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NorthAmOil COMMENTARY NorthAmOil
Gentle said at the time. “JKM has emerged as the most liquid and transparent pricing mechanism for LNG,” she added.
Vitol was also reported to be evaluating a potential equity investment in the Driftwood Holdings partnership. Meanwhile, engineer- ing procurement and construction (EPC) firm Bechtel made a $50mn investment in Tellurian last year, having earlier been selected as the con- tractor for the Driftwood terminal.
Tellurian has welcomed the deals struck so far as evidence that the business model for Driftwood is a viable one that offers value to investors. Now, the MoU with Petronet takes the company a step closer to reaching a final invest- ment decision (FID), which has previously been postponed as Tellurian has sought additional partners.
A step forward
The MoU was signed in the presence of Indian Prime Minister Narendra Modi, who was visit- ingHouston.Onceitisfinalised,itwillalsomark the largest investment by an Indian company in US LNG.
According to Gentle, Tellurian expects to finalise the last 4mn tonnes needed for the first phase of Driftwood LNG with one or two part- ners in the coming months. She added that Petr- onet’s share represented around $2bn in annual fuel sales for the duration of the project’s lifespan.
“We will sign the document sometime in the first quarter and we will have financing ready to close simultaneously, and then we will begin construction,” Gentle told Bloomberg. “India is one of the fastest growth markets for LNG and should soon become the second-largest LNG importer.”
Indeed, India is seeking to buy more oil as
well as LNG from the US, and Indian companies are reported to have invested around $4bn in US shale assets to date.
The country’s energy demand is forecast to grow at 4.2% per year over the next 25 years. India has contracted 9mn tpy of LNG from the US so far, making it the sixth-largest buyer of LNG from the North American country.
What next?
The MoU between Petronet and Tellurian comes days after a warning that the second wave of US LNG export projects will be tougher to bring online than the first wave, which is currently being wrapped up. Speaking at the Gastech con- ference in Houston, Blackstone Energy Partners CEO David Foley said only one or two new start-up projects that have been proposed as part of the second wave might reach FID.
“In terms of liquefaction capacity that gets FID from the US, the hit rate will be a lot higher on projects either sponsored by major oil com- paniesorexpansionsofexistingfacilities,”Foley said.
The ongoing trade war between the US and China is a major factor in this. Chinese buyers have stepped back from US LNG even as the Asian country is on course to have the world’s highest demand for the fuel. This has made it more difficult for US LNG developers to secure offtake agreements to underpin their projects.
The market is also oversupplied, with compe- tition intensifying, even though global demand is set to grow over the coming years. Five LNG projects have already reached FID this year, spread across the US, Mozambique and Russia. Nonetheless, a number of US LNG developers maintain that they will reach the FID stage of their projects in the coming months.
Tellurian expects to finalise the last 4mn tonnes needed for the first phase of Driftwood LNG with one or two partners in the coming months.
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