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Global gas price volatility 'terribly destabilizing' for market, Tellurian's Souki says

Highlights

Outlook calls for current levels to ease after winter

Timeline for sanctioning Driftwood LNG unchanged

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  • Harry Weber and Corey Paul
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  • Bill Montgomery
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The "terribly destabilizing" rise in global gas prices should ease after the winter, restoring some balance to the market, the executive chairman of Driftwood LNG developer Tellurian, Charif Souki, said Sept. 28.

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Buyers remain skittish about committing to new long-term investments in LNG supply, in part because of the price volatility. That has added to challenges that North American developers have faced building sufficient commercial support and obtaining financing for new liquefaction projects.

During an address to the Center for Strategic & International Studies in Washington, Souki said that more predictable prices would help overcome some of the investment hesitancy in the market. More supply, not necessarily less demand, would be the ultimate solution, he said.

"It was predictable," Souki said of the run-up in global gas prices. "This should not be a surprise to anybody. Just fundamentally, if you invest in supply, you're going to be in a good position. And, if you don't invest in supply, you run the risk demand is not going to do what you expect it to do, and you're going to have a problem."

The S&P Global Platts JKM for November was assessed Sept. 28 at $32.229/MMBtu, more than six times what the benchmark price for spot-traded deliveries to Northeast Asia stood at a year ago. In Europe, the Dutch TTF was assessed Sept. 28 at $27.388/MMBtu, a more than sixfold increase from a year ago.

The 10-year deals that Tellurian signed with Gunvor, Vitol and Shell to support the first phase of its Louisiana project are indexed to a combination of the JKM and TTF, netted back for transportation charges. The LNG would be delivered free on board from Driftwood. Tellurian plans to produce its own feedgas for the first phase of the terminal.

By eliminating the US Henry Hub gas price from the equation, Tellurian hoped to alleviate one measure of volatility that was preventing more North American LNG projects from getting off the ground. The run-up in global gas prices over the last year has added a new layer of volatility, though one that would benefit Tellurian if current price levels endured.

"We're going to be called pandemic profiteers," Souki said. "I'm horrified by that fact."

With sufficient offtake agreements in place to support the first phase of the up to 27.6 million mt/year liquefaction project, Tellurian still must obtain financing for construction of the terminal. Tellurian has said it is targeting to give contractor Bechtel a notice to proceed with full construction of the LNG terminal by the end of next year's first quarter.

Driftwood financing

In an interview after the CSIS discussion, Souki said that banks are progressing toward accepting contracts tied to indexes beyond the Henry Hub.

If Tellurian does secure funding -- and Souki said the company expects to be able to announce the bank group that will finance the project by the end of 2021 -- it would mark a major departure in the way that US LNG projects have been successfully developed in the past.

"We are very clear about what we need to do," Souki said. "We want to acquire upstream production. That's our focus right now. And then the banks will fall into place really easily."

He said the company will acquire the upstream assets it needs or merge with an upstream producer that already has the necessary reserves. Tellurian isn't seeking an equity partner for its production ambitions, Souki said.

Carbon emissions

During the CSIS discussion, Souki also discussed LNG's role in the global energy transition and efforts by US gas exporters, pipeline companies and upstream producers to reduce their carbon emissions.

Souki reiterated his support for a carbon tax and suggested he doesn't oppose a proposed methane fee to regulate emissions. He questioned, however, the viability of the Biden administration's overall climate policy, which includes goals to create a carbon pollution-free power sector by 2035 and a net-zero emissions economy by no later than 2050.

"That's not an energy policy," Souki said. "That's a prayer. Go to church, pray for anything you want."

Reminded that there is money set aside to support President Joe Biden's climate policy in the larger of the two infrastructure bills being proposed in Washington, Souki stuck to his position that the policy is not realistic.

"You've got to ask whether the money goes for the priest, or the bishop, or what," he said. "Your priest and your bishop are going to be fine, but the rest of the village, I'm not sure."