Houston — Improving prices in Asian end-user markets have spurred renewed commercial talks toward advancing Tellurian's proposed Driftwood LNG export project in Louisiana, CEO Meg Gentle told S&P Global Platts in an interview Aug. 28.
The Platts JKM for October was assessed up 16.8 cents/MMBtu on the day at $4.226/MMBtu. Forward prices look even healthier, with the curve through the winter months trending comfortably above $5/MMBtu. That would be a substantial rebound from June, when prices appeared to bottom out below $2/MMBtu, but would still be well below the $12/MMBtu that spot prices were at as recently as October 2018.
Price is a major component, but not the only one, in the equation buyers are using to determine how much new US LNG supplies to invest in through the middle of the decade, when projects like the up to 27.6 million mt/year Driftwood are targeted to come online. Demand uncertainty and contract flexibility are other components.
"It's really over the last couple of weeks those price signals have come back into alignment where LNG from Driftwood gets delivered profitably into not only Asia but even, in fact, into the European market," Gentle said. "So, in terms of momentum and timing, we had to kind of sustain and wait through the Covid period."
In August, Tellurian said it would build only one of the four proposed pipelines during the first phase of Driftwood if it decided to sanction the US facility. The sharply scaled back midstream ambitions, combined with a focus on lower cost feedgas supplies, will allow Tellurian to reduce total initial project capital costs by 30%.
Widespread cargo cancellations at existing US liquefaction terminals over the summer prompted multiple developers of new terminal projects, including Tellurian, to delay final investment decisions until 2021.
"I think we can see the light at the end of the tunnel is now ending, and so long-term discussions are actually again a focus as we go into the winter period 2020/2021," Gentle said. "So, kind of our revised expectations for finishing work with our customers and raising the equity for Driftwood in the first half of 2021 is squarely supported by prices during that time period."
In July, India's Petronet resumed talks with Tellurian about investing up to $2.5 billion in Driftwood. The two sides, which had first reached a preliminary agreement in September 2019 but failed to firm up terms by an end of May deadline, set a new goal of reaching a final deal by the end of December. Those talks continue, Gentle said.
As for other potential partners, in late 2019, Gentle said Tellurian was negotiating with a large buyer to take a $2 billion partnership stake in Driftwood, which would cover 4 million mt/year of supply. She did not name the company, nor has she provided an update on those specific talks since then. Potential customers include utilities, commodity traders, portfolio players and national and international oil companies.
At full development, about half of Driftwood's approved capacity is expected to be used by equity investment partners that Tellurian has been soliciting. The rest would be held by Tellurian to market on its own.
The equity arrangements would require the partners to make a minimum upfront $500 million equity investment in the holding company that controls the Driftwood terminal and the pipelines that Tellurian builds, in exchange for the right to lift 1 million mt/year of LNG from the export terminal for the life of the facility.
To date, only France's Total has signed a firm partnership deal tied to Driftwood, a $500 million investment agreed to in 2019. For the last several months, Total has been shedding some of its holdings in Tellurian shares, and one of the energy major's executives recently stepped down from Tellurian's board, with no immediate plans by Total to name a replacement.
Total can back out of its Driftwood commitments if Tellurian does not declare a positive final investment decision by June 2021.
During the Platts interview, Gentle said Tellurian's relationship with Total remained strong. In May, Total's CEO said his company did not expect to expand its North American LNG business in the near-term beyond its current commitments. Addressing Driftwood, he said it would be "strange" to move forward with the US project. He did not elaborate on what he meant.
As of Aug. 28, Tellurian shares had traded below $1 in New York for 12 consecutive days.
"We have always had a great partnership, quite frankly, with Total, who came in in the very earliest days of Tellurian and invested in the Tellurian Inc. equity with massive support for the Driftwood project," Gentle said. "We've worked with them hand in hand over the last three and a half years to structure the partnership and all the commercial agreements for that, and did that together with them."
She said she expects that support to continue.
"In fact, as we have been able to get the Phase 1 costs in line with $1,000/ton, I think forward to Total's goals to migrate a lot of their portfolio to reduce carbon by increasing gas versus oil as an overall percentage, and so I have no inkling as to why Total would do anything else but invest in the cheapest project they could possibly add to their portfolio."