U.S. LNG mogul and Tellurian Inc. co-founder Charif Souki said his company has generated some excitement with its offer to Japanese buyers for five-year deals through the proposed Driftwood LNG export facility at a fixed $8/MMBtu, a split from traditional 20-year contracts with Henry Hub-linked pricing.
"There's interest," Souki said June 12, when asked on the sidelines of an Atlantic Council event about whether the developer had any nibbles on the offer. The former Cheniere Energy Inc. CEO announced the deal in April at the Gastech 2017 conference in Japan.
Souki added that Tellurian has two dozen term sheets circulating for capacity from Driftwood LNG.
Tellurian has been more willing than many developers of U.S. LNG projects to incorporate short-term contracts in its portfolio. In a talk at the Atlantic Council event, Tellurian CEO Meg Gentle said she sees spot or short-term LNG deals growing from representing roughly 30% of the market to 75% by 2025.
"For financing purposes, we're really kind of turning all the banks back to the model they had in the past, which is produce the resource [and] send it through the liquefaction plant into the global market at global commodity prices," Gentle said. "We're preparing for a portfolio of customers, some of which are long-term, medium-term and short-term. And we're working with a financial community ... on catering the financing to respond to that."
Several U.S. LNG project developers have said they cannot finance massive export ventures without guaranteed cash flows over a 15- to 20-year period. LNG export pioneer Cheniere, which Souki founded, has said it will not move forward on additional trains at its Sabine Pass and Corpus Christi LNG export terminals until it has secured long-term contracts for 80% of the capacity. And although offtakers have been hesitant to sign long-term contracts amid global oversupply, sellers hope the global market will balance in the early to mid-2020s and encourage buyers to start signing deals that will allow additional liquefaction capacity to be built.
While Tellurian's offer was seen as a way to address buyers' calls for shorter contracts, some industry observers have wondered whether offtakers will bite, and if they do, whether lenders will be satisfied.
Gentle said the key for a fixed-price deal is to manage risk by being able to anticipate the cost of the gas. "We'll know our cost of gas really from a combination of three ways: we can either hedge that financially with another strategic or banking institution, we can buy gas from producers off the pipeline system or back into the field and manage that price risk together with them, or we can produce that gas ourselves," she said.
"We are pursuing all three of them, and hopefully we'll know within the next year," she said. "As we get closer to the contracting, we'll have to solve the supply-side as well."