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Petronet Sees Little Benefit in Investing in Tellurian Project 

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A key potential buyer at Tellurian's Driftwood LNG export project is expressing doubts. Petronet LNG, India’s largest buyer of LNG, said it doesn’t see enough investment value in Texas-based Tellurian’s 27.6 million ton per year Driftwood LNG project. The lack of an investment from the New Delhi-based company has already delayed Driftwood and could possibly delay it further. Construction is currently expected to start next year. “It is not very lucrative to have an investment done in [a] liquefaction project, because the return is very low,” Petronet’s Director of Finance Vinod Kumar Mishra told an analyst conference call Thursday. “Right now, [when we have] LNG available at very throwaway prices, there is no need to invest money [in a] liquefaction terminal," Mishra said. Tellurian's integrated LNG model helps to control gas supply costs, but entails a very steep initial investment. Petronet had reportedly been considering a $4.5 billion investment as part of an offtake deal for 5 million tons/yr of LNG from Driftwood (LNGI Jul.23'20). Petronet signed a memorandum of understanding (MOU) with Tellurian in September last year to pursue the investment The parties had initially targeted to close the deal by March. The 11 million ton/yr Driftwood first phase already has 4 million tons worth of offtake deals from French major Total (2.5 million tons) and trader Vitol (1.5 million tons). Finalization of the 5 million ton Petronet deal is crucial for a first phase final investment decision (FID) (LNGI Sep.9'20). Mishra said that the MOU with Tellurian was signed a long time back, when markets were different. Petronet is not keen to enter into term deals now amid India’s Covid-related demand uncertainty. Markets are now well supplied and subdued. Prices are expected to remain benign. Market dynamics are pushing Petronet to rely more on short-term deals. Mishra said that the MOU with Tellurian remains in place but “there is no progress ... this is a non-binding agreement ... there is no commitment on that." And there are other US LNG sources from which to choose (LNGI Nov.5'20; LNGI Nov.6'20). Separately, Petronet is negotiating to buy 1 million tons/yr of LNG under a term contract with a price formula linked to the Dutch TTF and US Henry Hub, subject to a maximum Japan Korea Marker price minus a discount. The formula should ensure the price is close to spot levels, Mishra said. Meanwhile, the Indian LNG importer is working on expanding capacity at its 17.5 million ton/yr Dahej terminal on India's west coast and also planning a new 5 million ton/yr terminal on India's east coast. Petronet currently has two terminals with a combined nameplate capacity of 22.5 million tons/yr. It has long term deals for 7.5 million tons/yr from Qatar, and for 1.44 million tons/yr from Exxon via its Gorgon project. Rakesh Sharma, New Delhi

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