Driftwood LNG full construction to begin in April regardless of financing status: Tellurian

01 Feb 2022 spglobal.com

Highlights

Bank talks may take 'bit longer' than end-March target

FID 'doesn't apply here': Executive Chairman Souki

Tellurian will begin full construction of its Driftwood LNG export terminal in Louisiana in April regardless of whether it has sufficient financing in place by that time to complete the first phase of the project, Executive Chairman Charif Souki said in a podcast posted on the company's website Feb. 1.

Less than a week after telling S&P Global Platts that the developer was confident it would meet its project financing goals by the end of March, in line with its previous target, Souki said bank talks may extend "a little bit longer."

"It is critical to get it right for the value of the shareholder, so we're not going to rush through that process," Souki said in his latest public message. "We're very comfortable starting the construction program without being completely sure that the financing will be put in place."

On Jan. 26, in an interview as part of a Platts podcast, Souki said talks with banks were going well and suggested that the company's previous targets remained unchanged.

"Right now, they want to do it behind the scenes," Souki said of the banks, in the earlier interview. "But we've just signed 45 different nondisclosure agreements with financial institutions around the world, and there's appetite for funding these projects because it's clear now that they're going to make a lot of money."

Following 10-year agreements with Gunvor, Vitol and Shell, total offtake commitments to Driftwood LNG stand at 9 million mt/year. That's enough, Tellurian has said, for the two-plant first phase of the project. Each plant is expected to have up to four liquefaction trains, for a total design capacity of up to 27.6 million mt/year.

"Construction will start in April of this year, as we promised you," Souki said Feb. 1.

The deals Tellurian signed to support the first phase of Driftwood LNG are indexed to a combination of the Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia, and the Dutch TTF European gas hub contract, netted back for transportation charges. The LNG would be delivered free on board from Driftwood. Tellurian plans to produce its own feedgas for the first phase of the terminal -- currently it is well short of the upstream production necessary to guarantee that.

The shorter length of Tellurian's commercial deals than the traditional 20-year agreements that were used to finance the first wave of US liquefaction terminals and the pricing mechanisms underlying Tellurian's agreements have raised questions in the market about the company's ability to obtain financing.

Souki tried to allay those concerns in his latest company podcast, while at the same time acknowledging that Tellurian may have to use available cash and lines of financing to pay contractor Bechtel while talks over the billions of dollars more that would be needed to finish the first phase of the project continued.

"We now have a number of banks that are willing to consider a project like this," Souki said. "We feel very confident and comfortable that this will be done."

He added, "It might be done by April, but it could take a little bit longer."

Following the latest message, uncertainty remained over whether and when Tellurian would announce a formal final investment decision, in line with the traditional practice of US LNG exporters and the same process Souki employed when he was CEO of Cheniere Energy, a company he co-founded and led in the run-up to its flagship Sabine Pass terminal beginning exports in 2016.

Regarding Driftwood LNG, Souki said FID "doesn't apply here."