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NorthAmOil COMMENTARY NorthAmOil
India’s Petronet buys into Tellurian’s Driftwood LNG
Tellurian’s agreement with India’s Petronet brings the company a step closer to an FID on its Driftwood LNG project, and may be one of the largest ever LNG supply deals in US history, writes Anna Kachkova
LOUISIANA
WHAT:
Tellurian has moved closer to taking an FID on its Driftwood LNG project.
WHY:
The company has signed a preliminary $7.5bn agreement with India’s Petronet.
WHAT NEXT:
The deal comes amid warnings that it will be more difficult for the second wave of US LNG to move forward.
INDIA’S Petronet LNG has signed a prelimi- nary $7.5bn agreement to buy into Tellurian’s proposed Driftwood LNG terminal in Louisi- ana. Under the memorandum of understanding (MoU), Petronet has agreed to spend $2.5bn on an 18% equity in the Driftwood terminal, as well as negotiating the purchase of up to 5mn tonnes per year (tpy) of LNG from the facility. The remaining $5bn will come from a debt commit- ment, Tellurian’s CEO, Meg Gentle, said.
The deal could be one of the largest ever LNG supply deals in US history. Tellurian and Petr- onet said in a statement that they were aiming to finalise the agreement by the end of March 2020. The deal still requires additional due diligence and board approval by Petronet. Tellurian also hopes to have signed up enough partners to pro- ceed with the construction of Driftwood LNG, estimated to cost $28bn, by March 2020.
Petronet’s investment is also the largest hold- ing in the Driftwood project so far by an exter- nal partner. The MoU comes as a major boost for the project, after critics had previously expressed concern about the attractiveness of Tellurian’s business model to investors.
Different approach
Driftwood differs from other US LNG export projects, which will liquefy gas for a fee, with Tellurian instead offering customers the
opportunity invest in a full range of services from production to pipelines and liquefaction. The company has said it ultimately plans to own and market 40% of the plant’s capacity, which amounts to 27.6mn tpy.
Tellurian’s high profile has probably made it easier for the company to court investment – it was co-founded by Charif Souki, who also started pioneering US LNG exporter Cheniere Energy. And despite critics’ misgivings and increased competition among US LNG export- ers for buyers, a few companies have already shown a willingness to participate in the Drift- wood project.
France’s Total has recently finalised an agree- ment to buy 1mn tpy of LNG in exchange for a $500mn investment in Driftwood. Total has also entered into a definitive sales and purchase agreement (SPA) for an additional 1.5mn tpy of LNG from Tellurian’s LNG offtake volumes from the terminal.
Earlier, it was announced in December 2018 that commodity trader Vitol had entered into an MoU to buy 1.5mn tpy of LNG from Driftwood. The price involved will be based on the Platts Japan Korea Marker (JKM).
“The LNG business is evolving into a true commodity market, which includes LNG pur- chases and sales based on actual LNG prices rather than indexing to other energy products,”
The MoU was signed in the presence of Indian Prime Minister Narendra Modi, who was visiting Houston.
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Week 38 24•September•2019