Executive Q&A viewpoint

Kathleen Eisbrenner, Founder, Chairman and Chief Executive, NextDecade LLC

During the past decade, strong economic growth in the Asia-Pacific region—particularly China, Japan and India—has stimulated increased energy demand. In this decade, from 2010–2020, natural gas is gaining on coal’s market share as a preferred form of energy. The world is seeking clean, abundant and economic power sources.

During the next decade, between 2020 and 2030, the US is anticipated to satisfy its own gas requirements with the emergence of game-changing domestic gas reserves. These supplies will enable the nation to compete with top LNG-exporting countries, such as Qatar and Australia, throughout the global gas markets.

Energy companies have proposed a plethora of new LNG projects to export gas from the US, to take advantage of world markets that are eager for low-cost fuel. Of these jump-starters, NextDecade is well positioned to create, develop and operate two significant LNG facilities to serve various international markets.

GP talks with Kathleen Eisbrenner, founder, chairman and chief executive of NextDecade LLC, about the company’s formation, project statuses and envisioned future in the LNG market.

GP. How was NextDecade formed, and why?

Eisbrenner. I’ve been in the natural gas business for almost 34 years. About half of that experience was spent in traditional natural gas, and the other half in LNG. I’ve worked with both big companies and also entrepreneurial startups, and I’ve enjoyed both. Before I formed NextDecade, I started a firm called Excelerate Energy, which has been extraordinarily successful in developing natural gas floating, storage and regasification units (FSRUs) around the world, from conception to full operations.

Then, I was recruited by Royal Dutch Shell to run Shell’s LNG business from The Netherlands, which I did for about three years. Although Shell is a great company and I learned a lot from the experience, I was eager to work again at a smaller entity where I could have a greater impact. The reason I formed NextDecade was to develop an organization that incorporated the best practices of large oil companies with the best practices of the successful entrepreneurial companies. That’s the basis for our company culture, and it’s a lot of fun.

GP. What is your outlook for the current LNG market?

Eisbrenner. Despite what has been occasionally reported, we have found very robust appetite for incremental LNG consumption on a long-term basis all around the world. In fact, we’ve recently signed tentative, non-binding agreements to deliver about 24 MMtpy of LNG.

GP. Do you believe that the volatile oil and gas prices will affect that outlook?

Eisbrenner. Both oil and natural gas prices are recently at historic low levels. That impacts the economics of projects that are based on oil prices, but it also impacts demand from a positive standpoint. With oil prices so low, the cost of delivering LNG around the world is also quite reasonable. If anything, we see demand pushing upward as a result.

GP. How does this affect your specific projects?

Eisbrenner. Our projects in North America are based on a Henry Hub index, or netback. As of early December 2015, Henry Hub was about $1.80/MMBtu, which is also a very low level. So, although commodity prices overall are quite low, because we are a Henry Hub-based project, our economics have stayed quite robust and interesting for deliveries to Europe, Asia and Latin America.

GP. What effect might low oil prices have on gas feedstock for your projects if drillers lay down rigs in oil developments, which would subsequently reduce the amount of produced associated gas?

Eisbrenner. We are carefully monitoring the industry to better anticipate what lies ahead in 2016—from the combination of low oil and gas prices to the potential likelihood of the writedown of reserves for many of the independent oil companies, especially in light of the past 12 months of low commodity prices. There might well be a pullback in production, which would have an impact on pricing.

I would say, though, that it’s fascinating to dig into shale economics. Although shale plays are known to have significant decline rates associated with production, there is also an almost infinite tail of production associated with the wells that are drilled horizontally for the production of oil and gas. I think the aggregation of all of these tails—some of which could last as long as 60 years, a significant duration—will support production, even if there is a pullback in oil drilling.

Yet, if there is a pullback in the production of natural gas as a result of either oil or gas drilling, then prices will increase. For example, the Eagle Ford shale play is profitable at between $3.50/MMBtu and $4/MMBtu, just for dry gas production, and there is plenty of gas there. So the question is whether it will be produced as production gas or associated gas. We’ll have to see how it plays out this year.

GP. What is the plan for your Rio Grande project near the Mexico border of Brownsville, Texas?

Eisbrenner. In the Rio Grande project, we are permitting for six trains with a nameplate capacity of 4.5 MMtpy each. With a full buildout scenario, that’s 27 MMtpy. Our initial final investment decision is dependent on the first two of those six trains with 9 MMtpy. That’s about 400 Bcfy of feed gas.

Given the changes to the natural gas infrastructure in the US, that gas can come from anywhere. Of course, we are very focused on Eagle Ford and Texas production, because that makes the most logical sense. However, due to the amazing abundance of gas in the Marcellus and Utica areas in the Northeast, and the increasing trend of reversing pipeline flows from former supply areas, it’s an amazing phenomenon.

At this point in time, we are not targeting any one specific area for feed gas. Rather, we are prepared to take advantage of the flexibility of the US gas grid, which has the capability to deliver from multiple points. We expect the Rio Grande project to be completed by year-end 2020.

GP. Do you have a pipeline project associated with that?

Eisbrenner. Yes. The Rio Bravo Pipeline that we are building to supply that gas will be 140 mi long and will run from the Agua Dolce market hub area to our site near Brownsville, Texas. It will interconnect with up to nine interstate and intrastate pipelines. That will create the liquidity for us to be able to pick and choose the most economical gas supply.

GP. What do you plan for your Pelican Island project near Galveston, Texas?

Eisbrenner. This is a smaller project. We plan to start with two trains at Pelican Island of 4.5 MMtpy each. For Pelican, our feed gas pipeline will begin at Katy, Texas. From there, we can connect with at least 10 interstate and intrastate pipelines. With both of these projects, we are looking to build in the flexibility to source gas from any production basin. The timeline for this one will follow Rio Grande, depending on market demand. We expect this to begin 12–24 months after Rio Grande.

GP. Do you have target markets lined up for the LNG exports?

Eisbrenner. At this point, we haven’t announced any firm commitments, but we have nine specific contracts out for review among seven various countries, so it’s quite diverse. Regardless of where we eventually end up exporting to, additional LNG supply will benefit the US and global economies significantly.

GP. Since your Brownsville project will be so close to the border, do you foresee Mexico as a marketer or a supplier?

Eisbrenner. We are definitely looking at that. Our Rio Grande permit, which is currently under consideration by the Federal Energy Regulatory Commission, contemplates two 42-in. gas pipelines in parallel easements from Agua Dolce down to Brownsville. That can accommodate a heck of a lot of gas. In fact, it would satisfy our current buildout plan of 27 MMtpy.

We are watching what is happening with Mexico from both perspectives. We could have the opportunity to pipe gas to Mexico, and, with the newly proposed drilling programs there, we see the potential for Mexico to start producing supply gas. Mexico could need additional imports, but it might also become an exporter of gas or, more specifically, LNG.

A lot of people don’t realize that the same geology of the Eagle Ford is also there, across the border. Now that the economic incentives are in place, and Mexico has recently gained the constitutional ability to solicit interest in drilling in Mexico, they could be producing as much as the Eagle Ford, dependent on commodity prices.

NextDecade was created and is positioned to be flexible within the entire gas supply-to-market chain, and we find that exciting. We’re looking forward to working through our projects, from greenfield to LNG deliveries, over the next few years.

GP. Where do you see NextDecade in five years?

Eisbrenner. In 2010, a little more than five years ago, I founded NextDecade with the goal of becoming the leader of the second wave of LNG from the US. Five years from now, I believe we will have achieved that goal.

NextDecade will have shipped its first cargoes from Rio Grande LNG and we will be in the process of getting ready to bring additional projects online. While there may still be a lot to do to get there, I am confident that we can accomplish this through our commitment to excellent customer service, the communities in which we operate, and most importantly to the safety and reliability of our projects, supported by our industry-leading partners.

Beyond this, I expect several other exciting projects to be progressing, both in the US and around the world. I personally cannot wait to see where the next decade will take us. GP

Kathleen Eisbrenner is founder, chairman and chief executive of NextDecade LLC, a company positioned to create innovative opportunities in the US and international natural gas industry. Previously, Ms. Eisbrenner served as executive vice president for Royal Dutch Shell, where she was responsible for Shell’s global LNG strategy and LNG trading business. Prior to Shell, Ms. Eisbrenner served as the chief executive and founder of Excelerate Energy, an LNG importer and marketer. At present, she is a member of the US National Petroleum Council and the American Bureau of Shipping. Ms. Eisbrenner has also served as a board member of Chesapeake Energy Corp. She holds a BS degree in civil engineering from the University of Notre Dame in Indiana, and resides in Texas.