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INTERVIEW: Souki says Tellurian isn't betting on European utilities to lift Driftwood LNG in 2021

Highlights

Asia a focus amid Platts JKM run-up

Talks planned with Total over agreement status

Houston — Tellurian is looking beyond the European utilities that helped finance the first wave of US liquefaction terminals to build commercial support for its Driftwood LNG project in Louisiana, Executive Chairman Charif Souki said Dec. 30.

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Amid pressure not to import LNG produced from shale gas, France's Engie halted talks in November about a potential long-term supply deal tied to NextDecade's Rio Grande LNG project in Texas. That move raised concerns among some market watchers that global carbon emission reduction goals could limit the ability of North American developers in 2021 to sanction the addition of new capacity since cheap and abundant US shale is key to projects' cost assumptions.

"We never expected European utilities to be part of our counterparties," Souki told S&P Global Platts.

Souki sees Engie's move as more about price indexation and market options than about emissions.

"I have not seen any significant long-term contract made by any European utility in the last five years," Souki said. "They have a market. It is very solid. It's based on TTF. I don't see any European company making a deal that is based on anything but TTF."

Using Dutch TTF to index commercial deals is currently "not financeable" for US projects and would be a "non-starter" for Tellurian, Souki said.

The developer is seeking equity partners to help fund construction, in exchange for the right to lift LNG from Driftwood, slated to produce up to 27.6 million mt/year, for the life of the facility. For the portion of Driftwood capacity that it plans to market itself, it has preferred relying on Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia.

Souki also addressed the likelihood of a positive final investment decision for Driftwood, the fate of a potential commercial deal with India's Petronet, the late November departure of Meg Gentle as CEO and the future of Tellurian's only firm investment deal to date, with France's Total.

Like virtually all second-wave North American liquefaction projects, Driftwood struggled in 2020 to secure supply deals. Across the continent, Sempra Energy's Energia Costa Azul export project in Mexico was the only one to take FID during the year. Developers have blamed travel restrictions amid the coronavirus pandemic for making deals harder to reach, as well as volatile commodity prices for making buyers uncertain about signing new long-term agreements.

The run-up in the JKM – it was assessed Dec. 30 at $13.542/MMBtu, almost 7.5 times its historic low at $1.825/MMBtu on April 28 – makes Souki bullish on the prospect of a fruitful 2021 for Tellurian and the low-cost LNG that Driftwood offers, particularly for buyers in Asia.

"The likelihood of getting to FID is very high," Souki said. "The alternative of what you normally do when you can no longer get gas at a reasonable price is you switch to coal. This is becoming less and less appealing on a global basis."

As for Petronet's potential investment of up to $2.5 billion in Driftwood, a firm deal could not be reached before a memorandum of understanding covering terms expired with the end of December. Gas demand in India makes Souki confident there will be support there in the future. Don't expect another MOU with Petronet, however, he said.

"The time for MOUs is finished," Souki said. "It's time for people to make deals, not promises. So, we have no interest in renewing an MOU with anybody. It doesn't mean that we don't want to work with everybody. Of course we want to work with people. We're talking to more than two-dozen different counterparties and we'll end up making deals with the right people."

CEO departure

Tellurian has overhauled its finances to give it a cushion as it continues to try to build commercial support for Driftwood. Gentle's sudden departure surprised the market.

The company described the move as a mutual decision between it and Gentle. Souki, during the interview with Platts, suggested the hands-on role in the company that he and Vice Chairman Martin Houston have been taking in recent months may have been an issue.

Gentle did not respond to multiple requests from Platts for comment at the time of her departure, nor after Souki's comments in the interview. She was replaced by industry veteran Octavio Simoes.

"Her absence will be felt, but we'll compensate," Souki said of Gentle. " We needed to bring additional experience and additional involvement from the two founders, Martin and myself. We had the good fortune of having Octavio available because he liked our business model and he wanted to be involved with us."

Souki added, " We just strengthened the team. Meg did not feel comfortable in that context."

Total commitments

Total can back out of its Driftwood commitments, including a $500 million investment, meanwhile, if Tellurian does not declare a positive final investment decision by June 2021.

Because of Total's other North American commitments – it agreed in December to invest in the Energia Costa Azul LNG export project and also has stakes or offtake obligations at Sempra's Cameron LNG in Louisiana, Freeport LNG in Texas and Cheniere Energy's Sabine Pass in Louisiana – it's unclear whether Total would want to extend the Driftwood agreement.

"I think we will have a dialogue with Total next year and we'll see what they want to do," Souki said. "The project will sell itself on its merits, to Total or to anybody else. If it's an attractive project, they will continue to participate."