Tellurian Inc. said this week it has cut costs for the first phase of the proposed 27.6 million metric ton/year (mmty) Driftwood liquefied natural gas (LNG) export terminal as it works toward sanctioning the massive project in a weak global market.
The Houston-based operator indicated in an investor presentation on Wednesday that it would achieve a portion of the savings by deferring plans for three of the four pipelines proposed to feed the facilities.
Assuming a phase one contractor guarantee of 14.4 million mmty, and including upstream, owner, liquefaction and pipeline expenses, the company is now forecasting capital costs of $1,042/metric ton compared with the previous level of $1,473, for an all-in cost of $16.8 billion.
The latest cost projections only included expenses for the 4 Bcf/d Driftwood Pipeline, approved by the Federal Energy Regulatory Commission for liquefaction supply.
Tellurian previously said it would delay the 2 Bcf/d Permian Global Access Pipeline. However, the new presentation indicated it plans to defer the 2 Bcf/d Haynesville Global Access Pipeline. No mention was made of the 2 Bcf/d Delhi Connector Pipeline. Those projects have not been cancelled, but instead could be considered in the future if market conditions warrant them.
The Covid-19 pandemic has squeezed the global gas trade. Demand has plummeted in a market that was awash in cheap gas, making it difficult for projects to secure long-term customer agreements. Tellurian previously cut jobs and corporate spending.
Tellurian’s unique business model requires long-term customers to buy $500 million of equity for each 1 mmty of guaranteed offtake. The model is designed to control costs by owning gas production and pipeline transportation. Some supply is to come from producing assets in the Haynesville Shale.
The integrated project as designed would allow offtakers to load LNG at about $3.50/MMBtu, according to Tellurian. The company expects to supply gas for about $2.00/MMBtu, with plant and liquefaction costs of 75 cents and debt service costs of 75 cents, according to the investor presentation.
Supermajor Total SE has a stake in the facility already, while talks with India’s largest LNG importer Petronet Ltd. to take a stake in Driftwood have reportedly been revived after stalling earlier in the year.
Tellurian delayed a final investment decision on the facility in June; it now expects first gas in 2024.
However, it could sustain a setback if the projected timeline is not met. Total has the right to terminate deals for up to 2.5 mmty of offtake and investments of up to $700 million if phase one is not sanctioned by July 10, 2021.
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