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Petronet Underscores Non-Binding Nature of Tellurian Deal

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Petronet LNG underscored that its initial pact with US-based Tellurian is non-binding. The initial pact paves the way for negotiating the purchase of up to 5 million tons per year of LNG and an equity stake in Tellurian's 27.6 million ton per year Driftwood project. Petronet, India's largest LNG importer, said it will evaluate all options before sealing the deal (LNGI Sep.24'19). The New Delhi based company is already getting flak for entering into an expensive long-term pact when the market is expected to remain well supplied and low-priced. “This is a non-binding MOU (memorandum of understanding),” Petronet’s Managing Director Prabhat Singh told Energy Intelligence. “We are not looking at this model only. We will evaluate globally," he said. A final agreement, if executed, is expected March 2020. Petronet, which has two LNG regasification terminals with a combined nameplate capacity of 22.5 million tons per year, currently has a long-term deal with Qatar to source 7.5 million tons per year of LNG. That pact expires in 2028. Supplies from Driftwood’s first phase of 16.6 million tons are expected in 2024. Singh said Petronet is exploring options to buy between 1 million and 5 million tons per year from Driftwood. Every million ton of LNG is expected to require $500 million for equity and another $1 billion in debt. That means the 5 million ton per year deal would be worth $7.5 billion, including $5 billion in debt. Petronet’s market value is about $5.4 billion. The deal, which was signed during Prime Minister Narendra Modi’s visit to Houston on Saturday, could be one of the largest LNG deals in US history. During a joint media briefing with President Donald Trump on September 24 in New York, Modi said that Petronet had signed an MOU for an investment of $2.5 billion in America’s energy sector, which will lead to trade of $60 billion in coming decades and provide employment to 50,000 people. “It is a big initiative by India,” he said. Petronet’s board, during a meeting earlier this year, felt that the company should not go ahead with the deal amidst changing global gas market dynamics with abundant supplies at cheap rates, Press Trust of India reported, quoting unnamed sources. Post announcement of the deal Saturday, Petronet’s shares fell as much as 7.4% on Monday. The shares have since recouped some of their value but remain below Friday’s close. Petronet has been seeking projects along the LNG value chain (LNGI Jul.27'18). It had earlier expressed interest in buying stake in Qatar’s integrated LNG project. “Qatar is building its project on [a] seller’s model. Tellurian has a buyer’s model. What else can we ask for but [to] get gas at [a] wellhead price,” Singh said. Petronet is betting on India’s rising gas demand as Prime Minister Modi has set a target to raise the share of gas in India's primary energy mix to 15% by 2030 from 6% now. Singh said that though there is enough demand available in India to absorb Driftwood supplies, there will be the option to resell the LNG supply anywhere in the world. “This model is new,” Singh said. “With the MOU we are creating a situation where market is being forced to understand and look at things from [a] buyers perspective," he said. Morgan Stanley said that Petronet has appointed a consultant to look at the project’s feasibility and sees $6/MMBtu gas price delivered to India as key to gas demand. Rakesh Sharma, New Delhi

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