The US-based LNG project development company Tellurian would be able to sell five-year LNG supply to Japan at $8.00/MMBtu DES (delivered ex-ship) by 2023, according to its CEO at a major industry event.
US gas prices on the far curve will not stay above $3.00/MMBtu, Tellurian’s CEO Charif Souki told ICIS on the sidelines of the Gastech 2017 conference on 4 April. This means the US can produce LNG at very low costs, he said, estimating the full-cycle cost of LNG production in the US at $4.10/MMBtu, including upstream, transportation, processing, variable and other related costs.
“What you have to look at is how much we can buy the gas for… liquefy it, put it on a ship and deliver it for $8.00/MMBtu,” Souki said. “We can do that and still make a decent living doing it.”
Tellurian is targeting 7mtpa on a net basis for the first phase of its 26mtpa Driftwood export project, Souki confirmed.
According to the Tellurian figurehead, the constraints lie in the infrastructure needed to deliver the gas to the market and a pricing formula, rather than a lack of long-term contracts to underpin project financing.
“[Production] is unbelievably cheap, but all of thus is useless if we can’t put a buyer and seller together and have them agree on a pricing mechanism,” Souki said.
Suppliers are unwilling to sell at a low oil-linked price when crude oil is at $50/bbl, while end-users have overbought using the US Henry Hub gas benchmark, Souki said.
A spot price indexation would not be ideal for a supply contract, according to Souki, because it relies on trades that are already concluded. Past transactions are a poor indicator for forward prices, Souki said.
“That’s looking backwards. When you have an index that is looking forward, then I am happy to do it,” he said.
Until then, Tellurian would prefer using the highly liquid TTF gas hub in the Netherlands as a gauge for LNG prices because it has sufficient import capacity and pipeline infrastructure to absorb cargoes from the US.
Besides Japan, Tellurian is targeting India and China as the next growth markets for LNG and has been marketing offtake from its Driftwood project to end-users in both countries, sources in Asia said. Souki confirmed that Tellurian’s DES offers to India and China differ from Japan, but declined to give exact figures. email@example.com