US developer Tellurian presents LNG equity offer

05 October 2017 13:54 Source:ICIS

US LNG developer Tellurian is offering a 60% to 75% equity interest in its proposed greenfield Driftwood LNG project in Louisiana.

“There are very large customers that would be happy to be equity investors,” said Tellurian president and CEO Meg Gentle on 2 October at the North American Gas Forum in Washington DC.

Tellurian is planning a 27.6mtpa liquefaction project, consisting of 20 trains of 1.38mtpa each, using new technology.

Tellurian stated that equity costs would be an estimated $1,500/tonne, which would be the total cost divided by ownership being sold.

The project has not yet completed front-end engineering and design. Assumptions for depreciation and potential financing costs were not provided.

Gentle said that executing the engineering, procurement and construction contract would likely take place next month with US-based Bechtel for a lump sum, turnkey contract.

Tellurian, which would manage and operate the project, intends to retain some equity volumes from the production, between 7mtpa and 11mtpa.

The company was founded in February 2016 by BG Group executive Martin Houston and former Cheniere CEO Charif Souki.

After Cheniere was the first company to successfully begin production as a midstream liquefaction producer, up-ending the model of traditional, integrated LNG projects, Tellurian is moving in the opposite direction back toward the majors.

Tellurian is aiming to capture the entire value chain of liquefaction – from investing upstream with an acquisition in Haynesville shale in September 2016 down to spot trading, after starting a six-month charter of the 160,000 cubic metre Maran Gas Mystras.

Breaking into the spot market ahead of the industry curve was a hallmark of founder Houston’s time at BG Group, when BG Group and Statoil initiated physical cargo swaps in 2009.

The company also will focus on the Eagle Ford basin, according to its presentation.

Gentle said that Tellurian believes in re-integrating the business model, seeking US production in order to contain drilling costs and keep capital expenditure low.

Tellurian has previously presented the project with estimated capex of between $500-$600/tonne, a headline figure for a greenfield project in the US.

Tellurian estimated that based on their foothold upstream, the company could bring the full-cycle cost of gas at $2.25/MMBtu to the plant, and arrive at a free on board (FOB) price of $3.00/MMBtu, including the price of maintenance.

Tellurian has stated its intent to reach a final investment decision by mid-2018.

The company has not yet signed any binding sales and purchase agreements that would traditionally underpin the financing of a project build. Tellurian has engaged Societe Generale as its financial adviser.

Tellurian instead has signalled that LNG customers are requesting shorter-term duration of contracts and increasing commoditisation of the LNG market, which Tellurian aims to address by lowering its costs.

Gentle declined to comment further after her presentation through a spokeswoman. ruth.liao@icis.com

By Ruth Liao