INTERVIEW: Tellurian in talks to draw Indian equity partners for Driftwood LNG project, says CEO

US LNG developer Tellurian is in talks with several Indian companies to draw them in as equity partners for its proposed Driftwood LNG project, with the company aiming to finalize such collaborations by year-end, President and CEO Tellurian Ocatvio Simoes told S&P Global Commodity Insights in an interview.

"We're having different conversations and they're going very well," Simoes said on the sidelines of India Energy Week held in Bengaluru over Feb. 6-8.

Tellurian has been trying to garner commercial support and financing for Driftwood LNG. Some construction has started in southwest Louisiana, though the developer will need billions of dollars to build the liquefaction trains. Supply agreements with TotalEnergies, Shell and Vitol were previously terminated. The lone remaining commercial agreement currently in place is with Gunvor. Under that agreement, Tellurian has until Feb. 28 to satisfy conditions that include commercially sanctioning the initial phase of Driftwood LNG.

"India has done a fabulous job of defining the [energy] roadmap to the destination they want to reach. It is credible, sensible, inclusive of all energy sources, and is feasible," Simoes said.

The challenge for India, however, is that it is an economy that is very price sensitive, Simoes said.

"So, when you tie in the gas supply to world LNG prices, you are exposed to that volatility, which creates significant issues because the way India balances that out is by government intervention through subsidies," he said.

"However, subsidies are not sustainable as they come from taxes.... The advantage Tellurian has for just about every partner in India is that if they become equity partners in Driftwood, they can lift LNG at the cost of producing LNG," Simoes said.

India interest

This is not the first time Tellurian has sought support for Driftwood from India. A preliminary investment deal with India's Petronet LNG tied to Driftwood expired at the end of 2020 without being finalized.

Until now, India has mostly relied on long-term natural gas contracts. This strategy also helped it shrug off the impact of the dramatic price volatility that ensued last year and ensure energy security at a time when geopolitical risks emanating largely from Russia's invasion of Ukraine sent prices soaring globally.

With heated competition from Europe amid limited LNG cargoes and scant new liquefaction capacity coming online globally in the next few years, sealing long-term contracts is extremely difficult.

In such a situation, "we are well positioned to satisfy the real needs of India," Simoes said.

"If they [Indian players] become equity partners, the longest-term contract that is possible is as long as the plant operates," Simoes said, noting that this would banish the need for a long-term contract.

However, Simoes cautioned that finalizing a partner was not going to be as simple as signing a sales and purchase agreement as several aspects -- equity process, permits, exposure, tax implications -- need assessment, he said.

"The equity process takes longer but we all have the patience to do it. So, we are pursuing it," he said.

From Tellurian's perspective, seeking equity partners was the best move, rather than pursuing traditional 20-year offtake contracts that were used to support the first wave of US LNG export terminals and many of the second wave of terminals that are under development.

Raising equity is the most important part because it will be spent first, Simoes said.

"So, our effort in the last few months has been on getting equity partners that will come into the project alongside Tellurian and whether those partners will be lifting LNG themselves or not depends on the nature of the partner... that is why we have 6 million mt without being under contract in order to satisfy the needs of those partners," Simoes added.

LNG price volatility

According to Simoes, the LNG market will likely stay volatile in the coming months. Growth in demand combined with a lack of new significant supply in the next 2-3 years means that LNG shortages would persist, Simoes said.

"We have had a narrative in the Western world and Western institutions that in my view is irresponsible because it has closed the door on the development of hydrocarbons -- not just the development but also the capital needed to maintain those hydrocarbons we produce today -- on the false aspiration that somehow we can shut off the current energy system overnight or over a couple of years and replace it with a new one," Simoes said.

"So, the challenges are very large; they are not impossible to meet but if we don't change the narrative, access to capital and the support for development of infrastructure associated with hydrocarbons will continue to see incredible volatility," Simoes added.

Simoes noted that presently Europe was in a comfortable position when it came to LNG because of the position of their reserves and a mild winter.

But the problem is what is going to happen next winter.

"So, they are not going to get natural gas from Russia, so what is it going to be? They are going to go through the same cycle and as I've said before, praying for a warm winter is not energy policy," he said.

Europe has spent over $600 billion in subsidies over the last nine months when they could have built an LNG plant at just a fraction of that, Simoes said. "It only costs $13 billion to build a 11 millon mt/year facility," he claimed.