The common concerns of demand and supply aren’t putting natural gas investors and executives on edge these days. Rather, it’s the breakneck pace of tariffs and threats of tariffs, sanctions, trade war and general uncertainty that make it tough to take market action.

The volatility is so pervasive that global investment firms such as The Carlyle Group are largely on the sidelines.

“What are we doing in the market—the immediate markets—I think, [is] just try to stay out of the way,” said Bob Maguire, a managing director and co-head of Carlyle International Energy Partners.

“In terms of engagement, there is so much influx today that I think we need a little time to pass to see exactly where it settles.”

Conventional energy policy and general policy have been “turned on its head in the last week,” he said during a panel at the CERAWeek by S&P Global conference on March 11. “It is really, I think, impossible to think of how you make an investment decision from our point in this market.”

Under current market conditions, there simply isn’t “anywhere near the amount of certainty or conviction” necessary for owners, he said.

“That kind of judgment requires a certainty and stability to develop that level of prediction, [and it] is just missing.”

The instability plays to the strength of Trafigura, said CEO Richard Holtum.  

“Our core business is to act as a shock absorber for volatility,” he said. “We deliver the molecule on the ton, the barrel, whatever it is, we deliver that around the world. We take on the noise of tariffs, regulations, sanctions, geopolitics, and we make sure that our customers receive the product that they want, when they want it, at the right specs in the currency of their choosing in the destination of their choosing on time and safely.”

The firm’s efforts put some stability back into the system by ensuring “the customer gets what they want.”

It means traders such as Trafigura work harder, and as a result, they become “significantly more relevant to our customers.” Consequently, Holtum said, the firm can charge a larger margin for its buffering services than in less volatile times.

Solution fuel

LNG is just a means of transporting natural gas across long distances, said Matt Schatzman, CEO of NextDecade.

“We need to focus on natural gas demand, not LNG,” he said.

Roughly 10% of the world has no electricity; 30% lacks clean cooking fuels; and much of the world's population has no access to reliable and affordable energy, he said.

“I do think that this notion of LNG, natural gas as a transition fuel, that's got to end. It's part of the solution,” Shatzman said. “It's part of the destination of energy and people need to realize that if we can continue to produce natural gas and LNG and get it to the markets that want to consume it, we're going to help solve this decarbonization problem.”

Infrastructure permitting remains a key issue, however.

“At the end of the day, it boils down to where is this natural gas located,” Schatzman said.

Back in the USA

Permitting in the U.S. is troublesome.

Projects like NextDecade’s Rio Grande LNG take a long time to get off the ground, in part because of the lengthy permitting process, Schatzman said.

The Rio Grande LNG project is an $18.4 billion, five-train, 27-million tonnes per annum permitted project. Construction of the first phase began in mid-2023, but permitting got underway eight years earlier in 2015, Schatzman said. The firm recently announced expansion plans to add Trains 6, 7 and 8; the permitting process is underway.

“Our long-term plan is to make this if not be one of the largest LNG export facilities in the world, and I think we have a chance to do that,” Schatzman said, but added “it took us eight years to get this thing off the ground.”

U.S. President Donald Trump and Energy Secretary Chris Wright talk a lot about permitting reform, but it’s not something you can do with an executive order, Schatzman said. It takes an act or two of Congress.

“The world needs what we can export, but in order to fulfill those promises and in order for me to deliver everything for our investors, we need to speed up the permitting process at the various agencies,” he said.

For Rio Grande LNG, the courts have decided the LNG and carbon capture and storage (CCS) projects involved are connected, which is pushing the firm to hold off on obtaining the permit needed by the CCS projects until permitting for the LNG project is complete.

“They're telling us it has to be done together even though it's not mandated by the federal government,” he said, “which we're obviously not going to do because right now customers haven't been willing to pay for it. And part of that's because we all don't know exactly what it's going to cost to do it.”

Moreover, Schatzman said: “There is no long-term business model that can rely on subsidies and having U.S. taxpayers foot the bill.”

NextDecade and others will benefit from the administration’s pushback on the policies, but subsidizing the most expensive projects to get them off the ground is “not really a recipe for success.”

Schatzman said his company and others want to figure out how to decarbonize their work in long-term plans.

“Natural gas is a damn good way to start the decarbonizing process. So long as you're replacing coal and liquid fuels in the mix, it's a way to reduce emissions by 50%,” he said. “I think that's why you have a lot of customers out there trying to buy more LNG right now because they agree with that as well.

We’re all on a journey, but there are no solutions, no ace in the hole that I can see.”

‘Perfection is the enemy of the good’

So, is anybody willing to pay for low carbon LNG?

Decarbonization was a key element in a Carlyle transaction in 2023, when the firm sold a chunk of Neptune Energy assets, a portfolio company that had an “incredibly light” carbon intensity level. The buyer, Eni, said the portfolio was accretive to their own carbon metrics by about 30%.

“The point being that implied that there was a value for the low carbon intensity of the barrels of the production, that it was worth paying for, and that it was important that wasn't quantified dollar for dollar,” Maguire said, but Eni was paying for the portfolio’s strategic value.

“This is an element of value that the market recognizes. That's important because it incentivizes what is otherwise a 100% policy dependent transition. It underpins that policy basis because it says there's a profit,” Maguire said.

 “In other words, we're not doing this just to go to heaven. We're doing this because it's creating value.”

Something the climate change lobby has been “extremely guilty of is going for perfection, [which] is the enemy of good,” Holtum said.

There's a time value of carbon. Cutting down on carbon today is worth “significantly more than what can be achieved in five- or 10-years’ time.

“It's all well and good to talk about hydrogen or whatever, but if you can use LNG today and produce 1 ton of carbon instead of coal and produce 2 tons of carbon, well then that's the best thing that you can do today,” Holtum said.

The second piece that is becoming increasingly relevant is carbon intensity, Holtum said. There isn’t a global price for carbon, and so no one will pay for carbon neutral energy.

“If there were a global price of carbon, then someone would then be able to ascribe a value to that,” he said.

 The next step is finding a convergence on carbon between the voluntary space and the compliance space.

Schatzman said NextDecade is trying to find that spot with its Rio Grande LNG facility currently under construction in Brownsville, “which would be a huge carbon emitter and a place for us to aggregate a lot of CO2 and then utilize what we learned to develop this for other projects around the country, potentially around the world.”

The biggest problem with developing carbon markets is the lack of consistency, he said.

“Singapore and the EU are focused on developing these markets, but the rest of the world isn't. From an LNG player perspective, it's not like all the LNG markets are going to be willing to pay a premium. I don't think China ever will. I doubt India will, but Europe might and Singapore might, and maybe even the Japanese might down the road,” he said.

“There's a lot of uncertainty in how this is going to play out.”

Maguire said there is a place for investing in carbon markets.

“We have in a number of our portfolio companies [invested in] CCS projects, but frankly it's much harder to do that upstream than it is downstream,” he said.

Carlyle has a large project in Spain that is close to FID with 400 megawatts of green hydrogen like capacity.

“These are the bets that we’re making now,” Maguire said.

Comments