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Weak Global LNG Prices Nearing ‘Inflection Point,’ Says Tellurian’s Gentle
As Tellurian Inc. looks to spend the rest of 2019 completing agreements to move forward with its proposed Driftwood liquefied natural gas (LNG) export project in Louisiana, management sees global prices reaching an “inflection point” either this winter or in 2020.
While outlining the business case for the 27.6 million metric tons per year (mmty) Driftwood project, during a 2Q2019 presentation for investors CEO Meg Gentle predicted stronger global LNG pricing ahead.
“We all know that energy markets are highly volatile, and the great news with the LNG market is that it’s finally becoming a transparent commodity, where price signals provide the right signals to demand to expand, and that’s exactly what we’ve been seeing this year,” Gentle said. “We’ve had a lot of supply coming into the market…and demand has shown an absolute resilience to be able to expand to take that volume.
“I view the inflection point on price happening either this winter, depending on weather, or soon after in 2020, and even the forward curve reflects over $7/MMBtu for Asian LNG for calendar year 2020.”
With a total project scope that contemplates a roughly 1,000-mile pipeline network and 15 Tcf of upstream reserves, the Driftwood terminal, planned for a 2023 startup, aims to take advantage of a longer-term tightening in the global market once it’s had time to absorb the recent wave of export capacity growth. Global LNG exports increased by more than 35 million metric tons in 2018, according to the International Gas Union.
With capacity additions expected to peak in 2019 then fall “steeply” over the next few years, Gentle said during the 2021-2024 time frame “we expect an extreme tightening in LNG prices.”
Management projects global demand growth to require anywhere from 100-250 mmty of additional LNG export capacity by 2025.
“In fact, if the market continues to grow at a 14% growth rate, we will need in excess of 250 mmty of capacity,” Gentle said. “So in that context, we’re very comfortable that there’s a supply side push and demand side pull and that Driftwood is competitively positioned.”
On the midstream front, Tellurian recently completed open seasons for three pipelines, two aimed at bringing supply to Driftwood from farther upstream in Louisiana, the other targeting associated gas from the Permian Basin.
Tellurian expects to finalize precedent agreements for the Permian Global Access Pipeline and begin pre-filing with the Federal Energy Regulatory Commission for the project later this year. The pipeline is part of the first phase of the Driftwood terminal completion, management said.
The timeline for the two Louisiana pipes — the Haynesville Global Access Pipeline and the Delhi Connector Pipeline — is less clear. Management alluded to “over-subscribed indications of interest” in the proposed capacity following the recent open seasons but did not specify a timetable for starting pre-filing with FERC. The Louisiana pipelines are part of Driftwood’s second phase.
This comes as producers have been feeling the strain of depressed natural gas prices, driven by robust domestic supply growth, including associated gas flowing from crude-focused regions like the Permian that are less responsive to low gas prices.
“It’s important to remember these pipelines are each part of our strategy to provide the business with optionality to access lower cost gas,” Gentle said. “But their timing is not relevant to completion of Driftwood LNG, because we can buy all the gas we need for the plant from the Driftwood Pipeline. So our objective with the pipeline network is to provide as much optionality to take advantage of volatility in the market and make sure that Driftwood has access to the lowest cost gas.”
Tellurian, which received an additional $500 million buy-in for the Driftwood terminal from Total SA during the quarter, hopes to reach a final investment decision on the project this year. Driftwood would be located on the Calcasieu River, south of Lake Charles, LA.
Tellurian reported a net loss of $40.493 million (minus 19 cents/share) for the quarter, compared with a net loss of $35.854 million (minus 17 cents/share) for 2Q2018.
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