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Tellurian executives to work on Petronet deal during Trump visit to India

  Feb 24,2020 S&P Global Platts
Tellurian CEO Meg Gentle and Chairman Charif Souki will be in India on Sunday trying to finalize an equity deal with Petronet tied to their proposed Driftwood LNG project in Louisiana as President Donald Trump and a US delegation prepare for a meeting with Prime Minister Narendra Modi.

Whether the commercial agreement will be signed during the coinciding visits remained unclear Friday. But in an interview with S&P Global Platts, Gentle said she, Souki and other Tellurian officials "will be in India working on that." The company had previously set a goal of finalizing its deal with Petronet, first announced in September 2019, by the end of March. Energy Secretary Dan Brouillette and Commerce Secretary Wilbur Ross were expected to join Trump for the official US visit, according to the White House. The purpose of the US trip, which is to occur Monday and Tuesday, is being billed as an opportunity to strengthen US-India relations.
Record low LNG prices and weaker-than-expected demand in Asia, oversupply concerns and the recent coronavirus outbreak have created a perfect storm of headwinds for LNG producers and developers looking to add terminals or trains. Because of those market dynamics, a successful tie-up between Tellurian and Petronet at this time would be especially significant for the US industry.

"We are very happy the president will be in India and that he and Prime Minister Modi recognize the importance of energy to both the US and India economies," Gentle said.

The memorandum of understanding reached between Tellurian and Petronet calls for the Indian company to negotiate taking an up to $2.5 billion stake in the holding company that includes Driftwood and four pipelines that Tellurian has proposed to build.

If finalized at the top end, Petronet would get the rights to 5 million mt/year of supply from Driftwood. One of the single largest potential volume commitments for any US liquefaction project will put Tellurian on a path toward full commercialization of Driftwood's first phase within the next several months. The company is targeting startup for 2023. Based on 5 million mt/year, Petronet would be responsible for underwriting $5 billion of Driftwood's total project debt.

Petronet -- a joint venture formed by the Indian government that is sponsored by state-controlled energy companies Gail, Oil & Natural Gas Corporation, Indian Oil and Bharat Petroleum Corporation -- has been exploring the possibility of making an equity investment in Driftwood for more than a year. Tellurian has been talking to other potential partners as well, in an effort to add to the $500 million investment France's Total agreed to last year.

Commercial momentum
At full development of a 27.6 million mt/year facility, about half of Driftwood's capacity is expected to be used by equity investment partners Tellurian has been soliciting. The remaining capacity is to be retained by Tellurian to market on its own. Total has agreed to buy 1.5 million mt/year of offtake from Tellurian's marketing volumes, indexed to Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia. Commodity trader Vitol has a preliminary 15-year deal, also to be linked to JKM, to offtake 1.5 million mt/year of Tellurian marketing volumes.

In an interview with Platts in December, Gentle said that Tellurian was negotiating with a large buyer to take a $2 billion partnership stake in Driftwood LNG and give it the remaining equity it needs to begin full construction of the terminal. Those talks, she said, involved the right to lift 4 million mt/year of supply from Driftwood for the life of the facility, at an equity price of $500/mt.

In the interview Friday, Gentle said those talks continue and she indicated a final deal could involve one or two partners.

"We are working to get everything finalized by the end of March to take them as a package to the banks and complete equity and debt financing," Gentle said. "That means construction in 2020."
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