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Tellurian says it is well-positioned to meet current timeline for Driftwood LNG project

Highlights

FID and construction start eyed for first half of 2019

Steel tariffs could increase terminal and pipeline costs

Houston — Tellurian maintained Wednesday its expectation it will reach a final investment decision and begin construction on its Driftwood LNG export terminal by the end of June, as it released its latest financial results.

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The developer also provided current cost estimates for the proposed terminal, affiliated feedgas pipelines and upstream assets it intends to add to its portfolio to support the combined project. In a regulatory filing, Tellurian said geopolitical and market supply and demand issues could impact its forecasts and planning.

The update and disclosures come at a time when the US is poised to become a much bigger player in the global supply of LNG, with the number of domestic liquefaction terminals in operation expected to double by the end of 2019. Price volatility, international trade tensions and the outcome of commercial efforts continue to create a level of uncertainty for the next wave of export projects, of which Driftwood is a part.

"For example, new or increased tariffs on materials needed in the construction process have been proposed or may be proposed in the future and such new or increased tariffs could materially increase construction costs," Tellurian said in an annual filing with the Securities and Exchange Commission. "In particular, tariffs on imported steel may significantly increase our construction costs."

Under Tellurian's business model, securing sufficient equity investment partnership agreements is critical to being able to fund construction of the Louisiana liquefaction terminal. Customers are being asked to pay an up-front fee for an equity interest in Driftwood Holdings, which will consist of entities including the terminal.

That will give the customers the right to lift 1 million mt/year of LNG from Driftwood for the life of the terminal. No firm equity investment deals have been announced to date, though India's Petronet is exploring the possibility of making such an investment. Tellurian said in a statement it remains on track to make an FID and begin construction in the first half of this year. Tellurian will retain as much as 11.6 million mt/year of capacity from Driftwood to market on its own. In December, Tellurian said it had reached a preliminary 15-year supply deal with commodity trader Vitol for 1.5 million mt/year of LNG from the facility. Startup is targeted for 2023.

Besides the terminal, Tellurian has purchased shale acreage to produce some of its own feedgas supplies and it has proposed building three pipelines to move gas to Driftwood as well as to other customers.

In the regulatory filing, Tellurian said it currently estimates the total cost of the Driftwood project to be approximately $28 billion, including owners' costs, transaction costs and contingencies. A spokeswoman said the total also includes the cost of the three pipelines and the cost of acquiring upstream assets. The filing said the total excludes interest costs incurred during construction of the Driftwood terminal and other financing costs.

The developer has a $15.2 billion lump-sum turkey contract with Bechtel that covers the engineering, procurement and construction costs for the liquefaction terminal, which will include up to 20 trains each expected to produce up to 1.38 million mt/year of LNG.

-- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com