Tellurian CEO on its $30B LNG bet in Louisiana, need for more pipelines

BY KRISTEN MOSBRUCKER | Staff writer  Nov 5, 2019

The top executive leading the largest liquefied natural gas project planned in Louisiana shared her vision for the $30 billion Driftwood LNG export terminal during the Louisiana International Trade week in Baton Rouge. 

Meg Gentle, the CEO of Houston-based Tellurian Inc., described how Louisiana and her company fits into the global LNG export market. 

"If Louisiana were its own country, we would be the fourth largest LNG producer in the world, roughly the same size as Qatar today," Gentle said Tuesday. "I really view Louisiana as such an important LNG hub."

Tellurian expects to make a final investment decision on the project by the end of the year and begin construction soon thereafter. The company estimates that it will begin export operations by 2023. Once fully operational, the export terminal is expected to ship 27.6 million tons of LNG around the world. 

While Louisiana already has a plethora of natural gas pipelines that criss-cross the state, one key to making Driftwood LNG a reality will be to construct more pipelines that connect north to south rather than just east to west.  

"We need to a lot of work to reoptimize the state and connect north Louisiana to south Louisiana," Gentle said. 

Driftwood LNG expects to construct a 96-mile pipeline carrying 4 billion cubic feet per day of natural gas down from the major pipeline hubs at Gillis and Eunice northeast of the project to the proposed gas liquefaction and export facilities on the west bank of the Calcasieu River, south of Lake Charles. Tellurian inked a deal several years ago with Rockcliff Energy Operating LLC to purchase natural gas producing assets. The company has more than 10,000 acres and 20 wells in the Haynesville Shale play. Tellurian will also draw on natural gas supply from a new 625-mile pipeline from the Permian Basin in west Texas for its Louisiana LNG terminal. 

Tellurian estimates it will create about 6,700 construction jobs and 300 projected permanent jobs. 

Companies in the LNG sector are expected to spend billions for the infrastructure in Louisiana and Texas. 

"The industry still has a lot of investments to make in order to double our (U.S.) export capability, we're going to have to spend roughly $150 billion dollars on export facilities and pipelines," Gentle said. 

In late September, Tellurian signed a memorandum of understanding with Petronet LNG Ltd. in India for the company to buy 5 million tons of LNG from Driftwood LNG, a final agreement is expected by March. Petronet is also chipping in $2.5 billion for an 18% equity stake in the Louisiana terminal as part of the proposed deal. 

Tellurian was granted approval by the U.S. Department of Energy to export natural gas long-term with any country without a free trade agreement with the U.S. earlier this year and has approval from the Federal Energy Regulatory Commission as well. 

Tellurian expects to raise $7 billion for its project from partners in addition to $1 billion from private equity investors and $20 billion in debt financing from banks. France's Total and Switzerland-based commodities trader Vitol have invested in the project as partners.

Much of the growth in LNG exports over the past year was in Europe, which is significant as a geopolitical play since U.S. LNG is considered an alternative to natural gas from Russia, she said. 

"We provide a very important geopolitical balance," Gentle said. 

In France, exporters fetched on average $7 per thousand cubic foot of natural gas in 2018, according to the U.S. Energy Information Administration. In the United Kingdom, it was closer to $3.46 per thousand cubic feet of natural gas. 

In Japan, the average was $6.86 per thousand cubic foot of natural gas, in Taiwan it's $6.51, and in China the average was $4.41 in 2018.  

Most of the natural gas in the U.S. can be produced for as low as $2 per thousand cubic foot. 

"In our production in the Haynesville and associated gas in the Permian we can do it cheaper than that," Gentle said. "Less than $1. For the first time, we have become competitive with every other supplier of gas in the world." 

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The market certainly doesn't believe in $1 cost gas...If it were, the public natural gas E&P companies would already be bid up to the heavens with a strip around $2.50. As of today, a lot of their stock prices are at 52 week lows, quite a few at multi-year lows...

I wish all the best for Tellurian, but this is pure marketing.

Previously Tellurian touted all in gas cost of $2.30/mcf.  Now they seem to be counting on associated gas out of the Permian.  The WAHA Hub prices are stabilizing as new take away capacity comes on line.  I've not heard any mention of transportation cost per mcf from the Permian to Gulf Coast markets but I would imagine it would run ~$0.20 to $0.45 per mcf, west to east.

Yesterday, the price at the Waha Hub averaged $1.88/MMBtu, the highest of the week and 79¢/MMBtu lower than Henry Hub.

Source IEA week ending Oct. 30.

All in gas cost of $2.30??  Show me the breakdown of economics from wellhead to LNG facility - "something's subsidizing something" big-time to have even a snowball's chance at those types of delivered costs.  The pipe infrastructure alone to get to this proposed facility is mega-dollars compared to other facilities already built and/or in play.  The promoters of this deal are swinging for the fences with other people's money - for their sake, I hope they can make it work - just so long as it's not at the royalty owner's expense.    

We have visited these Tellurian cost statements a number of times since the company acquired the old Samson HA Units in the Rockcliff acquisition.  They didn't make sense then and they for sure do not now.  You have to think that any savvy investor would question this type of hype!  So, who is it intended for?  I have yet to see a stock analyst push back or even comment on these assertions!  Strange.

Well, Tellurian is publicly traded on the NASDAQ.  We could all start shorting their stock.  :)

Yes, those that play the market, please go right ahead.  :-)  But you might want to wait until their FID.  If they signal they will go forward with construction, the stock may get a nice bump.


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