Petronet and Tellurian resume investment talks tied to US LNG project: source

Houston — India's Petronet has resumed talks with Tellurian's Driftwood LNG about investing up to $2.5 billion in the proposed Louisiana export project, a person familiar with the matter said July 21.

The two sides, which had first reached a preliminary agreement in September 2019 but failed to firm up terms by an end of May deadline, recently agreed to engage in talks with the hopes of reaching a final deal by the end of December, the person said.

Tellurian shares jumped 56% on news of the talks. A spokeswoman for the developer did not immediately respond to a request for comment.

"It's a first step," the person said.

The broad outline of the terms being discussed is the same as what was in the preliminary agreement Petronet and Tellurian had previously reached, the person said.

The original memorandum of understanding reached between Tellurian and Petronet called for the Indian company to negotiate taking a stake of up to $2.5 billion in the holding company that includes Driftwood and four pipelines that Tellurian has proposed to build. If finalized at the top end, Petronet would get the rights to 5 million mt/year of supply from Driftwood. Based on 5 million mt/year, Petronet would be responsible for underwriting $5 billion of Driftwood's total project debt.

At full development of 27.6 million mt/year, about half of Driftwood's capacity is expected to be used by the equity investment partners Tellurian has been soliciting. The remaining capacity is to be retained by Tellurian to market on its own.

To date, however, only France's Total has made a firm commitment to support the project: a $500 million investment signed last year.

Low international prices, weak demand and market shocks from the coronavirus pandemic have created enormous challenges for existing US LNG exporters as well as developers of new liquefaction terminals. Utilization at US liquefaction terminals fell to a 17-month low earlier in July, while final investment decisions on multiple projects, including Tellurian's, have been delayed to 2021.

While the coronavirus put a pause on commercial discussions involving US projects, a recovery in North Asian spot prices in the winter could spark new contracting. That may depend on increased demand from buyers in Asia and the Middle East, said the person familiar with the renewed talks between Petronet and Tellurian.