USA: Liquefied Natural Gas Exports Tellurian Strikes a New Path to Fund LNG Export Terminal
Tellurian is seeking investors to pay a total of $ 12 billion up front to fund the proposed Driftwood LNG export terminal in Louisiana. In return, they get a stake in the project and the ability to buy fuel at cost moving forward, with no markup based on a changing marketplace.
Houston/USA (Bloomberg) — Tellurian is in advanced talks with potential equity partners for Driftwood, Meg Gentle, the company’s chief executive officer, said in a telephone interview. Partners in the first phase of the project will get a board seat, according to the company.
So far, Total SA has invested $ 207 million in the company, Bechtel added other $ 50 million and General Electric invested $ 25 million. Tellurian has also raised $ 100 million in public equity, according to a company presentation.
At the same time, the market is clearly skeptical: Tellurian’s value has fallen by half to just over $ 2 billion since February 2017, when it went public. The most likely reason: It’s based on a gamble.
Dealing Out Banks
“This cleverly removes the banks from the whole formula, and then it becomes the buyer’s problem,” said Jason Feer, head of business intelligence at Poten & Partners Inc. in Houston. “The fact that you don’t have a whole bunch of people falling over themselves to sign is an indicator of how complicated it is.” Feer, in a telephone interview, said he couldn’t think of any company that’s “financed or done a major project that was structured like this. It’s a pretty radical departure.”
Tellurian plans to spend $ 2 billion to buy up gas reserves to feed the terminal, starting with Louisiana’s Haynesville shale. And it anticipates spending a little more than that to build pipelines that will shuttle gas to the project, according to a company presentation.
Additionally, the company plans to source cheap gas from the Permian Basin of West Texas and New Mexico, where the fuel is produced as so-called associated gas, a byproduct of drilling for oil.
The integrated model could allow Tellurian to load LNG onto a ship at $ 3 per million British thermal units or less after factoring in the price of the fuel and the cost of chilling and shipping it, according to Gentle. In January, the price for LNG at export for Cheniere’s Sabine Pass terminal in Louisiana was $ 3.15 to $ 6.15 per million Btu, Energy Department data show.
At the same time, the investors could end up paying more if gas prices or operating costs rise, the company has said.
Though the integrated model has been used to develop gas fields in Qatar, Mozambique and Australia, it’s only now starting to be pursued in the US. At least one other US LNG project may employ a similar strategy: State-owned Qatar Petroleum is partnering with Exxon Mobil and Conoco Phillips to build the Golden Pass terminal in Texas. Exxon is reportedly in talks with Qatar over a partnership that could see the nation owning US gas.
Tellurian aims to begin construction of Driftwood in the first half of 2019, pending a final investment decision. If that time line holds, the terminal could be up and running in 2023.