Driftwood LNG Terminal

From Global Energy Monitor
This article is part of the Global Fossil Infrastructure Tracker, a project of Global Energy Monitor.
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Driftwood LNG Terminal is a proposed LNG terminal in Louisiana, United States.

Location

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Project Details

  • Owner: Driftwood LNG LLC[1]
  • Operator: Driftwood LNG LLC[2]
  • Parent: Tellurian Inc.[1]
  • Location: Calcasieu Parish, Louisiana, United States
  • Coordinates: 30.091298, -93.330534 (approximate)
  • Type: Export[3]
  • Trains: 20, built over five phases[3]
  • Capacity: 27.6 mtpa, 3.96 bcfd (1.3 mtpa per train / 5.52 mtpa per phase)[2]
  • Status: Proposed, pre-FID[4]
  • Estimated Cost: US$30 billion[5]
  • Financing: US$50 million equity investment from Bechtel[6]; US$75 million in loans from UBS[7]; Goldman Sachs and Société Générale are Financial advisors
  • Start Year: Projected to initiate in 2024, with full service in 2026/2027

Note: mtpa = million tonnes per year; bcfd = billion cubic feet per day

Background

Driftwood LNG Terminal is a proposed LNG terminal in Louisiana, United States.[8] In April of 2017, Tellurian completed the pre-filing and formal application process with the Federal Energy Regulatory Commission (FERC).[9] The terminal will be made of 20 small trains of 1.3 mtpa capacity each, built over four phases.[10]

The project includes five production trains in the LNG export terminal, and the 96 mile Driftwood Gas Pipeline.[11]

In November 2017, Bechtel was awarded four turnkey contracts worth a total of US$15.2 billion covering the engineering, procurement, and construction costs of the facility in four phases.[12] In March 2018, Bechtel made a US$50 million preferred equity investment in Tellurian.[6]

In April of 2019, French company, Total SA, and Tellurian Inc. signed deals supporting the development of Driftwood LNG Terminal. Under a non-binding heads of agreement (HOA), Total will invest in Driftwood Holdings and will offtake 2.5 million tonnes per annum (mtpa) of LNG. The HOA is for Total to make a $500 million equity investment and to buy one mtpa of LNG from Driftwood. In addition, the HOA specifies that both companies will enter into a binding sales and purchase agreement for a further 1.5 mtpa of LNG from Tellurian Marketing’s LNG offtake volumes from the proposed Driftwood terminal, and for the purchase of LNG on a free-on-board basis for a minimum of 15 years, at a price based on Platts Japan Korea Marker. Both companies also signed a common stock purchase agreement in which Total will buy nearly 20 million shares of Tellurian common stock for $200 million. Including Total’s original $207 million investment in Tellurian in 2017, Total's aggregate investment in the Tellurian portfolio will amount to $907 million. The agreements are subject to relevant regulatory approvals and to a final investment decision (FID) on the Driftwood LNG project, which is expected to be made by Tellurian in the first half of 2019. It will also be the French major's first deal priced off JKM, which is a fast developing Asian benchmark for spot cargoes.

Tellurian plans to make a FID on its Driftwood LNG export project in the first half of 2019. The project is expected to produce first LNG in 2023, with full operations expected in 2026. In total, Driftwood will produce 27.6 mtpa of LNG or about 4 billion cubic feet per day (bcfd) of natural gas. The FID for the second phase of the project is expected about 12 to 18 months after construction starts on phase 1.[13]

In a June 2020 article in The Financial Times describing a range of growing problems for Tellurian and the Driftwood project, it was reported that Total had raised significant doubts about the future of Driftwood. According to Total CEO Patrick Pouyanné, “The priority is not to invest more in merchant projects in the US,” and specifically on the Driftwood project, "I think there is no reason it would be sensible to move forward on this one." Total, the FT reported, has the right to back out of its new capital contribution agreement if Tellurian fails to reach a FID for Driftwood by July 2021.[14] In August 2020, S&P Global reported that Total had continued to sell shares in Driftwood LNG over the summer and that one of its executives had stepped down from Driftwood LNG's board of directors.[15]

In July 2020, India's top gas importer Petronet renewed its September 2019 deal with Tellurian to negotiate the annual purchase of up to 5 million tonnes of LNG from the Driftwood terminal over the lifespan of the project. The previous agreement lapsed on May 31 and the renewal means that Petronet and Tellurian have until the end of December 2020 to finalise the deal, suggesting that a FID for the project needs to be made by then.[16] By June 2021, it was reported that the deal between Petronet and Tellurian had lapsed. Petronet's CEO A K Singh said that the company had instead opened discussions with alternate suppliers such as Qatar for natural gas supplies.[17]

In August 2020, a Tellurian investor presentation, posted on the company's website and filed with the U.S. Securities and Exchange Commission, disclosed that if the company proceeds with the Driftwood terminal then it will build only one of four proposed pipelines, the Driftwood Gas Pipeline. Tellurian has shelved three proposed pipelines previously associated with the LNG terminal project: the Permian Global Access Pipeline, the Haynesville Global Access Pipeline and the Delhi Connector Gas Pipeline.[18]

In September 2020, it was reported by S&P Global that Tellurian was struggling to secure sufficient commercial support to advance the project. The company's financial woes have led to investors selling off Tellurian shares. In January 2020, the company’s stock was selling for $8.69 per share, but plunged by 92% to $0.70 cents/share in September. As a result the company received a de-listing notice from Nasdaq following 30 consecutive days of its stock trading at below $1.[19]

In November 2020, Tellurian's CEO Meg Gentle left the company. In March 2021, with no clarity on when a FID would be taken for the project, Tellurian said that it was working to clear debt from its balance sheet.[20]

In April 2021, Tellurian's newly appointed CEO Octávio Simões said: "We have cleaned up our balance sheet, we have gathered liquidity for executing our objectives, our project ... And we’ve been successful at having enough cash on hand to grab the liquidity needed to execute. So things are lining up to a much more comfortable position now than before." The timing of a FID for the project remained unclear. Simões confirmed that Tellurian was continuing its search for more equity partners to fund the project in exchange for offtake deals, and that the company was now offering cargoes indexed to the Japan-Korea Marker (JKM) and the Dutch Title Transfer Facility (TTF) benchmarks for LNG pricing instead of Henry Hub.[21]

In April, Tellurian's chairman, Charif Souki, went on YouTube to denounce short sellers seeing blood in the water. Bloomberg News reported that the company's only confirmed buyer was Total, whose memo of understanding with Tellurian was scheduled to expire at the end of June. Bloomberg reported that Tellurian was in talks with other buyers but had not reported any results as of late May. In a research note, Morgan Stanley estimated that Tellurian had only enough cash to fund another four to six months of expenses.[22]

In May 2021, Tellurian announced that it had signed a ten year sales and purchase agreement (SPA) with commodity trader Gunvor Group for three million tonnes per annum of LNG from the proposed Driftwood terminal on a free on board basis. The agreement with Gunvor represents the equivalent of approximately US$12 billion in revenue over the ten-year period at today's LNG prices.[23] Investment bank Cowen & Co reacted by cautioning that this may signal a further delay in the FID from 2021 to 2022. Cowen & Co analysts said that Tellurian "appears to have altered its strategy from pursuing a model of customers buying-in to the project in exchange for LNG at cost ... The change increases the offtake it needs to secure, even in-light of the Gunvor (agreement), making FID more challenging".[4]

In June 2021, Tellurian announced a further ten-year SPA with the global energy trading business Vitol for three million tonnes per annum of LNG on a free on board basis. The SPA is indexed to a combination of the Japan Korea Marker (JKM) and the Dutch Title Transfer Facility (TTF) indices.[24] The company also said it was confident of signing a long-term lease with the port authority where the terminal would be located so that it could begin - in summer 2021 – to prepare the site for full construction. In addition to the Driftwood Gas Pipeline it plans to build as the main gas supply route to the Driftwood terminal, Tellurian further announced that it had filed an application with US regulators to build a new 37 mile pipeline – Line 200 and 300 – that will originate near Ragley in Beauregard Parish and end near Carlyss in Calcasieu Parish, close to the proposed terminal.[25] At the end of July 2021, Tellurian also announced a ten year SPA to supply Royal Dutch Shell with three million tonnes per annum from the Driftwood terminal. This agreement took total offtake commitments at the terminal to 9 million tonnes per annum, just short of the 9.2 million tonnes per annum capacity expected at the two-plant first phase of the project; each plant is expected to have up to four liquefaction trains.[26]

In a July 2021 filing with the U.S. Securities and Exchange Commission, Tellurian said that it had terminated a stock purchase agreement signed in 2019 with TotalEnergies which would have seen the French energy giant invest up to US$700 million and take up to 2.5 million metric tons of LNG per year from the Driftwood terminal. TotalEnergies had the right to terminate the agreement if Tellurian failed to reach FID by July 10, 2021.[27]

A summer 2021 report from the energy markets consultancy RBN Energy LLC found that Driftwood "looks extremely likely to go ahead next year." Securing financing for the project from banks and other investors, however, remained challenging, according to RBN, as the SPAs agreed with Gunvor, Vitol and Shell are for 10-year terms rather than the 20-year contracts which underpinned the first wave of US LNG terminals. RBN additionally noted that Tellurian also needs to acquire about 1.5 billion cubic feet per day of upstream gas production to feed the facility.[28] Tellurian has said it will not proceed with a FID for the project until it secures sufficient upstream reserves – about 1.5 billion cubic feet per day – for the first phase. The company currently expects to have only 100 million cubic feet per day in production by the end of 2021 from its drilling program in the Haynesville Shale.[29]

In August 2021, Tellurian said it was in talks with banks about financing the project, and that the first 11 mtpa phase would cost US$12 billion.[30]

In February 2022, Tellurian announced construction on the terminal would begin in April despite not having taken FID[31], and the company announced it had sufficient capital for the first year of construction. At that time the first deliveries were still slated for 2026.[32] In a follow-up statement on YouTube, Tellurian chairman Charif Souki clarified that the construction starting in April could happen on site but that the company would not be able to order all the equipment required over the five years of the project until such time as significant financing was in place.[33]

On March 28, 2022, Tellurian said that it had issued a "limited notice to proceed" to Bechtel for initial demolition, civil site preparation and construction of critical foundations for the first phase of the Driftwood LNG Terminal involving two LNG processing plants with an export capacity of up to 11 mtpa.[34] The initial site preparation work got underway as the company continued efforts to arrange contracts with LNG buyers which it needed to secure financing for the project.[35]

Financing

According to IJGlobal, the project's financial advisors are Goldman Sachs and Société Générale, and the hoped for financing package would involve US$7 billion in capital from the project partners and US$20 billion in project finance debt for overall costs.[36] This proposed financing has been interrupted by the delayed final investment decision for the project. In May 2019, the Swiss bank UBS provided Tellurian with US$75 million in loans (one year tenor) for the project.[7]

Coronavirus Pandemic Impact

Amidst major upheaval in the commodities markets and record low LNG prices caused in part by the COVID-19 pandemic and the resultant collapse in oil prices, it was reported in March 2020 that, having already failed to finalize a deal with a major Indian customer for the Driftwood project in February, Tellurian's deteriorating economic position may lead to a further delay of 12 to 18 months for its FID on building the Driftwood LNG export terminal.[37][38]

In March 2020, Tellurian LNG negotiated new terms for a US$75 million loan. The loan was originally due in May 2020, but is now extended until November 2021. The global spread of coronavirus has impacted companies around the world, especially those which rely on demand for LNG, as many businesses are idled. Tellurian has had to restructure its business so it can be in a position to build the US$30 billion terminal, including laying off 40% of its workforce.[39]

During an investor presentation in June 2020, Tellurian's CEO Meg Gentle confirmed that the construction start for the Driftwood terminal would be delayed until 2021. Gentle disclosed further that LNG production at the terminal would also be delayed until the end of 2024, with full operations expected by 2026 or 2027. The company's difficulties in securing partners for the project along with the downturn in LNG prices, which has been exacerbated by COVID-19, were cited as reasons. Gentle forecast that recovery of Asian LNG prices to $5 per million British thermal unit (MBtu) would enable Tellurian to secure partners and contracts in 2021. However, this appears optimistic with Asian prices for August 2020 set at $2.225 per MBtu, and most market analysis projections not expecting a significant rally in Asian prices into 2021 due to suppressed demand for LNG in Asia and a persisting global LNG supply glut.[40]

Articles and resources

References

  1. 1.0 1.1 "Home". Driftwood LNG. Retrieved 2022-05-11.
  2. 2.0 2.1 U.S. Liquefaction Capacity, Energy Information Administration, November 3, 2020
  3. 3.0 3.1 Rachel Adams-Heard, Tellurian, Magellan Petroleum finalize merger, boosting funds for Driftwood LNG, S&P Global, Feb. 10, 2017
  4. 4.0 4.1 Arunima Kumar and Scott DiSavino, Tellurian to sell LNG to Gunvor, delays Louisiana project start, Reuters, May 27, 2021
  5. Scott DiSavino, Tellurian to decide on Louisiana LNG project in early 2019 Reuters, accessed November 2018
  6. 6.0 6.1 "Bechtel Makes $50 Million Investment in Tellurian", Tellurian press release, Mar. 21, 2018
  7. 7.0 7.1 Driftwood LNG Additional Facility 2019, IJGlobal Transaction Data, accessed Aug. 4, 2021
  8. Driftwood LNG At-a-Glance, Driftwood LNG, accessed May 2017
  9. Tellurian's Driftwood LNG files formal FERC application, LNG World News, 3 April 2017
  10. Driftwood LNG Export Project, Louisiana Hydrocarbons Technology, accessed April 13, 2021
  11. Driftwood LNG Project Taps FERC for Approval, Gets OK for FTA Exports Industrial News Resources, April 4, 2017
  12. "Driftwood LNG Project, Louisiana." NS Energy. Accessed December 17, 2021.
  13. UPDATE 1-France's Total signs deals for Tellurian's Driftwood LNG project Reuters, accessed April 2019
  14. Gregory Meyer, Trouble flares for US energy upstart Tellurian, The Financial Times, Jun. 11, 2020
  15. Harry Weber, Total sheds 1 million Tellurian shares as US struggles to advance new LNG projects, S&P Global, Aug. 3, 2020
  16. Nidhi Verma, Scott DiSavino, Tellurian stock soars after India's Petronet renews investment deal, Reuters, Jul. 21, 2020
  17. USD 2.5 bIllion deal with Tellurian now off the table for Petronet LNG, The New Indian Express, Jun. 10, 2021
  18. Harry Weber, "Tellurian drops three gas pipelines from first phase of US LNG export project", S&P Global, Aug. 12, 2020
  19. Harry Weber, "Tellurian stretches loan due date again as Driftwood LNG commercial talks continue", S&P Global, Sep. 21, 2020
  20. Harry Weber, Annova LNG discontinuing US export project: operator, S&P Global, Mar. 22, 2021
  21. Caroline Evans, Tellurian ‘Adapts’ Driftwood LNG Plans on Heels of Covid-19, Natural Gas Intelligence, Apr. 9, 2021
  22. Sergio Chapa, "Tellurian's Souki Blasts Short Sellers After LNG Developer Drops," Bloomberg, Apr. 20, 2021
  23. "Tellurian signs LNG supply agreement with Gunvor," Hydrocarbons Technology, May 28, 2021
  24. Adnan Bajic, "Vitol snaps up Driftwood LNG offtake deal," Offshore Energy, Jun. 3, 2021
  25. Harry Weber, "Tellurian to prepare Driftwood LNG site for full construction, build new pipeline," S&P Global, Jun. 22, 2021
  26. Harry Weber, "Shell agrees to buy 3 million mt/year of supply from Tellurian's Driftwood LNG," S&P Global, Jul. 29, 2021
  27. Caroline Evans, "TotalEnergies Terminates $700M Deal with Tellurian for Driftwood LNG", Natural Gas Intelligence, Jul. 12, 2021
  28. Caroline Evans, 'Return of North American LNG FIDs' Seen in 2022 — LNG Spotlight, Natural Gas Intelligence, Sep. 17, 2021
  29. Corey Paul, LNG Project Tracker: Momentum builds 'at least for a couple' of export projects, S&P Global, Sep. 15, 2021
  30. Paul, Corey. "Tellurian says talks with banks underway for $12 billion Driftwood LNG project", S&P Global, Aug. 9, 2021
  31. "Tellurian to start Driftwood LNG construction in April". Oil & Gas Journal. Retrieved 2022-02-02.
  32. "Tellurian to start building Louisiana liquefied natural gas plant in April". Reuters. 2022-02-01. Retrieved 2022-02-02.
  33. "Two minutes with Charif Souki describing our capital for the first year of construction", Tellurian YouTube, Feb. 8, 2022
  34. "Tellurian's Driftwood LNG Begins Construction", Tellurian Press Release, Mar. 28, 2022
  35. Amanda Drane, "Tellurian starts building $16.8B Driftwood LNG", Houston Chronicle, Mar. 29, 2022
  36. Driftwood LNG Export Facility and Pipeline, IJGlobal, accessed Aug. 10, 2020
  37. Tellurian Slashes Headcount in Effort to Save LNG Project Bloomberg, Mar 9, 2020
  38. Kristen Mosbrucker, Tellurian laid off 40% of workers, mulls Louisiana's Driftwood LNG future, NOLA.com, Mar. 10, 2020
  39. Kristen Mosbrucker, Tellurian LNG defers $75M loan until 2021 amid coronavirus spread Tellurian LNG defers $75M loan until 2021 amid coronavirus spread, NOLA.com, Mar. 23, 2020
  40. Harry Weber, Driftwood LNG target construction start delayed until 2021: Tellurian CEO S&P Global, Jun. 16, 2020

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