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PLL’s $2.5b investment deal with Tellurian likely in Trump visit

New Delhi, Feb 17 (IANS) State-owned gas importer Petronet LNG Ltd may sign the $2.5 billion agreement with US LNG developer Tellurian Inc to pick up 18 per cent stake in Louisiana-based Driftwood LNG Terminal during the upcoming visit of US President Donald Trump to India later this month, two sources privy to the development said.

The agreement would conclude months of negotiations between the two companies where the deal first fell through in April/May last year when the Petronet board disfavoured a deal involving equity investment when global gas prices had rock bottomed and the fuel was readily available in the market.

Sources said that a lot of forward movement has taken since since September last year when a non-binding memorandum of understanding was signed between the two companies that gave Petronet and its affiliates the option to buy 5 million tonne per annum (mtpa) LNG from Tellurian’s Driftwood project on the banks of Calcasieu river in Louisiana. Now a definitive agreement may be signed for completing its investment in the project.

Under the terms of the agreement being finalised, Petronet will spend $2.5 billion for an 18 per cent equity stake in the $28 billion Driftwood LNG terminal — the largest outside holding so far in the project — and negotiate the purchase of 5 million tons of gas per year. The remaining $5 billion of the total $7.5 billion investment will come from a debt commitment, according to a statement given earlier by Tellurian Chief Executive Officer Meg Gentle.

The Driftwood project is expected to deliver low cost LNG priced at $3.5 per mmBtu on sea under an optimistic scenario and at $4.5 under base case scenario. The delivered priced of gas in this range could be $6-8 per mmBtu. The low price is expected to work to the advantage of India that imports more than half of the clean fuel it consumes.

The Tellurian deal, once concluded, will be first long term LNG deal under the Modi government since 2014. The previous long term gas supply deals were signed before 2014. The deal for 7.5 mtpa of LNG from Qatar, 1.44 mtpa from Australia, 2.2 mtpa from Russia and 5.8 mtpa from US were concluded by the previous UPA government. The landed price of some of the earlier concluded long term LNG supply deals is higher at $9-10 per mmBtu that is being renegotiated by Petronet now.

Though the deal likely during Trump’s visit, sceptics say that it would not work to the advantage of India as the first gas from the Driftwood project would reach Indian shores only by FY24.

As per analyst presentations given by Tellurian, the first phase of the 27.6 million tonne per annum (mtpa) Driftwood project will be able to deliver LNG only in 2023. This would mean that Petronet will have to wait for LNG under long term contract from the US project for four long years. The wait is long, given competitively priced LNG is available in plenty in the spot market to meet immediate energy needs of the country.

The Driftwood project is a proposed LNG terminal where actual construction work is yet to start. Though Tellurian has appointed Bechtel as the engineering, procurement and construction (EPC) partner for the project, it is still waiting for investment commitments from partners for starting construction work. So far only French energy major Total has committed to invest $500 mn in the project for 2 mtpa of LNG. The Petronet deal is still some way off as actual negotiation for investment and supplies is yet to be concluded.

Sources said of the 5 mtpa contracted quantity, Petronet may not get even fully capacity from the first phase 11 mtpa Driftwood project to be ready for delivery by 2023. As the US project is proposed to be constructed in four phases, sources said full capacity may not be reached before 2030. By then, the gas market may be looking lot different and may make Petronet’s investment unproductive.

For Petronet, another issue of concern would be mobilising huge investment commitment of $2.5 billion for Driftwood. With a cash and reserves of just over Rs 8,500 crore, it would have to look at other means of funding its US investment commitment. The government could either rope in more PSUs to fund the project with Petronet or permit it to tap overseas market to raise cheap funds.

Tellurian is selling 51 per cent holding in Driftwood to third parties while it itself would retain 49 per cent stake or control over 13.6 mtpa of LNG. Tellurian expects to generate $8 per share cash flow from the project.

(Subhash Narayan can be contacted at subhash.n@ians.in)

–IANS

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