Mostafa Sharif, gas market senior advisor and strategist suggests that postponement of the final investment decision (FID) on the Driftwood LNG export project is inevitable because:
1- Tellurian plans to produce all the natural gas needed to feed its proposed Driftwood LNG project as it intends to not sanction the project until securing adequate upstream reserves for the 16 MMT/Y first phase of the project.
For now, Tellurian owns 9,373 net acres and interests in 72 producing wells located in the Haynesville Shale in northern Louisiana. It is far from achieving its initial ambitious goal of reaching 1500 MMCF/D of gas output in 2022, having produced an average of less than 50 MMCF/D last year while it should secure about 2.5 BCF/D of feedgas for the Driftwood project’s first phase.
2- Tellurian is offering 10 MMT/Y of Driftwood supply for a 10-year term and pricing based on JKM or TTF minus the cost of shipping. Number 1 is one of the most important pre-conditions for number 2 as Tellurian couldn’t buy gas at HH and sell it (in form of LNG) at TTF or JKM.
3- So far, only Total has made a firm commitment to an equity partnership in Driftwood that can walk away from the project if Tellurian does not declare the FID by June 2021. It was reported that the French company would not extend its partnership.
Total had recently reduced its stake in Tellurian as it sold 4,555,512 Tellurian shares from April 30 through May 11 for an aggregate $9.7 million. Currently, the French company now holds 20,291,726 Tellurian shares, less than 5%. “Now that its ownership stake has fallen below the 5% threshold, Total can sell its remaining Tellurian shares at any time without public notice.”

Sharif has added that given the current challenging market situation and above mentioned issues, Tellurian will likely postpone the FID on the Driftwood LNG project and by then, securing positive cash flow generated from selling its gas production into the domestic market could remain it alive. Tellurian has recently resumed gas drilling in Louisiana's Haynesville Shale after not spudding a well in 2 1/2 years as it said that “at current prices and where we think prices will continue to go, it makes a lot of sense to resume drilling again."
Tellurian and its rivals in the US are struggling to reach long-term LNG contracts with buyers which are badly needed for funding their projects, having upstream assets is an advantage for it over its rivals because “by eliminating the US HH gas price from the equation, Tellurian hopes to alleviate one measure of volatility that has so far prevented it and many of its North American competitors from building new liquefaction terminals,” according to Platts.
Tellurian could select a step-by-step and sequential development strategy for the Driftwood project under which for each train it will secure feedgas; sign-up with off-taker(s); funding; and then taking FID on the train development and repeat this process for further trains, Sharif said.

 

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