SIEW 2018: 5Qs with Martin Houston, Vice Chairman, Tellurian Inc.

Following his studies which commenced with a bachelor’s degree in geology from Newcastle University in 1979 and then a petroleum geology master’s degree from Imperial College London in 1983, Martin was employed by BG Group plc and its predecessor companies, retiring after 32 years in February 2014 as chief operating officer and a member of the board of directors.

He is currently a non-executive director of BUPA and CC Energy, is the chairman of the Moelis, and Company global energy group and the vice-chairman of Hakluyt North America.

He is the vice chairman of Tellurian Inc, a US LNG export company he founded with Charif Souki in 2016.

His other roles include sitting on the Petroleum Council of the United States of America, a Fellow of the Geological Society of London, a member of the Development Committee of the Royal Opera House of London, a member of the advisory board of the Global Energy Policy unit at Columbia University and a member of the advisory board of Radia Inc.

1. What is the role of LNG in shaping Asia’s natural gas and larger energy landscape?
   Asia remains a focal point for the LNG industry as China, along with traditional importers, including Japan and South Korea, have prioritised clean energy development. The astounding growth in China’s LNG demand over the last year has demonstrated the growing importance of natural gas, and specifically LNG, as a flexible source of cleaner energy. LNG is also a partner to renewables, capable of generating baseload electricity and peaking supply. The Asian region will continue to rely on LNG as a fuel, supporting both economic growth and blue skies initiatives.


2. Why has it been challenging to increase transparency and improve liquidity in the LNG market?
   Traditionally, the capital intensity of the LNG market concentrated market participation to large national oil companies (NOCs), international oil companies (IOCs), and a handful of other market participants with large balance sheets.  As with any other commodity, liquidity follows broader market participation. Simply put, the more buyers and sellers in a market, the easier it is to create liquidity. The deployment of floating storage regasification units (FRSUs), intermediation by trading houses, and development of flexible LNG facilities in the U.S. has accelerated the development of a transparent global gas market.
   However, as the long-term contracts used to underpin financing of new projects fall out of favour in this increasingly short-term market, final investment decisions (FIDs) for new projects are not keeping pace with growing LNG demand. The industry needs a new business model enabling project developers to secure the required capital to make FIDs while allowing buyers flexible terms.


3. LNG has traditionally been indexed to oil prices. How do you see this changing in the future?
   It’s funny you mention the link between LNG and oil prices; we believe the LNG market is in the same phase of commoditisation as the oil market was in the 1970s.  As LNG becomes commoditised, it will be priced off its own supply and demand fundamentals rather than those of oil. We are inexorably moving to a future with a mature LNG market with a liquid forward curve, just like today’s oil market. We believe someday that developers will invest in LNG projects based on LNG price signals alone rather than oil prices.


4. As Asia continues to build its LNG infrastructure, what are some investment factors to consider?
   LNG infrastructure is just one piece of the puzzle: developers must build more pipeline infrastructure to take regasified LNG from the plant to market.  Approximately 12% of all gas consumed in China during 2017 was transported by truck, largely due to a lack of trunk line and last-mile pipeline infrastructure. Without robust midstream natural gas infrastructure, the value of flexible, low-cost LNG is localised to the coasts. Building out the entire natural gas value chain can create tremendous returns for Asian economies, both financially and socially.


5. What are your thoughts on the SIEW 2018 theme “Transforming Energy: Invest, Innovate, Integrate”?
   As the co-founder of an innovative, integrated LNG company investing in the U.S., I’d say SIEW’s theme is spot on. Our industry must rise to the challenge of suppling low-cost, clean energy to growing populations and economies. The challenge to meeting growing energy needs is not just technological, but also financial, as these projects require significant capital. We believe our creative U.S. equity model solves the challenge of financing new projects on long-term contracts by enabling our partners to share in the upside of owning low-cost, flexible LNG.