Tellurian to finish commercialization of Driftwood LNG first phase

5/14/2021

Tellurian expects to complete commercial agreements within the next few weeks sufficient to support the first phase of its Driftwood LNG export project in Louisiana, Executive Chairman Charif Souki said.

During a wide-ranging discussion at the Citi Global Energy & Utilities Virtual Conference, Souki said Tellurian will probably sell 12 million-15 million mt/year of supply on zoom.

Souki said Tellurian was in advanced talks with four or five LNG buyers for volumes that Tellurian is marketing on its own, not volumes that would be covered by equity partners the company has been soliciting. Tellurian's only firm commercial deal tied to Driftwood that has been announced to date is a 2019 agreement with France's Total that covers 1 million mt/year of partner volumes and 1.5 million mt/year of marketing volumes.

"We want to finish our commercial agreements, which will happen in the next few weeks," Souki said at the conference, which was webcast.

Success in that time frame would be a feat considering the challenges Tellurian and other developers of new liquefaction capacity in the US have had building sufficient commercial support to sanction their projects.

While global LNG loadings for existing terminals remain robust, up 3.3% year on year through the end of April, with a strong pricing environment incentivizing all marginal supply into the market, that has yet to translate into new terminals advancing to construction in the US over the last 12-18 months. Only a few new long-term contracts tied to US terminals have been signed over that period.

Exelon-backed Annova LNG canceled in March its proposed liquefaction project in Brownsville, Texas; Canada's Pembina paused development in April of its proposed Jordan Cove LNG project in Oregon; and Sempra Energy said earlier in May that it would likely delay a final investment decision on its proposed Port Arthur LNG project in Texas to 2022, from a previous target of 2021.

Total, meanwhile, can back out of its Driftwood commitments if Tellurian does not declare a final investment decision by the end of June. Souki, in the Platts interview, said the Total agreement is "not going forward in the present form" and will need to be amended. He said building the terminal is no longer dependent on the Total agreement.

"It's certainly still a show-me story," Michael Webber, managing partner of investment research firm Webber Research & Advisory, said in a telephone interview after Souki's comments at the conference. "We've heard optimism before. We think the market is improving, but obviously there are a number of players that are also in that market competing."

At the conference, Souki said Tellurian will start some construction activities this summer. In the interview, he specified those activities would include building roads and preparing the site for full construction. Tellurian expects to give a notice to proceed to contractor Bechtel in the first quarter of next year, Souki said.

As for FID, Souki told Platts that he doesn't believe Tellurian has to make a formal declaration to advance the project.

"I would have to go back to the contracts and see what they say," he said.