tons peranum. I have no idea what that means, but what I do know is that it's the second best year for FIDS, second only to two nineteen. That means
that the industry is going gangbuster. And the last example we had was last month fourteen billion dollars USD FID for Sempra Portart number two, mostly financed by Blackstone, KKR, Apollo, Goldman Sachs. So even Wall Streets is extremely bullish on LNG.
Yeah, but I think we both agree around that there's probably a lot of risks out there, and we think it's time to actually have a really open conversation in and around the global gas market in the next few years, which is why we decided to bring a great guy in justin Mecalca. Do you want to talk a little bit about him.
Yeah, So, first of all, it's not a NOI lobbyist, so we're going to have a really good conversation. Is for me, one of the best experts of that old universe. He has been investigating and reporting on the energy sector for decades, publish a regular insight called powering the Planet, and he is currently served as communication director at oil Field Witness, which is a US based nonprofit that is tracking gas with an emission.
Let's play them on the show. Justin's great to have you on the show.
Thank you. It's great to be here.
So Justin, we are between two, say our week and have something to say about our week? Before I ask you the first question, I like to sing something. Because they asked me to come next year. I was thinking and a song came to my head, and that song is they wanted me to come to sera week and I say no, no, no gravel in front of oil lobbies and I say no, no, no. First question. The narrative of the fossil free industry is the following year we're going to have a continued use of fossil fuel,
particularly LNG. Is the golden age of gas doubling the next ten years while aill continue to growth and of course a price is supported by geopolitics. And if I look at the investment in the US in allergy terminal, it's absolutely phenomenon I in doubling the production. So Justin you're here to help us dismantle that narrative. Why do you think it's wrong?
First, I want to say it makes a lot of sense for the industry to be pushing this narrative, especially as we're seeing oil demand in China plateauing. If you want to talk about growth in the fossil fuel industry, it's gas, and so they have to make everyone believe that this is where the growth is. But what we are seeing, and actually more rapidly than I expected, China has stopped buying LNG and their demand has been going down year over year. We're also seeing that in India.
We're seeing that in a lot of different countries. So right as we're being told by the industry we are about to enter the golden age of LERG and gas, we're seeing a lot of countries around the world who are the buyers of this product choosing alternatives. And what I've been arguing is this has very little to do with people wanting clean energy. It's all about the economics, and if you're looking at power generation, LERG is pretty
much your most expensive option. So while it's fully understandable the industry wants us to think this, it's not what we're seeing happening playing out in the world right now.
For me, the China market is gone. They signed the power of SIBAA number two. They're going to extend the Central Asian Pipeline from Turkmenistan, and I'm pretty sure they're going to get guess at what threefold on OMMBTU, So there's no way Energy can compete because geez always the digit.
Yeah, China is very fascinating right now. The messages we've been hearing from the industry again, are they expect growth in China. Exxon recently said from maritime and trucking uses, and we already see that in China batteries are winning out in long haul trucking. If you're pinning the future of your LNG business on maritime use from the Chinese market,
it starts to sound pretty desperate. And there was an article recently from Bloomberg basically saying that if you're expecting more demand from China for LNG, you're going to be disappointed, something I've been saying for a while, but it's very interesting to see that showing up in publications like Bloomberg. At this time, it's.
Just an I go along with the view that, Look, what we've definitely are close to seeing is peak fossil fuel demand. And obviously we've seen this in the Western world, and I can imagine obviously a dead right. I think China we're very close to as well, and I can imagine that in the etcetera, etcetera, they'll follow China right and then electrify.
As much as possible. I can see that. I'd like to hear your thoughts on the supply side, in otherwids. When you look at the supply of gas oil, how do you see this? And obviously this has huge implications because if you get this wrong as an investor, my god, you're going to lose a huge amount of money.
So how do you view this well, I'm certainly on record saying that people investing in building more LNG export capacity for the US right now are going to lose money. And one of the main arguments I'm making is that
is tied to the supply. A lot of the people making these investments appear to be working under the illusion that the US has an endless supply of cheap gas, and the markets have been very shaped by the fact that the Henry Hub, the price of gas in the US has been extremely low for the past decade, well below historical norms, and people have now seemed to have accepted that that's how it's going to be going forward, which might be the case if we continue to produce
so much of this gas, but we're reaching the limit of that, and what we're going to run into if they are able to find markets to export the amounts of LERG they're talking about in the next five years, there will be gas shortages domestically in the US. So the prices of US domestic gas are going to go way up, which seems to be just a problem for
US industry and US consumers residential consumers. But where that becomes a real problem if you're an investor in LNG exporting is the price of your lergy exports is also tied to the Henry Hub price. And so when we get a shortage of gas in the US in these coming years due to the huge increase in energy exports, it's going to raise the price of US LNG. And we, as US, our LERG prices are already some of the
highest in the world. So from an investment standpoint right now, investing in increasing US LERG export capacity seems to be very risky for a lot of reasons, and one of them is tied to the limitations of supply.
Can I follow on more specifically on that, and just as what you're sort of saying is that we're near peak production in the US in terms of gas. In other words, what you're sort of saying is that if I look at the Permium basis and you look at marshallis what you're saying is the supply of that is just going to fall down like that, right, And that means you need to go to new places and where you go to is going to be just more expensive.
Is that the way you look at it?
Yeah, I mean we're seeing peak production the Permian right now. And one of the reasons we've had so much cheap gas in the US for the last decade is a lot of it is associated gas, So it's gas that's coming out of the ground in Permian oil wells and in other oil wells. And as the economics of oil are going south very quickly in the US and we're expecting fifty dollars prices next year, US oil production is
going to slow down. This is also partly due because they're running out of the Tier one assets in the shale. US oil production is going to go down anyways, but gas production will be dropping in the permium. The associated gas production Marcellis has limits. So what they're talking about is the Hainesville, and they're certainly gas in the Hainesville. They require much deeper wells. I've seen price estimates of thirty million dollars as well, which means you require much
higher gas prices to make that work. The reality is there's plenty of oil and gas left in the ground and in the shale. It's just very expensive to get to And if you want to compete on the global markets with renewables, which is what's dominating power generation, and you want to do that with an ever increasing cost of your product, it's not a good long term strategy.
When I look at the LNGNG xposector in the US, first you have to admit it's an extraordinary induscale success because they went from zero to right now, they're on track to build twelve terminals operational within the end of the decade. And right now LNG represents sixteen percent of US gas production and they want to go to thirty percent. Now, I I can understand some guys say, look, the price a herbal negative, so you know, we still have a
lot of cheap gas. But it's crazy to think that they can expose thirty percent of the US gas consumption without any impact on prices all do you see this way?
Yeah?
It's not just me. I mean there are other people who have been saying this, like all of these things you're predicting can't possibly happen. It thirty percent of US gas is being exported, that's going to be taking away, and this is at a time which I don't believe all of this will happen due to a lot of different factors. About building out gas power generation for data centers in the US, that is a big story right now. They're saying we're going to put a lot of gas
towards this. Where's that coming from? If you're exporting thirty percent, All of the scenarios they're pushing forth lead to much higher gas prices in the US, which means US LNG becomes more expensive. So something has to give. And the argument I've been making is LNG is already too expensive. In India, they're saying we'll buy your own if you
cut the price in half. Then it becomes competitive. And what the dynamics of what's happening in the US right now is they're looking to drive gas prices higher, which makes US l G more expensive. At the same time, there's plenty of gas in other areas that are going to be producing at much lower cost at LNG that will be competing with the US. But from a US standpoint, the first piece to fall in the global LNG bubble or mirage is going to be the US for a lot of different reasons.
Party way does one other thing as well, which is, at the end of the day, pipeline gas is the cheapest way to transport that, and you're seeing China obviously come into agreements with Russia in terms of building new pipelines. At some point in time, You're probably going to see Russian gas coming into Europe as well, so that obviously then puts even more pressure on LNG.
Right Yeah, the pipeline from Russia to China. When that was announced, my comment was, I'm sure glad I just didn't loan fifteen billion dollars for a new LNG export terminal on the US CUS Host because those aren't going to be built for years, and they'll be coming online when if that pipeline comes to fruition as they plan, they'll be competing directly with that. And as you point out, the economics aren't even close.
Now there's an element I've read and highlighted by one of the best experts of gas. I'm in there too, the scept Kennedy, and but the other ones that I right, Joseph, and he said that the people who contracted long term USL and G are traders, so in fact it's not even the final destination. So those people will have to resell the gas. They've taken the bet that the market will be short, and maybe it was, and maybe Europe
will never touch Russian gas again. I go back to my discussion with the guy from Enron twenty five years ago. The balancing point is six dollar up a gichedule, so six doll up and METU. If you're below you're going to use gas, and if you're above, you're going to use whatever else you have, whether it's called ornable. And if I look at the price the TTF, so the important price in Rotterdam or at eleven dollars. This this is a very very expensive fuel. People don't talk about
climate that people took about affordability. As you said, it's a very expensive fuel, and some guys magically think which is going to swallow it and say thank you, thank you, mister President. My opinions is not going to happen.
Yeah.
If you look at the volumes of LNG that are contracted that are from traders or for large oil companies who for their internal trading, you're setting up a situation where we're going to have a lot of people looking to trade LNG, but no one looking to purchase it. And there's an example that just recently happened where one of the largest gas producers in the US EQT just signed a contract to buy exported LNG from a US terminal. So we have a US gas producer agreeing to buy
US gas. They're essentially signed a contract to buy their own product. That to me is such an indication of where the industry we're in a at the end stage of this hype or bubble or mirage of the LNG when US gas producing companies because they're going to have to trade that, I see a scenario ten years down the road where we're going to have a lot of people with a lot of LNG contracted who are looking to trade with each other, but there are no end users.
So just to what you're sort of saying, is that what we're going to see is substantial levels of stranded assets in this space.
I don't see any way that doesn't happen. There are so many factors that are lined up to make that scenario the most likely outcome, especially with the US, and you're seeing it in the media now. Some people are starting to say, well, it looks like we're going to have a glut. Everyone's pretty much agreed there's going to be a glut. Other than perhaps CEO of Exxon and the CEO of Venture Global, we are going to have a glut. There's going to be a lot more on
the market. Everyone talking about that pretty much is agreeing that the first local economy to suffer the impacts of that will be the US due to the various economic factors involved. If there are going to be stranded assets, I expect they will be on the Gulf coast, the US or Canada. Canada isn't making smart moves here either, and now they're talking about trying to build export terminals in Mexico. The justification to that is to take permian gas from Texas, get it to the west coast of
Mexico and sell it to China. Do you want to be trying to sell China LNG five years from now? Those assets, if they are built, they will be stranded assets.
You name one of the company which is not very dear two European traders is Venture Global, which is the second biggest developer after Shinier. And what happened this summer where the arbitration gave right to Venture Global despite the fact that they've traded what three hundred cargoes of ellen GI's outside their contract the pretender there was still work in progust so they could sell at top spot prices
and not at contract prices. And I think you know Shell has lost what four billion and VP about the same amount. Traders are very long memory, so I'm pretty sure they'll be the first one punished. Now. I want to move a bit on the environmental point of view, because the narrative, again and again and again has mean we're so clean, we're so clean, we're replacing coal and
gas is so clean. But in fact, some of the work you've been doing and other great research has proven that there's a lot of CO two embedded in that LENG, which of course clashes with the European methane rules. So do you want to elaborate a bit on.
That along with what we talked about at the beginning, where they're talking about the golden age of gas. The industry has done a great job of selling the world on the idea that LNG is a clean fuel, it should replace coal, and I mean they go so far it's called a climate solution. The science peer reviewed science shows that when you take that gas from a US field like the Permian and all that transportation and bringing it across the ocean, emissions from that are higher than coal.
But the other aspect of that is in places like China and India, gas is not replacing coal because call is somewhere it's cheaper. And so the idea that LNG is somehow going to rid the world of coal, there isn't basis for that either. If you look at it from a climate standpoint, LNG of course is a hydrocarbon. We're combusting it, it's emitting CO two, But there's also the associated methane emissions, especially USLNG, we have very high
methane emissions. So this is the scientist who led this study that showed that with the higher emissions has said he thinks this is the worst fossil fuel we could be choosing right now, and there's a strong argument to be made for that. That's a whole other aspect. I don't expect these major governments, and it looks like the EU is weakening their stance on their methane regulations, which weren't very strong to begin with. They're under extreme pressure
from the US. But if you look at the science and the reality on the ground in the oil and gas fields of the US, there is no way US gas as LNG can meet the standards that the EU is saying they require.
What we live in world where it's all about energy security, and that's why we take that GUS because present we don't have any choice.
Right.
That's certainly been the justification for this. But one of the interesting things I think what's happened in the EU is when the Russian invasion first happened, there was this huge push by the industry to say, this is why you need USL and G, you need energy security, more fossil fuels you can count on but Europe has certainly moved strongly to renewables.
And if we think.
About in the year twenty twenty five, a country that does not have their own fossil fuel reserves, if they want to think about energy security, it's renewables and it's storage, things that you can control and not rely on the incredibly volatile pricing of fossil fuels, but also the security of your ability to get those, and the political situation around the major exporters continues to destabilize. I think I would not want to be betting my future on current policy from the major exporter.
There are days in Europe where people think that Katar is a more valuable supplier than the US, and they are also going into a major expansion themselves. As you said, that undamental aspect is being put under the rug because the market was short, but I can tell you the de market is long. Those undamental criteria is going to come back and bite whoever as the because when the price is low and you have the choice, you're going to choose the Katari gas because it's carbon footprint is
much lower than in the US. That's going to be a double wamy for exporters. AM I the only guy thinking about that this way.
I don't understand why someone with all the other options to good invest in fossil fuels right now. But if you are, you must be assuming that there will not be any sort of carbon pricing or people aren't really going to care about carbon emissions or metan emissions down the road. And I don't think that's a safe assumption for me. It all goes back to the economics. The reason I don't see lerg having a future is the economics. The Qataris can sell their lerg for a lot les's
the US. They are in a situation like the Saudis being the last man's standing when it comes for the Saudis for oil and the Quitars like they've got a lot of it and it's cheap, and as you point out, it has lower emissions than the US production.
Justin just maybe as the last question, you're in twenty thirty, you're looking back last five years, what's happened.
One of the things I love about this work right now is it changes every day, and it's changing fast. I've been following the energy markets now, researching and writing around for over ten years. Where we are right now shocks me. The rapid rise of renewables, the drop and cost of storage. I mean, it's just changed everything. And we're also right at an interesting point in history where we're looking at least probably a two year over supply of oil in the world, which is going to depress prices,
and a five year over supply for LNG. So the industry, if you're an investor in that, you have to be looking past that. That's when you're hoping to make your money. You're going to come in twenty thirty and like now's
our time to cash in. What we're going to find in twenty thirty is in those five years, China will probably have built more than enough renewable energy to power an economy like the US In that five year period, a lot of other countries we're seeing it around the world will have built out a lot of renewable power generation and storage because it's cheaper, and the rise of evs is happening. China will produce more or sell more
EV's this year than the US market. So we're going to be having demand destruction of both gas and oil over that five year period where they're trying to survive with we know it's going to be prices too low to make money in the US oil business for that at least in the next couple of years. So we're going to be coming out of this big glut and lull for the industry. And if you're an investor in that industry, what you have to be betting on is that's going to be your time to shine and really
make back your money or finally cash in. I don't see how that happens because the amount of demand destruction that will happen in that five year period is going to be large. I mean, it's an incredible point in the energy trees and the history of energy. Yesterday they said they're bringing to Europe. China is going to bring their technology where you can charge four hundred and seventy kilometers worth of charge in five minutes on an EV. Three years ago, all we heard about was range anxiety
and charging times. And we're not at the end of battery development. What are evs? What are batteries going to be able to do in five years? So as these technologies become cheaper and just consumer friendly and these other barriers to acceptance of clean technology go away, and it keeps getting cheaper. I would not want to be invested in oil and gas in twenty thirty. That's when I think we're going to start seeing the stranded assets we were talking about.
Well, Justin, thank you so much for coming on the show. What kind of kindred spirit? Because we see it in Europe probably within the same time work. Let's hope some people come back to reality devasiperate the portfolio and kind of change your narrative. Which is a bit difficult because they want me to go to say a week and I said, no, no, no.
I got a zero week's story. When I was working as a journalist, I applied to get a media pass and it took them a day to say, nah, we don't think we want to hear the next year, it took them fifteen minutes.
It's progress.
Justin, cheers, thank you very much, justin, all right, thank you.
Well.
Job a conversation we've just seen clearly demonstrate that there is a huge problem and those guys seems to be oblivious about what's coming on.
Yeah, well listen my takeaway and it is that they actually just don't understand global geopolitics, right, global geopologism. I may say, there's two things is that there's an imperative in Europe and China to electrify and move away from gas, okay, and we're seeing that run full speed ahead. And the second thing is, well, we've got a whole part of Russian gas that can't go anywhere, and I can only
put a bet on it. At some point there will be an agreement with the Ukraine, and that Ukrainian agreement will involve Russian gas flowing into Europe again. So they're huge risks around. So I really don't understand the long term investment strategy of some of these big funds in the States. I really don't. Now, I mean, call me crazy, right And by the way, that's what I conclude listening to Justin is that this is a recipe for disaster.
And it's not just the ALLENGI terminals. If you look at Venture's Global, which is one of the main players in that sector there. I peered at the beginning of tour twenty five at twenty four dollars per share and now it's down to fifteen, So it means there are some people who don't buy the story. The second point is the Allergy fleet. The Allergy fleet beginning of the decade, five hundred ships, we're going to one thousand ships. There's going to be a lot of ships. And more generally speaking,
there is flaring. The amount of flaring, it's a disgraceful this industry. The amount of flaring is one hundred and fifty billion qubic matter of gas, which means nothing to anybody, just that you know, that was what Europe used to import from Russia. If we just capture that. And I know it's a bit easy, and it's we have places, but there's so much gas wasted. Ellen g is very expensive. It should be cheap. But as you say, yeah, the pipeline might make that come.
Back, while the pipeline is the cheapest way to send gas. I mean, that's the reality of her. And I think the point you're also saying as well is you wouldn't flare a huge amount of gas if you didn't have a lot of it. And the point is there is a lot of gas out there. And I think the conclusion I take out of this is don't keet me wrong. I'm sure there's anyone who's buying L and J. It's expensive to buy. The advice you'd give to them as don't sign any long term contracts.
Well, Garden. As we conclude this episode, first the clip because the young listeners don't know about that movie that much, but I want them to hear that clip. It's from Uppercalypse now, a movie from the late seventies, and it's about the smell of gasoline.
I love the smell of.
Play pame in the morning.
You know that gasoline smell smelled like Victory, Lauren. Great way to end, absolutely, great way.
No, but I want to end it on something special and personal. You were not there two weeks ago on the show for a great reason is that you got married for the second time and it was in Tuscany and it was beautiful, very emotional. Your your wife was you were great. And we had that speech by Shane and I'm still crying about it, and at some point it us all about friendship togetherness and really brought me joyce. Okay,
now I'm sharing it with our listeners. And the best moment is when it started a cappella in the church singing, why mall say.
You can't I can't sing moron, I reckon.
I'm not saying.
Only fools, only fools vershion, but I can help falling in love with you. Okay, job, talk to you next week.
My friend.
It was an amazing moment. It really was. I'll never forget it. Thank you for listening to Redefining Energy. Don't forget to read the show and subscribe on Apple Podcast, Spotify, or the platform of your choice.