Despite rising costs, LNG execs at CERAWeek see LT growth

(Houston, Texas) — Top energy executives gathered at CERAWeek expressed confidence that gas would grow for decades to come, but they also voiced concerns about rising costs across the industry.

Gas should no longer be considered a “bridge fuel,” but a “baseload” power for much of the world, said Michael Smith, CEO of Freeport LNG, at the CERAWeek conference in Houston on Wednesday. He said that long-term demand was not at all a concern.

But he admitted that the prices that LNG companies need to charge their customers to cover the costs of their projects are going up. Smith offered reassurances, saying that even if U.S. Henry Hub gas prices rise to $4 or even $5 per MMBtu, U.S. LNG could still be delivered to Europe and Asia at competitive prices.

In order to finance LNG projects, “you need 20-year contracts,” and it’s not feasible to work out the financing without such lengthy deals, he said.

But when asked if European buyers were willing to sign long-term 20-year contracts, he admitted “that is an issue,” but quickly added, “but yes, they have been willing” to do so.

An array of European climate policies is pushing the energy transition forward, making long-term contracts risky for European energy companies. Gas demand is in decline.

On top of that, the EU has a 2050 deadline after which gas imports are required to end. But Smith said he had a meeting with European officials during CERAWeek who suggested that gas could still enter the European market beyond 2050 if the emissions could be “balanced” in some way to achieve net-zero, an indication that some form of offset may be allowed to keep U.S. LNG flowing into Europe beyond mid-century. Contracts running into the early 2050s “is not an issue,” he said.

Other gas executives saw the long-term market in similar terms. The growth of data centres and AI dominated talks at CERAWeek, as industry officials positioned the tech boom as a front-and-centre growth story for gas.

“The world is going to be using a lot more electricity. There’s going to be a lot more demand,” said Mike Sabel, CEO of Venture Global.

He also touched on the company’s run-in with higher costs. Venture Global’s stock price fell sharply in early March when the company revealed construction costs had ballooned by around $2 billion at its Plaquemines LNG facility in southeastern Louisiana.

“Construction costs have gone up significantly. Interest rates have doubled,” Sabel said. However, he was not concerned, because even with higher costs, LNG could still be competitive in Europe.

“The delivered costs are still super attractive,” he said.

Nevertheless, several LNG companies are currently trying to renegotiate contracts with buyers, seeking higher prices to cover rising costs, Reuters reported. Higher labour costs, equipment costs, combined with a growing volume of LNG around the world, could squeeze U.S. LNG.

“The competitiveness of U.S. LNG could face a double whammy,” Alex Munton, director of global gas and LNG research at Rapidan Energy Group, told Reuters.

Companies seeking to renegotiate price terms include Venture Global, which is hoping buyers will agree to costlier contracts for its CP2 project in southwest Louisiana.

In addition, Mexico Pacific, which is hoping to build the $15 billion Saguaro LNG project on the Pacific Coast of Mexico, is also trying to negotiate better terms with some of its customers in Asia. As Gas Outlook reported, Mexico Pacific’s Saguaro LNG project has stalled, struggling under the weight of a project riddled with political, security, and financial risk.

Another issue that is giving CEOs headaches is the new tariffs imposed by the Trump administration against an array of countries. While on-again, off-again tariffs on Canada and Mexico have rattled financial markets, it is the 25 percent tariff on steel imports that proved the most contentious at CERAWeek. Steel tariffs could upend the cost structure of many fossil fuel projects, hitting LNG in particular.

Drilling, refineries, and LNG terminals require prodigious quantities of steel, and not just any steel, but a particular type of steel that comes from abroad.

“It could definitely go all the way to the consumer,” said Orlando Alvarez, President of BP America. “Specialized steel is not made in the U.S.”

Permitting

Perhaps no issue raised the ire of gas executives more than the time it takes to permit new projects.

“People all over the world want what we have,” and “Washington sometimes doesn’t appreciate that,” said former Louisiana Senator Mary Landrieu, who promotes the gas industry as a senior advisor at the Washington DC-based law firm Van Ness Feldman and as a co-chair of the gas lobbying group called Natural Allies for a Clean Energy Future.

She denounced federal permitting of energy projects, and suggested that the U.S. Congress should take up legislation to streamline permitting and give federal energy regulators more authority to push projects forward.

When a moderator asked her about the Biden-era pause on LNG permitting, before he could finish his question she emphatically responded, “glad that’s over.”

She also praised current Secretary of Energy Chris Wright and his “phenomenal presentation” at CERAWeek, where he vowed to reverse U.S. climate policy and unabashedly promote oil and gas. He even is making the case that Africa should turn to coal, a fuel source that has no place in a climate-aligned world.

Landrieu said that while the mantra of “drill, baby, drill” has long been used by friends of the industry, the U.S. now needs to “build, baby, build,” referring to pipelines and transmission lines.

Other gas executives picked up the same slogan. Toby Rice, CEO of EQT, the second largest gas producer in the United States, also said the U.S. needs to “build, baby, build.” He said it was imperative that the industry builds more pipelines, which would enable ever larger volumes of shale gas to flow to LNG terminals along the Gulf Coast.

“The biggest challenge facing our industry is this pipeline cancellation movement,” Rice said, an apparent reference to environmental opponents of pipeline projects. “They have effectively shut down our ability to get energy moving in this country.”

He spoke about the experience of the Mountain Valley Pipeline, a long-distance gas pipeline running from West Virginia to Virginia. The project repeatedly saw its permits challenged and rescinded due to the environmental threats to forest land and rivers in the Appalachian Mountains. After more than eight years of construction, and billions of dollars over budget, the project had stalled, only to see the U.S. Congress pass legislation in 2023 to summarily approve all permits, end judicial challenges, and force the project into existence.

Alan Armstrong, the CEO of Williams Companies, a major pipeline operator, said that the cost and time required to permit a new pipeline was his biggest concern, overshadowing the new steel tariffs.

“Permitting costs are twice as much as we are spending on pipe,” he said. “We’d be glad to pay the 25 percent steel tariffs as long as we get all of our permits.”

Aside from tariffs and volatile trade policy, there was palpable excitement at CERAWeek for the new Trump administration, which offers the gas industry new pathways for expansion.

“The current administration is really focused on making LNG affordable and reliable. They want to unleash American LNG,” said Ganesh Ramaswamy, executive vice president of industrial and energy technology at Baker Hughes.

“Obviously, we’ve seen a big shift” in tone and policy from Washington, said Ben Dell, managing partner of Kimmerdige, an asset management firm that is trying to develop Commonwealth LNG in southwestern Louisiana. Commonwealth has seen lengthy delays, including hitting a wall when the Biden administration paused new permits for exporting LNG to countries that don’t have a free-trade agreement with the U.S.

“We are excited to get our non-FTA approval,” he said, adding that the company aims to announce FID on its project in September.

(Writing by Nick Cunningham; editing by Sophie Davies)