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Tellurian's Driftwood LNG export terminal faces delay due to US FERC schedule

Highlights

The startup of Tellurian's Driftwood LNG export terminal is expected to be delayed by several months based on US regulators' schedule for issuing their permit decision, a company spokeswoman said Tuesday.

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The new timeline comes as developers of the second wave of US LNG projects struggle to lock down firm long-term agreements with buyers of their capacity so that they can finance the billions of dollars in construction costs for their facilities.

Some developers have pushed back final investment decisions, while others have adjusted their business models.

Tellurian, which has proposed a 3.4 Bcf/d export terminal in Calcasieu Parish, Louisiana, and a network of three pipelines to feed shale gas to the facility and to other customers, said in its March 31 permit application that it wanted to begin construction of Driftwood by the second quarter of 2018 so that it could send its first cargo by the third quarter of 2022.



But in a scheduling notice Friday, the US Federal Energy Regulatory Commission said it will not issue its final environmental impact statement until October 12, 2018, which means the agency will have until January 10, 2019, to make its decision on authorizing the project.

A notice to proceed with construction cannot be given until the formal FERC permit is issued.

The latest review schedule "delays us a few months," Tellurian spokeswoman Joi Lecznar said in an email.

"We will only be a few months late but likely early 2023," Lecznar said of terminal startup.

Tellurian has a $15.2 billion deal with construction contractor Bechtel to build Driftwood in four phases, the first of which will include LNG capacity of up to 11 million mt/year, or 1.45 Bcf/d; two storage tanks; and one loading berth.

The full facility, as proposed, would include 20 liquefaction units, each capable of producing up to 1.38 million mt/year of LNG, as well as three storage tanks and three loading berths.

Since launching plans for its export terminal, Tellurian has been working to narrow its projected construction costs so that it could remain competitive with other developers of the second wave of projects that are planned for the US early next decade.

It has decided to buy gas-producing assets in Louisiana that will provide access to cheap supplies to Driftwood.

To finance construction, it has offered an equity interest in a holding company that will include its production operations.

Under the pitch, offtakers would pay $1.5 billion to Tellurian in exchange for the right to lift 1 million mt/year of capacity from Driftwood for the life of the terminal.

Earlier this month, Tellurian proposed building two additional natural gas pipelines to move increasing output from the Permian and Haynesville shale plays to the Gulf Coast and to boost supplies to Driftwood.

The 2 Bcf/d Permian Global Access Pipeline and 2 Bcf/d Haynesville Global Access Pipeline would form a network with the previously proposed 4 Bcf/d Driftwood Pipeline.

Beyond questions about regulatory permitting and offtake agreements, Tellurian also has faced questions from at least one major competitor about the wisdom of components of its $7.3 billion pipelines plan.

In a December 19 interview with S&P Global Platts, the CEO of pipeline operator Williams, Alan Armstrong, said he would be "surprised and impressed if that project moves forward on that basis," referring to Tellurian's Driftwood and Haynesville pipelines.

"Frankly, projects like Tellurian's got right now, I don't really quite understand why somebody would sign up for that Driftwood or the other project, because if you want to get to the very best market out of the Haynesville, you just go to Station 85, and that's already overbuilt," Armstrong said. "Station 85 is the premium market to southwest Louisiana, and we have capacity from 85 back to 65."

Several interstate and intrastate pipelines terminate at Williams' Transcontinental Gas Pipe Line Station 85 at the Alabama and Mississippi border, linking Texas and Oklahoma shale production with Southeast markets.

Transco Station 65 is in St. Helena Parish, Louisiana. Transco continues to Station 50, which serves the Louisiana Gulf.

While Tellurian has declined to respond specifically to Armstrong's comments, it has said that the approximately 8 Bcf/d of incremental natural gas demand expected by 2025 in southwest Louisiana would support all three of its pipelines.

"We need more infrastructure for the Haynesville," CEO Meg Gentle said in a December 8 interview with Platts.

--Harry Weber, harry.weber@spglobal.com
--Edited by Annie Siebert, ann.siebert@spglobal.com