Tellurian, the developer of the Driftwood LNG export project in Louisiana, is in talks with “several equity providers” as it looks to secure financing for its project, according to the firm’s co-founder and executive chairman, Charif Souki.
The Houston-based firm has been struggling to secure financing for the first phase of its 27.6 mtpa Driftwood LNG project.
Under the first phase, Tellurian aims to build two LNG plants near Lake Charles with an export capacity of up to 11 mtpa and previously expected the costs to reach about $12.8 billion.
US engineer and construction giant is moving forward with the initial site works under a limited notice to proceed issued in March last year while Tellurian is working to secure funds for the project.
In September last year, Tellurian withdrew its offering of senior secured notes due to “uncertain conditions in the high-yield market”.
After that, Shell and Vitol canceled their Driftwood LNG supply deals while Tellurian has to meet the conditions of its remaining LNG supply deal with trader Gunvor until January 31, 2023.
Three US LNG export projects
Souki said in a video update posted on YouTube this week that the focus in 2023 is on three projects in the US and these are NextDecade’s Rio Grande LNG, Sempra’s Port Arthur LNG, and the Driftwood LNG project with a total capacity of about 80 million tonnes of LNG.
“These projects constitute 80 percent of new liquefaction capacity in the US and 50 percent or more of global liquefaction capacity that will happen over the next 5-6 years,” Souki said.
He said these three projects are “critical” in order to rebalance the market but they will not be sufficient to replace Russian gas and to meet growing demand for LNG.
$6 billion of equity
Souki said that liquefaction facilities have also been impacted by cost inflation and supply chain limitations.
“Therefore, a reasonable liquefaction facility today will cost between $1200 and $1400 per tonne,” he said, adding that a project of 11 million tonnes would cost at least $14 billion.
“The debt markets are roughly around $8 billion. In other words, every project that wants to have a chance of succeeding needs to find $6 billion of equity to be able to go forward,” Souki said.
And Rio Grande LNG, Port Arthur LNG, and Driftwood LNG are no exception.
“This is what everybody is looking for, the $6 billion of equity. That would be the lead item,” he said.
“We know who can build it and it’s Bechtel. We know how much it is going to cost to build it and that it’s at least $14 billion. We know wow much debt it can carry from banks and it’s roughly $8 billion,” he said.
However, Souki said that the company still doesn’t know where the equity is going to come from and “this is where the leading item will be in the next few months.”
Major oil firms and institutions
Souki said that equity would likely come from “major oil companies that have enormous amount of cash and institutions that are starting to want to be present in the energy space in general and in the LNG business in particular.”
“The critical pathway is to find $6 billion of equity. We at Tellurian have already invested $1 billion of equity in our project and we continue to invest money this year,” he said.
Souki said that Tellurian is in conversation with “several equity providers” and this would determine how quickly the Driftwood project can be developed.
“I have no doubts that the three major projects in the US will happen. The question is how fast,” he said.