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

  • Parent: Total SA, Tellurian Investments, Magellan Petroleum
  • Location: Calcasieu Parish, , Louisiana, United States
  • Coordinates: 30.23, -93.36 (approximate)
  • Capacity: 27.6 mtpa, 3.96 bcfd
  • Status: Proposed
  • Type: Export
  • Trains: 5
  • 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.[1] In April of 2017, Tellurian has completed the pre-filing and formal application process with the Federal Energy Regulatory Commission (FERC).[2]

The project includes five production trains in the LNG export terminal, and a pipeline.[3]

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 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 final investment decision 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.[4]

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 has 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 final investment decision for Driftwood by July 2021.[5]

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.[6][7]

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 billon terminal, including laying off 40% of its workforce.[8]

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.[9]

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