Driftwood LNG developer Tellurian proceeding with two-plant first phase: Souki
Initial plan for export project is smaller of two possibilities
Commercial, gas production, bank financing efforts continue
Author Harry Weber 20 Jul 2021 spglobal.com
Tellurian appears to be proceeding with the smaller of two possibilities for the size of the first phase of its proposed Driftwood LNG export terminal in Louisiana, based on comments Executive Chairman Charif Souki made during a podcast posted on the company's website July 20.
The developer has yet to sanction full construction of the up to 27.6 million mt/year facility, although two medium-term supply contracts signed earlier in the summer with commodity traders Gunvor and Vitol put Tellurian on a solid commercial path.
As of its latest posted investor presentation May 27, Tellurian estimated a 16 million mt/year first phase for the liquefaction facility. It said the same thing in a January presentation. During the podcast, Souki said "65% of the capacity of the first phase" had been sold to Gunvor and Vitol.
At a combined 6 million mt/year for the two 10-year commercial deals, that would imply a first phase of 9.2 million mt/year. That would suggest a two-plant first phase, each with up to four trains. Earlier in July, a 2019 partner and supply agreement with France's TotalEnergies that covered 2.5 million mt/year of Driftwood volumes was terminated.
A Tellurian spokeswoman, Joi Lecznar, said Souki's comments were in line with two possibilities the company has raised in the past.
" We have always said we would proceed with either two or three plants first, whatever makes sense," Lecznar said.
During the podcast, which has become a regular feature in recent months, Souki said Tellurian was continuing to work on securing more supply deals to cover the remaining capacity for the project's first phase. It also is building its upstream drilling portfolio and arranging bank financing needed to begin full construction, he said.
He said Tellurian would complete commercial agreements sufficient to support the first phase of the project "soon." In an interview with S&P Global Platts May 12, Souki had said that work would be completed "in the next few weeks." That time frame has passed.
"We are not going to for the sake of speed and expediency do a bad job," Souki said on the podcast. "We are going to continue to make sure we get all of the elements necessary to do this."
Tellurian has said that it wants to produce all the gas it will need to feed Driftwood and would not sanction the project until it had secured sufficient upstream reserves for the first phase of the terminal project.
Based on its current drilling program in the Haynesville Shale, Tellurian expects to have close to 100 MMcf/d in production by the end of the year, three times the volume it was producing at the end of 2020, Souki said. The company will need to control substantially more drilling — about 1.5 Bcf/d — to reach its goal, he said.
"That is going to be the focus of our primary efforts for the next few months," Souki said.
Tellurian has been considering a business combination to grow its upstream portfolio. Souki did not address that subject during the latest podcast.
Tellurianis targeting to give Bechtel a notice to proceed with the full construction of the terminal by the end of the first quarter of next year. Souki said Tellurian expects to be able to announce the bank group that will finance the project by the end of 2021. He described banks as more bullish about Driftwood because of the strength of market fundamentals in recent months.
"A year ago, we took a very controversial position. We told you 'Look at Henry Hub prices in the US, look at the (Platts) JKM price in Asia and look at the rig count in the United States and continue to monitor those three things — in our view, prices of Henry Hub and JKM are unnaturally low and unsustainable,'" Souki said. "This was a time when people were saying lower for longer. We said 'this is not going to happen, we are going to see a resurgence of prices at both Henry Hub and JKM and if you monitor the rig count, that will give you an indication of how fast it is going to happen.'"
He added, "well, here we are a year later. Henry Hub has more than doubled and JKM has more than quadrupled. We are not afraid of controversial positions based on research and numbers and things that we believe after having done our homework."