DALLAS—The U.S. has emerged as the world’s largest natural gas producer and is well on its way to becoming a top LNG exporter. And if gas has become a big business, then Tellurian plans to take its place as a big, vertically integrated player—upstream, midstream and downstream—in the sector, according to the head of its production arm.

“Our goal is to build a low-cost global natural gas business,” John Howie, president of Tellurian Production LLC, told attendees at Hart Energy’s 17th annual A&D Conference on Sept. 6. “We are going to start with upstream U.S. oil and gas assets, primarily dry natural gas. We are going to pair our upstream assets with about 1,000 miles of newly-built pipeline assets and we’re going to combine the upstream, the pipeline, with our keystone asset—the Tellurian LNG facility just south of Lake Charles [La.].”

The firm plans to start liquefaction at Driftwood LNG’s production and export terminal in 2023.

Howie said the firm’s business model plans includes active participation in all four parts of the gas business: Production, transportation, processing and marketing. Marketing is—and will be—a key component to success, he emphasized.

“The fourth leg on the stool is our marketing company. It’s based in London and these are the guys that will be marketing the Tellurian share of the LNG facility. They’re already in the business; they’re buying and selling LNG cargoes today.

“So why are we doing this? We believe that natural gas is a commodity-based business. We think that our model, the integrated model, is going to be able to deliver the lowest-cost natural gas in the world. And international gas or a commodity-based business, the lowest-cost guy is going to outperform the market in general,” Howie explained.

Tellurian proposes adding new pipeline capacity from the Permian and Haynesville to feed Driftwood. The plant also will have an advantage from close proximity to the big Henry Hub gas sales point at Erath, La.

“Southwest Louisiana is a demand-pull area. Right now, the demand for natural gas in this area is about 4 Bcf (billion cubic feet) a day, and we see that going to 12 Bcf in 2024. What’s driving that demand? There are three things: You’ve got the expansion of the Sabine Pass LNG terminal, they’ve already announced an expansion of this. You’ve got the [Sempra Energy and Total] Cameron LNG facility under construction. You’ve got the Driftwood LNG terminal that will go into operation in 2023—and then the expansion of the petrochemical complex in the area,” he said.

Tellurian is a comparatively new player in the energy industry but its organizers are experienced, well-known players, he said.

“We were formed in 2016 by our founders, Charif Souki and [former BG Group executive] Martin Houston. I’ve known Charif for about 25 years and I first became associated with him when he was CEO of Cheniere, his prior company,” Howie said. “And I call that entity Cheniere 1.0. At that time, Cheniere was an E&P company and we were looking for gas in Louisiana, the transition zone. Because we saw a potential deficit in U.S. for natural gas reserves. Cheniere did this for a couple of years and it was hard.

“Charif looked at that and said, ‘You know what? I’ve invested all this money, we have very high finding and development costs, this business is hard.’ And he came to the conclusion that the U.S. was going to be short natural gas, and his solution was to import natural gas in the form of LNG through a re-gas terminal.”

That led to what Howie called “Cheniere 2.0,” construction of the firm’s Sabine Pass terminal in Cameron Parish, La. But the shale gale changed things and the firm added gas-liquefaction trains to its existing docks and storage tanks to become a gas exporter—Cheniere 3.0.

Activist investor Carl Icahn forced Souki’s exit from Cheniere in 2015 and his plans for an integrated “Cheniere 4.0,” which is Tellurian.

So how big is LNG? More than most people, even in the energy business know, Howie emphasized. He showed a world map of all LNG tankers on the water.

“I love this slide,” he added. “This depicts the LNG cargo ships on the water as of today. There’s more than 700 Bcf of storage capacity on the water—right now. About 50% of those tankers are full. Effectively, they are floating Thermos bottles. We anticipate this to go to about a Tcf [trillion cubic feet] of gas of storage on the water by 2020. Every day, about 40 Bcf of gas is loaded onto these ships and delivered globally. Effectively, we view the ships as pipelines. This is the method that we’re going to deliver U.S. natural gas to the globe.”

Howie said worldwide LNG demand will exceed supply this year.

“We forecast this to continue,” he added. “You see almost 125 billion tonnes per year needed by 2025. What is driving this demand for LNG? It’s the demand for energy globally. There are two major dynamics, very simple: population growth and the industrialization and commercialization of Third World countries... There are some ancillary benefits if you are worried about the environment. Natural gas is going to replace coal in some countries, and there are also some geopolitics involved as certain countries in Europe might look to decouple from Russian gas.”

Upstream, Tellurian recently acquired 11,600 acres in the Haynesville “and we’re also looking at additional acquisitions.” The goal is to have Tellurian pipe link those reserves to Driftwood.

“There are a lot of LNG terminals out there, Sabine Pass being one of them,” Howie said. “But the integrated model is a little unique. We think that it is going to drive a lower-cost option for our investor customers and our goal is to deliver this LNG on the beach at $3/Btu.”