Russia’s invasion of Ukraine created a global energy crisis and an opportunity for the United States to assert itself as the world’s “energy superpower,” maintains Charif Souki, “the godfather of LNG” who a decade ago spearheaded the American drive to become the global leader in liquified natural gas production.
“The fundamental thing that has happened, that has not yet been absorbed in the United States, not by the political circles or by general consensus, is that we are now an energy superpower,” he said. “You can argue, maybe, ‘the’ energy superpower.”
Born in Egypt and raised in Lebanon, Souki is a former Wall Street banker, restaurateur, and CEO of Cheniere Energy, which is among the “big three” LNG producers that capitalized on the “fracking revolution” that in a decade turned the United States, the world’s largest importer of hydrocarbons, into its biggest exporter.
Now CEO of Tellurian Investments, a natural gas company he co-founded in Houston, Texas, Souki said during an April 20 Center for Strategic and International Studies (CSIS) webinar that energy debates in Congress are more about politics than actual policy.
“We’ve seen the re-industrialization of America simply because our energy is cheaper than anywhere else,” he told CSIS Energy Security & Climate Change Program Director Joseph Majkut.
“We have not come to grips with that new reality. We’ve spent 50 years [developing] energy policy to become self-sufficient. We became self-sufficient two years ago but we have not adapted to our new role.”
Price Matters
Consumers, be it a community, company, or country, don’t make energy decisions based on policy but on price, Souki said, and that “fundamental” won’t change regardless of whether energy is provided by oil, gas, solar, wind, nuclear, hydrogen, or any of the emerging renewable energies being developed.“The role of the policymakers is to make policy that supports the fundamentals,” he said. Policy decisions “can affect the way people are going to make these investments. Right now, we are watching America re-industrialize for a number of reasons that put us in a very comfortable position where we don’t have to think too hard.”
The Biden administration is spearheading a $2 trillion transition to green renewable energies to make U.S. electrical generation 100 percent carbon-free by 2035.
That effort is paced by two bills, 2021’s Bipartisan Infrastructure Law (BIL) and 2022’s Inflation Reduction Act (IRA), which are larded with grants and tax credits to incentivize investments in renewables that House Republicans say are geared to diminish if not end oil and gas development.
Souki said government policy can guide long-term investments that eventually produce viable, cost-effective energy, but there’s little long-term thinking in politics.
“What is our real energy policy in the United States today? It is who is going to win the election in two years,” he said.
No ‘Transition’ to Green Energy
The “central issue” in the disconnect between policy debates in Congress and reality is that “there is no ‘transition’ at the moment—using the word ‘transition’ basically confuses the issue,” Souki said.The goal of U.S. policymakers should not be selecting between renewables or hydrocarbons but simply to keep energy costs down by investing and incentivizing “everything” that can generate energy, he said, including with BIL and IRA programs.
But, no matter what, “price matters” and that means affordable oil and gas will be key in developing renewable energies, Souki said.
“If you really want to electrify the country, which the IRA is supposed to help to do, what is the source of energy to do that? Natural gas,” he said. “We are not increasing domestic gas demand but it is not going to go down either because it is cheap. [Consumers] are going to go to whatever is cheap. I can make sealant in the United States much cheaper than I can in Turkey, so why am I going to make sealant in Turkey? Price matters.”
Global energy demand is expected to increase by 50 percent by 2050. Unless investments in “everything” dramatically scale up renewable energy capacities, demand for oil and gas will actually increase rather than decline, Souki said.
“There is a demand for energy from people around the world that is not going to be satisfied,” he said, noting hydrocarbons are the foundation for 90 percent of the world’s fertilizers, which help produce enough food to feed 8 billion people, at least 5 million more than what the Earth’s carrying capacity actually is.
Congress should be incentivizing the nation’s oil and gas producers to scale up for this rapidly approaching reality because doing so will keep energy inexpensive domestically as well, he said.
More Export Capacity Equals Lower Domestic Costs
Policy should be geared toward “conservation first” and “whatever it takes to manage carbon emissions,” Souki said. “Conservation is easy. It is doable immediately if you have the political will to do so. The rest is difficult.”There doesn’t need to be policy debate about how much oil and gas American producers should be “permitted” to export, he said, because there are already two limitations that make any such discussion moot.
“There is a limitation—the price,” Souki said, maintaining that three U.S. natural gas formations—Marcellus, Hainesville, and Permian Basin—“could accommodate a lot of growth” in meeting global demand.
“The real limitation is infrastructure. You cannot build enough infrastructure fast enough,” he said. “It takes seven years to permit and build a facility. At the moment, everything that is built is being sold. There is no spare capacity in the United States.”
That taxed export capacity in the United States is among the factors affecting the price of energy around the world, Souki said.
“The fundamental at the moment is that for a decade, investment in energy was terrible after we created an energy revolution in the United States because of fracking,” he said. “It had the impact of keeping energy prices flat” which discouraged investment.
Energy companies went from 15 percent of the SNP 500 to 3 percent “and they have not come back yet” in terms of interest from institutional investors, Souki said.
The scenario unfolded because of the market, not from government policy, he said, but government policies are making it unlikely that American producers can meet European demand in the wake of its “energy divorce” from Russia following its February 2022 invasion of Ukraine.
Europe ‘Still In Trouble’
“Europe is now like the proverbial frog that is sitting in nice warm water thinking everything is fine, except there is a fire under it, and when the water starts boiling, the frog doesn’t realize it is boiling,” Souki said. “Now, if the frog jumped into the water when it was boiling, it would jump right back out. But if not, it sits there doing nothing. That is what Europe is doing now.”That’s because Europe was “blessed with a warm winter” and utilities are looking at ample storage capacities that proved critical last winter. But that was before the supply of Russian oil was severed last fall, he said.
“Now all of a sudden they are looking at their numbers compared to last year and saying, ‘OK, we’re in a comfortable position,’’ Souki said. “No, you’re not. This summer you are not going to have Russian natural gas. Last summer, you did. So, you are going to have a much harder time getting to the same numbers by the end of October.”
Nevertheless, there is no plan “by any stretch of the imagination” on how to replace the equivalence of 150 million tons of LNG a year from Russia, he said.
“They found 60 [million tons of LNG] last year by basically looking everywhere, diverting cargo to Asia and bringing it to Europe,” Souki said, and they did it the old-fashioned way: They paid more for it than other bidders.
“If you want more gas, pay more. That is exactly what they did,” he said. “It had nothing to do with any country’s decision.”
Because of “structural issues” in energy infrastructure, Souki said we are witnessing “the de-industrialization of Europe that is going to be very severe” in the coming decades.
Government policies designed to ease the cost of post-Ukraine invasion energy on consumers could have a dramatic impact on European economies in the coming years, Souki said.
“They are still in trouble, They still have to find a lot of LNG because there is no other solution,” he said. “And in the meantime, they are still subsidizing their consumers for the utilities to the tune of half a trillion dollars a year. That’s a lot of money, basically half the tax receipts of Europe. It is not sustainable. In spite of that, everybody’s utility bill in Europe has increased. None of this is sustainable.”
Subsidizing natural gas imports is not a realistic plan for the future but, “at the moment, Europe does not have a solution.”
US in Ideal Position
That lack of planning could drive up energy prices across the globe, including in the United States where, Souki said, domestic producers won’t feel shy about selling to the highest bidder.“Our gas is going to have to go somewhere and the only way it goes somewhere is who pays more,” he said. “So that shows you the contracts [between suppliers and customers] are not that important. The movement of gas goes to whoever pays the most. Somebody pays $2 more? That gas doesn’t have to go to Korea. Prices work.”
Souki is amused when he hears congressional representatives and members of the administration talking to Europeans about, “We sent you this [oil] and we sent you that. [gas].’ ‘We’ don’t ‘send’ anything to anybody. ‘We’ let the market take care of things and that is basically how it works, our system. You want more gas? You pay more and you get more gas.”
All of this puts the United States in an ideal position.
“We are the world’s largest exporter of natural gas. We are a very significant exporter of coal and a very significant player in the oil market. We pay a third for energy” what consumers elsewhere pay, Souki said. “We are creating jobs, we made it much more attractive to invest in the United States today and people are coming. Probably the only country in the world that can say that [energy] is affordable is the United States.”
The “everything” emphasis on energy development should invest heavily in nuclear generation, but that would require private investment, public acceptance, and government policies to steer a long-term commitment, he said.
“The ultimate solution is going to have to be nuclear, but it is going to take 30 years, 40 years of concerted effort to get there, and at the moment, you can’t get consensus on whether we are prepared or aren’t prepared to do nuclear,” Souki said.
