Excelerate Energy’s CEO Kobos Bullish on US LNG

Excelerate Energy President and CEO Steven Kobos sat down with Pietro D. Pitts, Hart Energy’s international managing editor, in February at the company’s headquarters in The Woodlands, Texas, north of Houston, to talk about issues spanning President Joe Biden’s recent deal to pause approvals for new U.S. export facilities, the energy trilemma and why Kobos is bullish on the U.S. as a secure energy supplier.

Kobos, whose company has offices in Abu Dhabi and Dubai, UAE; Antwerp, Belgium; Boston; Buenos Aires, Argentina; Chattogram and Dhaka in Bangladesh; Doha, Qatar; Helsinki; Manila; Rio de Janeiro; Singapore; and Washington, D.C., owns 10 floating storage and regasification units (FSRUs)—20% of the global supply of the asset class.

The company is a major player in the flexible LNG market, and its recent agreement with QatarEnergy to supply LNG to Bangladesh is just one among deals with countries including UAE, Finland, Germany and others.

Pietro D. Pitts: How do you see the LNG market reacting to Biden’s decision to pause approvals for new liquefaction plants?

Steven Kobos: I would say, near term, we have a structurally tight LNG market and in terms of 2024-2025, I don’t see a lot of impact on it. I think we’re going to continue to be impacted by variables, whether those are cold winters, drought or abundant rainfall in Brazil, or economic activity. So, those are going to continue to be the main drivers of the market over the near term and intermediate term.

We’re still looking at more than 200 million tonnes of LNG coming online between 2024 and 2029. It’s a healthy increase, which is going to do good things for the overall balance. We think it’s going to be helpful for us. People already know that will make LNG more affordable in parts of the world that need it to be affordable.

So, this pause [announced by Biden] will impact [the market] down the road. But the main drivers on intermediate LNG we see remaining as they were, that the war has already done what the war was going to do, which is to point out the need for energy security, prompt people to take final investment decisions (FIDs) they might not otherwise have taken. And so, in some respects, prices solving for prices and increasing supply that the world needs.

PDP: In 2023, you told me that China was the outlier for that year. What’s your call for 2024? Is it still China, what’s going on in the Gaza Strip or something else?

SK: Near term, it is going to be what? There will always will be unexpected events. In a structurally tight market … we continue to see unanticipated things. We saw the unanticipated disruption of the Balticconnector pipeline between Estonia and Finland that further heightened everyone’s need for energy security. It actually showed how great it was to put this flexible floating import infrastructure in place because, had the Finns not acted as quickly as they did to be prepared for unexpected events, that would’ve been a really major disruption. [But] because they have the foresight, they’re managing it quite well. The outliers near-term in a tight market remain unanticipated events and, in a world of increasing disorder, you can’t discount those risks and certainly that’s how policymakers feel now.

PDP: In the immediate aftermath of Biden’s announcement, how do you envision OECD countries and their continued shift away from coal?

SK: I think there was a lot of talk about that in August 2022 when we were at the height of the impacts on spot prices. As some markets were pushed out of those markets, we think those markets have already learned the lessons from that. They’ve understood that they can already afford LNG if they contract for it on a different basis. If they move long term, they can also see the coming production resulting from the war and the FIDs that flowed from it. So that’s why I was just in Doha signing up a deal. We have signed deals to sell down into Bangladesh for 15 years. You’re seeing deals announced into India and other Global South markets. We think that the Global South non-OECD countries are learning the lessons of how they need to rebalance their portfolio to ensure energy security through energy affordability.

PDP: While your deal related to Bangladesh with QatarEnergy is interesting, the interesting part of that deal, which starts in January 2026, is that Excelerate is moving the cargo. Could you talk more about that role?

SK: Our focus is on our infrastructure, and we’ve always tried to use our infrastructure to provide whatever services the sovereigns or markets or customers we serve have. And more often than not, what they need are molecules. So, if we can, we’re going to try to obviously increase the return above what we would have as a pure infrastructure player by adding some sort of rateable uplift to that. Last year, we signed some U.S. volumes for 0.7 million tons with Venture Global, and this is another million tons to our portfolio. [Regarding] Venture Global, we have absolute confidence in [them] and think they are a reliable supplier for us. Again, our focus is always going to be on using our existing infrastructure and using it to deliver volumes for our customers.

I’m just very excited that QatarEnergy recognizes that we are a suitable counterparty, and the important role that we have in opening up LNG into these markets that are of interest to suppliers. For me, I appreciated the ratification of where we’ve come as a company and the impact we’re having around the world.

PDP: How important is the Qatar market for Excelerate?

SK: We flow in excess of 10% of Qatar’s current production across our fleet of FSRUs, no insignificant sum. I think that, in itself, has shown that they understand the operational reputation of Excelerate and our operational excellence. This is the first purchase from them of long-term LNG cargos.

PDP: What’s the best mix of shipping terms when it comes to free-on-board (FOB) and delivered ex ship (DES). What’s the biggest advantage between those?

SK: I believe we announced that our Qatari deals will be DES. We have FOB out of the U.S. So, we think our portfolio is best served with a balance.

With regards to the second question, we have good flexibility in what we need, and with this last announcement we are focused on getting more volumes through our infrastructure into Bangladesh. For example, we just modified the FSRU that those volumes would be delivered through to get a 20% increase in capacity. The customer wanted it so we promptly looked at what we could do to enhance throughput, and now we’re going to help them by delivering the volumes through that enhanced throughput of our infrastructure.

PDP: Are you seeing the Asians and Europeans changing their preferences for spot versus long-term contracts?

SK: In terms of the length, we’re looking at projects in Asia with durations over [15 years]. Obviously, it’s going to be a function of what sort of infrastructure is put in and what you need to marry to that infrastructure that you’re putting in. That’s the beauty of this flexible LNG. It’s going to vary by market and what’s important to them is affordability. And if affordability is the biggest problem, like you saw with non-OECD, then by all means lock in long-term volumes. If flexibility and a need to scale renewables and have a balancer is your biggest priority, then take some long-term FIDs as Europe has and then know that you can access the market as needed to supplement that.

I don’t think there’s one supply solution that’s appropriate for any market. And then you add in some markets that we serve like Brazil with 65%-70% hydro power generation and where you either have adequate rainfall or you do not. And so that impacts the decisions that you make for that year. So, I think everyone is placed so differently in terms of climate, their ability to afford a particular strategy, that what we want is to be an indispensable provider of energy security that will allow those policymakers to make the appropriate choices for them for their market.

PDP: Are you seeing more countries approaching Excelerate to talk about the flexible LNG option, or in general to explore why they should even consider it?

SK: Absolutely. Going back to the Balticconnector, [and] the disruption of multiple subsea pipelines around the world—[With] increasing disorder, I guarantee you all sovereigns are focused on what their energy security looks like, how they can backstop it, and where they can get an insurance policy. And the good thing about this flexible LNG infrastructure and offering some type of integrated solution is it’s fast, it’s affordable, it’s cheap insurance. And if you have a more robust energy system, but you still want the security of knowing that you’re not going to face brownouts, you’re not going to face outages, it’s incredibly cheap insurance. So, the interest is sky high.

PDP: Talking about providing cheap insurance, what does Excelerate’s fleet look like and are there plans to expand it as demand grows?

SK: We have 10 FSRUs right now, [and] those were all built by DaeWoo Shipbuilding & Marine Engineering [since rebranded as Hanwha Ocean Co.]. We have one under construction at Hyundai, [and] we’re evaluating another new building. Global supply is roughly around 50 units, so we have 20% of the global supply of the asset class. We’re bullish on it, we want more, but we also look at other forms of infrastructure that might allow us to solve different energy security issues for countries and markets that need our services.

PDP: What’s an example of other forms of infrastructure?

SK: That could be breaking bulk and delivering smaller parcels into markets, distributing gas throughout a market, [or] that could be floating storage units (FSUs) with a different regas solution. We’re just looking at a variety of solutions and again, no two markets are the same. No two transportation systems within markets are the same. No two weather environments are the same. So we pride ourselves on flexibility and being nimble.

PDP: At the top of the LNG market, we have the U.S., Qatar and Australia but there are also other markets and potential ones like Argentina, Canada or Mexico. How do you see the LNG supply market?

SK: I would say a few things. I mean, first, we think the world needs more LNG—200 million tonnes is a good start. But let’s face it, there are huge swaths of the world’s population that need more energy, more power and need a better standard of living. That’s what energy security means for those countries and they deserve it. And LNG is a critical means of providing that badly needed service. There needs to be more supply brought online by reliable suppliers.

You’ve named the U.S. as a reliable supplier. Qatar has an outstanding track record since inception of being a reliable supplier, and Australia as well. The world needs reliable suppliers to come to the table with more volumes of this critical commodity that is necessary for bringing as much stability and prosperity to a world facing increasing disorder. So, we believe that passionately.

PDP: How do you view Mexico as an up-and-coming LNG supplier? Their push, of course, will come through the use of U.S. feed gas.

SK: Everything’s going to be a matter of price, contract terms, everything else. Obviously, we will be looking at a portfolio which, on balance, provides the maximum benefit for our customers and for our shareholders. I could not be more pleased that we have built our portfolio around the U.S. and Qatar to date, because we feel very good about that being a bedrock to build upon.

PDP: Everybody seems to be talking about Mexico and potential there for them to join the LNG exporters club. Any thoughts on that market?

SK: I think that’s going to be very good for Mexico, very good for the world if they can bring on some of that. They have certain geographic advantages and I hope [those plants] will come online.

PDP: As a company that provides flexible LNG solutions, how do you view the energy transition and the push toward cleaner energies?

SK: We embrace it. We think we are an invaluable ally to it. Again, how can a market have such a success like Brazil with its hydro power, without a backstop, without a scaling? How can you have the comfort to scale wind without fear that goes back to the European wind droughts of October 2021? I mean, in order to rely and lean as heavily on renewables, LNG is again going to be essential for giving markets the comfort to scale to whatever level they want.

And when you look at even the most aggressive scenarios out to 2040 and 2050, no matter those that take the most aggressive scaling of renewable assumptions on new technologies, all of them only meet Paris [Agreement] targets if there is an increase in natural gas throughout that timeframe. I think we’re a critical part of the mix and we are an indispensable energy company because we are focused on opening those markets downstream so that benefits can be distributed further throughout the globe.

PDP: Talking about Paris, what are your emissions reduction goals or targets?

SK: I’m pleased that we launched our initial sustainability report this year. We were always looking at ways to optimize the energy consumption, the emissions of our fleet, new technologies, all of that. So, I can say that the focus on sustainability is part of who we are and a focus on optimizing that fleet.

PDP: If you had a crystal ball and could look to 2050 or 2075, how important do you think LNG is going to be at that point? Where could it be in terms of the world’s energy matrix?

SK: I think we all hope there are improvements in technologies and everything else, but if we are talking 2075 or later, it depends upon what type of a world we’re talking about then. What’s the population going to be and the standard of living for that larger population? The standard of living is ultimately a function of energy consumption. Gross domestic product (GDP) and energy consumption and power generation go almost in lockstep.

So, what we need on the crystal ball is what we are going to be able to do for this world and for its people. I do think that LNG and natural gas through those timelines will still be a relevant bridge as new technologies continue to come on.

PDP: After Russia’s invasion of Ukraine in early 2022, the world began to be super focused on energy security. Is that something that will continue for some time into the future? What could change that?

SK: I suppose the great thing about LNG is, you’re not dependent upon one neighbor, and so I think LNG is the critical solution to energy security needs. No, people are not going to forget about a need for energy. I don’t think anyone is going to put themselves in the position they may have before where they were left with no alternatives and had to scramble. It remains critical to leaders [around the world].

PDP: How is the LNG market in South America and, specifically, the Southern Cone region taking shape?

SK: Let’s talk about Brazil. I am pleased we have two long-term leases of infrastructure to Petrobras in Brazil and we’re very pleased about that. Petrobras signed another 10-year deal with us in October and I believe Petrobras is one of the most professional and reputable international oil companies in the world. And again, this is an example of people recognizing our reliability, our operational excellence, the role we play in global LNG. And I love nothing better than being ratified by Petrobras. We’ve been in Brazil since around 2012. They know our standards, they know our level of governance, they know our level of transparency and we’re just thrilled to have Petrobras sign yet another long-term deal with us. Obviously, Brazil will have greater connectivity and exploit its [pre-salt] resources in the fullness of time. That is inevitable. We’re there to provide whatever services we can that will most help a market on its path to an energy transition and developing their own markets.

In the Southern Cone, obviously there’s some interconnectivity between those markets and energy security is not just when someone invades or disrupts, it’s also when you have an unexpected decline in production and transmission from a neighbor as well. You do see that coming out of Bolivia. I think that the impact on energy security in the Southern Cone has been overshadowed by energy security tied to actual armed conflicts in other parts of the world.

PDP: Argentina is a market that uses flexible LNG, despite the country boasting massive shale reserves in the Vaca Muerta formation. How do you see that market progressing as it eyes building its own LNG export facilities?

SK: We’ve been in Argentina for years and what’s amazing about it is the amount of money that they have saved by using LNG and not burning diesel. Also, since that was largely a displacement of diesel and fuel oil story, it had a significant impact on overall emissions within Argentina. So, when I think about what we offer to people, that’s part of it.

Another thing is being flexible. As they build and expand their pipeline network, of course they should be able to greatly optimize Vaca Muerta. It makes sense. Those are expensive projects, obviously. They do take time and, in the meantime, we’re there to provide service for them. They have a very balanced, very efficient energy system that otherwise they would not [have] if they were dependent upon Bolivia and did not have this optionality—things would be very dark down there. I think in many respects it’s a case study of affordability, and an energy transition or sustainability story, and energy security. If you look at our history there, all those components of the trilemma are really there, and how we impact each of them… I think of [Argentina] as being kind of a poster child for that.

PDP: In South America and around the world, what is something you look for in terms of new markets?

SK: I don’t want to speak to a particular market, but we’ll certainly look for adjacencies to the role we have. I think we have shown our strong suit of being able to work in local markets, put boots on the ground and hire local employees. We will always have our eye on adjacencies, whether that’s supplying into or facilitating downstream distribution within a market from their own resources or in partnering with them in other ways.

PDP: What would be your final remarks about the LNG industry and the opportunities and challenges over the short-term?

SK: I do think we all recognize that LNG is important for the world. I do think the case will be made that it is for the good of energy security. The U.S. was able to step up and support our allies in a pinch. It’s fantastic that we had those capabilities and I hope we will always have the capabilities to step up and support people who have been left in the lurch by unreliable providers of energy like Russia.