Petronet LNG Ltd, India’s biggest LNG importer, has signed an agreement with US gas producer Tellurian Inc., for a potential equity investment of about $2.5 billion and purchase of as much as 5 million tonnes per annum (mtpa) of liquefied natural gas (LNG) from the Driftwood project.
Tellurian said it will deliver LNG on free-on-board (fob) basis to Petronet on the US Gulf Coast for between $3-4 per metric million British thermal unit (mmbtu), which translates into “lowest cost LNG on the water”. The delivered cost of LNG in India will be higher after factoring the shipping cost.
The $28 billion Driftwood project includes natural gas production, processing and transportation facilities, along with Driftwood LNG, a proposed 27.6 mtpa liquefaction export facility located near Lake Charles, Louisiana on the US Gulf Coast.
Petronet, 50 per cent owned by four state-run oil and gas firms, is investing equity and sourcing LNG from the first phase of Driftwood project of 12 mtpa. Petronet had signed an initial memorandum of understanding (MoU) on the deal with Tellurian in February this year.
“The second MoU is a significant step forward in clarifying Petronet’s intended ownership in the Driftwood project in terms of size and establishes a time-line for executing documentation by March 2020,” Tellurian Chief Executive Officer Meg Gentle said.
India is one of the fastest growing LNG markets in the world with LNG imports increasing by about 15 per cent last year. “Driftwood’s equity model and integration of upstream pipelines and liquefaction allows Petronet to achieve the lowest cost LNG on the water and also highly competitive supply delivered to India. If we have all the infrastructure in place, we can deliver LNG fob on the US Gulf Coast for between $3-4 per mmbtu,” Gentle said.
“We need equity commitment for Driftwood phase 1 for $6 bn which is 12 mtpa of LNG equivalent. Total, Tellurian Marketing and Petronet represents two-thirds of the equity needed to begin construction. So, we have completed 8 mtpa equivalent or $4bn of commitments. We remain on track to produce first LNG in 2023,” she said.
The MoU with Petronet means that Driftwood Phase 1 is now two-thirds subscribed including Tellurian’s marketing portion and Total with only 4 mtpa of partnership interest left to commit and it means we have the next piece of time line in place and can plan for start of construction after Petronet’s documentation is complete by March 2020, she added.
The biggest demand for the clean fuel is coming from the fertiliser sector. The government has also placed a greater emphasis on city gas distribution (CGD) to help alleviate urban pollution, Gentle said.
India’s government has taken major steps towards transitioning India from relying on petroleum-based products last year. Natural gas will comprise 15 per cent of primary energy demand by 2030, up from only 6 per cent currently.
Last year, the Indian government announced plans to invest about $10 bn in country wide gas infrastructure to expand gas supply reach within India. In addition, about 20 mt of additional regasification capacity is expected to come on-line between now and 2023, which is the start of the Driftwood project, she added.