June 28, 2018 / 11:56 PM / 4 months ago

INTERVIEW-Tellurian to decide on Louisiana LNG project in early 2019

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By Scott DiSavino

June 28 (Reuters) - The co-founder and chairman of Tellurian Inc said on Thursday the U.S. natural gas company expects to make a final investment decision on its proposed Driftwood liquefied natural gas export facility in Louisiana in the first quarter of 2019.

Chairman Charif Souki, who spoke to Reuters at the World Gas Conference in Washington, D.C., said the company expects to start producing liquefied natural gas (LNG) at the $30 billion project in early 2023.

“We expect to receive our federal permits ... and make a final investment decision in the first quarter of next year,” Souki said, which should allow Tellurian to start producing LNG in early 2023 and complete the project in 2026.

Unlike most other proposed U.S. LNG export projects that will liquefy gas for a fee, Tellurian is offering customers the opportunity to meet their gas needs by investing in a full range of services from production to pipelines and liquefaction.

Tellurian is offering equity interests in Driftwood Holdings at $1,500 per tonne of LNG delivered at cost - expected to be around $3 per million British thermal units (mmBtu)- which Souki said removes the commodity price risk from the customer’s list of concerns. That compares with an average of $3.25 per mmBtu for gas at the Henry Hub benchmark over the past five years.

Tellurian said about 25 prospective customer/partners are looking at the offering. Souki said the company expects to narrow the list and convert letters of intent into firm sales agreements by the end of the year.

Current partners include Total SA, General Electric Co and Bechtel, which has a $15.2 billion contract to build the liquefaction facility at the center of the project. Pipelines, reserves and other costs make up the rest of the $30 billion price tag of the project.

Driftwood will have capacity to produce 27.6 million tonnes per annum of LNG or about 4 billion cubic feet per day (bcfd) of gas. One billion cubic feet of gas is enough to fuel about 5 million U.S. homes for a day.

There are two LNG export terminals operating in the United States today, Cheniere Energy Inc’s Sabine Pass in Louisiana and Dominion Energy Inc’s Cove Point in Maryland. There are 20 liquefaction trains under construction at five facilities and more than two dozen LNG projects in various stages of development, like Tellurian’s Driftwood.

Based only on the plants under construction, total U.S. LNG export capacity is expected to rise to 3.9 bcfd by the end of 2018, 8.7 bcfd by the end of 2019 and 10.1 bcfd by the end of 2020 from 3.8 bcfd now, which should make the United States the third-biggest LNG exporter by capacity in 2019.

At the start of 2016 before Cheniere’s terminal entered service in February of that year, the United States was not exporting any LNG. Souki founded and was the CEO of Cheniere until late in 2015.

In 2017, global LNG sales rose 9.9 percent to a record 289.8 million tonnes, according to the International Association of Liquefied Natural Gas Importers.

As consumers shift from coal to cleaner burning gas for power generation and other uses, Tellurian has estimated that 127 million tonnes per annum of additional liquefaction construction will be required to meet the world’s demand for LNG in 2025.

Tellurian has acquired about 11,620 acres with an estimated 1.4 trillion cubic feet of low-cost resources in the Haynesville shale play, which straddles the Texas-Louisiana border. From there, the company is developing the $1.4-billion Haynesville Global Access pipeline to move up to 2 bcfd of gas to southwest Louisiana near its Driftwood facility.

Tellurian is also developing the $2.2 billion Driftwood pipeline to move up to 4 bcfd of gas across southwest Louisiana and a $3.7 billion pipeline to bring up to 2 bcfd of gas in from the Permian formation, the nation’s biggest shale oil basin. Much of the gas in the Permian is currently flared because of a lack of pipeline capacity.

Souki said Tellurian was building a pipeline network to get access to the cheapest gas available. (Reporting by Scott DiSavino Editing by Lisa Shumaker and Leslie Adler)

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