Indian Petronet LNG may scale down $2.5 billion deal with Tellurian's LNG project

New Delhi, August 17 - Neftegaz.RU. Petronet LNG Ltd's proposed $2.5 billion investment plan in US LNG developer Tellurian's upcoming Driftwood LNG terminal in Louisiana may be scaled down considering the energy company's decision to cut 1st phase cost of the project by a 3rd thereby also reducing production.

Sources said that PLL, which has till December to reach final agreement with a Tellurian and conclude the investment plan, is re-evaluating its plans and would come up with a fresh decision soon.

The changes may include scaling down investment in the project if sufficient quantity of LNG at competitive pricing is not assured. It is expected that PLL might renegotiate the whole investment deal given the current market conditions.

In September last year a non-binding MoU was signed between PLL and Tellurian that gave the Indian entity PLL option to buy 5 million tonne per annum (mtpa) LNG from Tellurian's Driftwood project in Louisiana. In return, Petronet was to also spend $2.5 billion for an 18 % equity stake in the $28 billion Driftwood LNG terminal.

PLL is also weighing options considering the changed market dynamics that had taken a sharper turn after the outbreak of coronavirus that had disrupted businesses across the globe and resulted in energy price crash.

PLL has remained sceptical about the Tellurian deal from the very beginning. The term of last years MoU between PLL and Tellurian was to expire on March 31, 2020, which was extended to May 31 in February. With diplomatic push, sources said, the term has now been extended till December 31.

The expiry of the 2nd deadline for converting the MoU into a definitive agreement in May generated doubts whether the deal, that also saw involvement of top government functionaries for both Indian as the US, will go through. The Tellurian deal, if concluded, will be 1st 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 the US were concluded by the previous UPA government.

With the US LNG developer now reducing 1st phase cost by around 30 % to roughly $16.8 billion by deferring some planned pipelines, the phase will now include liquefaction units capable of producing only 14.4-16.6 mtpa of LNG.

As the US project is proposed to be constructed in 4 phases, sources said full capacity may not be reached before 2030. By then gas market may be looking lot different and may make Petronet's invest ment 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.

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 % holding in Driftwood to 3rd parties while it itself would retain 49 % stake or control over 13.6 mtpa of LNG.