Driftwood uncertainty: US LNG project loses last remaining foundation customer - Upstream Online
Driftwood uncertainty: US LNG project loses last remaining foundation customer | Upstream Online
US liquefied natural gas player Tellurian has lost the last of the initial foundation customers for its greenfield Driftwood LNG project in Louisiana for which construction has started.
Tellurian confirmed that its LNG supply deal with trader Gunvor was terminated on 1 August after the companies failed to reach consensus on the commercial terms of an amendment to their May 2021 agreement.
Gunvor was the last company standing for Tellurian’s planned Driftwood LNG project after supply deals with Shell and Vitol had earlier fallen by the wayside.
Tellurian in May 2021 had agreed to supply Gunvor Singapore with 3 million tonnes per annum of LNG on a free on board (FOB) basis over a 10-year term. The companies late last year amended the original terms and subsequently the conditions precedent deadline has been extended more than once.
Gunvor’s initial agreement had the LNG indexed to the Netherlands' Title Transfer Facility (TTF) price, but this was later changed to Japan Korea Marker (JKM) indexation, netted back for transportation charges.
“On 1 August 2023, the LNG Sale and Purchase Agreement, dated as of 27 May 2021, as amended, between Driftwood LNG LLC, a wholly owned subsidiary of the company, and Gunvor Singapore Pte Ltd was terminated. The parties were unable to reach agreement on the commercial terms of an amendment to the agreement,” Tellurian said in a US Securities and Exchange Commission (SEC) filing on Monday.
Tellurian added that the company’s focus “continues being on investment-grade counterparties”.
Meanwhile, the Driftwood LNG operator said that contractor Bechtel of the US was “progressing very well” on construction of the liquefaction facility — having driven more than 9000 piles (45% of those required for phase one) and poured more than 10,000 cubic feet of concrete including for the storage tanks. Bechtel is working under a limited notice to proceed that was issued in March last year.
The approximate $14.5 billion phase one of the Driftwood LNG project envisages two trains with combined export capacity of up to 11 million tpa.
Tellurian has repeatedly touted start-up in 2026 from the liquefaction project near Lake Charles, which it plans as an ultimate 27.6 million tpa scheme, but this timeline now appears somewhat fragile.
Shell and Vitol last September pulled the plug on their respective 3 million tpa LNG purchase agreements with Tellurian, leaving a question mark over the viability and timing of Driftwood. Their departures followed TotalEnergies earlier backing away from an expected 2.5 million tpa deal, while India's Petronet LNG is understood to have also been eyeing volumes from Driftwood although no agreement was ever reached.
Tellurian this week reported a second quarter net loss of more than $59.5 million compared to a net loss of some $35,000 in Q2 last year; although the company’s gas production for the three months ended 30 June 2023 totalled 17.2 billion cubic feet, almost double that of one year prior.
The Driftwood LNG proponent in May hired Simon Oxley as its chief financial officer as the company looks to enhance its financing efforts.
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