Tellurian Inc. could begin construction on certain elements of its Driftwood liquefied natural gas (LNG) facility in Louisiana as early as this summer, CEO Octávio Simões said recently.
“We’re aiming to start construction of the owner obligation costs this summer,” Simões told NGI.
Those owner obligations are not covered by the company’s engineering, procurement and construction contract with Bechtel Corp. Houston-based Tellurian is still evaluating when it may issue a notice to proceed to the contractor to begin construction on the 27.6 million metric ton/year (mmty) project, Simões said.
“We can issue the notice to proceed when the timing is right,” Simões said, when asked about timing for a final investment decision (FID). The company had previously targeted a 2021 FID for the Driftwood LNG project.
“There are some scenarios where we think we could do it before the end of the year, and there are some scenarios where it would be early next year,” he said. Tellurian had not “committed to anything at this point.”
Simões said the company is looking to move forward with the project after the pandemic turned the global LNG market on its head last year. Tellurian was not immune to the impacts as an initial agreement with India’s Petronet LNG Ltd. was scrapped, plans for at least two long-haul pipelines were dropped and jobs were cut.
Simões, who stepped into the CEO role late last year after Meg Gentle left the company, said Tellurian is in a different position after recently paying off a chunk of debt.
”We have cleaned up our balance sheet, we have gathered liquidity for executing our objectives, our project,” he said. “And we’ve been successful at having enough cash on hand to grab the liquidity needed to execute. So things are lining up to a much more comfortable position now than before.”
The company has adapted since last year, making some adjustments to its model. The changes include offering cargoes indexed to the Japan-Korea Marker (JKM) and the Dutch Title Transfer Facility (TTF) benchmarks instead of Henry Hub. Simões said the company’s integrated model, where it produces, transports and liquefies the gas for export, makes it possible to bypass volatility risk around Henry Hub pricing.
“I think that anybody that’s trying to sell long-term, Henry Hub-based contracts is going to be facing an uphill battle,” Simões said.
Tellurian is continuing its search for more equity partners to fund the project in exchange for offtake deals. It is currently offering 10 mmty in contracts for a term of 10 years. When asked about the remaining 17.6 mmty, a spokesperson told NGI that Driftwood would be built in phases with commercial efforts expanding accordingly. The company has previously signed contracts with Total SE and Vitol.
“We’re just adapting to the market conditions, remaining faithful to the fact that the integrated model gives us the flexibility to adapt,” Simões said.
The 10-year term is half of the traditional 20-year sales-and-purchase agreement that traditionally underpinned the first wave of U.S. LNG plants.
“It provides additional risk, depending on your business model,” he said about the shorter contract terms. “We feel comfortable with 10-year contracts for 10 mmt. If you have an integrated model, it works. If you don’t have an integrated model, it becomes much more difficult and much riskier.”
Simões said the 10-year terms satisfy demands customers have been making for a long time, and he told NGI that he is “quite busy” these days in talks with potential partners.
“We’re talking to everybody.”
Tellurian suffered a major setback last year when a memorandum of understanding signed with Petronet to negotiate the sale of up to 5 mmty expired as prices plunged to historic lows. More recently, a Gail India Ltd. executive lambasted long-term LNG contracts. However, Simões still sees India, which is aiming to grow the share of natural gas in its energy mix, as a huge opportunity.
“Even in the pandemic, in 2020, the LNG demand went up,” he said. “So India is going to be a very large customer of natural gas. The problem is the economics of natural gas have not been favorable to the economy of India. So they have some limits around the pricing.”
To build out the upstream part of its integrated model, Tellurian is focused on adding to its acreage position in the Haynesville Shale to supply feed gas. The company owns 9,373 net acres in the play and holds an interest in 72 producing wells that could feed the export facility planned for Calcasieu Parish. Those assets produced 16.9 Bcf last year, up from 13.9 Bcf in 2019.
Simões said the company needs about 4 Bcf/d to supply the facility, and would need about 20-30 Tcf of reserves. He did not comment on a timeline for deals, but said there is “plenty of opportunity, plenty of targets, plenty of optionality.”
On the midstream side, the company recently wrapped up a week-long open season to gauge interest on its Driftwood Pipeline expansion. He said there was “no particular” reason for the relatively short time frame. “We continue to work on the optimization of natural gas markets in the region,” he said. “We know there’s a demand for it, so there’s no reason to extend things.”
Simões also said the integrated model would help it provide accurate information on its carbon footprint to global buyers concerned about greenhouse gas emissions. Simões said Tellurian was looking into ways to address those concerns, including carbon sequestration and nature-based offsets.
The company also plans to provide offtakers with “transparent, auditable information,” on emissions related to its LNG cargoes when the plant is up and running.
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