Driftwood LNG construction begins as US developer Tellurian seeks financing

Tellurian has given its contractor the go-ahead to begin construction of the first phase of its Driftwood LNG export terminal in Louisiana, the company said March 28.

The notice to proceed to Bechtel is limited; Tellurian must still finalize financing for the facility.

Initial work will include site preparation, laying of foundations and manufacturing of two of the natural gas turbines, Tellurian said in a statement. First LNG is expected in 2026.

Following 10-year agreements with Gunvor, Vitol and Shell, total offtake commitments to Driftwood LNG stand at 9 million mt/year. That's enough, Tellurian has said, for the up to 11 million mt/year capacity two-plant first phase of the project. Each plant is expected to have up to four liquefaction trains. Full buildout calls for design capacity of 27.6 million mt/year.

The deals Tellurian signed to support the first phase of Driftwood LNG are indexed to a combination of the Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia, and the Dutch TTF European gas hub contract, netted back for transportation charges. The LNG would be delivered free on board from Driftwood. Tellurian plans to produce its own feedgas for the first phase of the terminal -- currently it is well short of the upstream production necessary to guarantee that.

The shorter length of Tellurian's commercial deals than the traditional 20-year agreements that were used to finance the first wave of US liquefaction terminals and the pricing mechanisms underlying Tellurian's agreements have raised questions in the market about the company's ability to obtain financing.

At the same time, destination flexibility and fixed-price contracts have made US LNG attractive to buyers in recent months, amid persistently high end-user prices and Europe's efforts to reduce its reliance on Russian pipeline gas.