Driftwood LNG Loses Shell, Vitol Supply Agreements in Major Setback

Tellurian Inc. said Friday that two sales and purchase agreements (SPA) underpinning its proposed Driftwood LNG terminal in Louisiana have been terminated, dealing another major blow to the project, which was already facing delays.

In a regulatory filing with the Securities and Exchange Commission (SEC), Tellurian said an affiliate of Shell plc had terminated a deal to buy 3 million metric tons/year (mmty) of liquefied natural gas from the 27 mmty Driftwood facility. The SPA was signed last year after the company landed two others with Vitol Inc. and Gunvor Group Ltd. that Tellurian said at the time would allow it to move forward with the first 11 mmty phase of the project.

After the deals were signed, Tellurian shifted its focus to the capital markets in hopes of securing financing for the project. Driftwood has not yet been sanctioned.

Tellrurian also said Friday that it had delivered a notice to Vitol Inc. terminating its SPA with the global trading firm. The status of the company’s SPA with trading firm Gunvor remains unclear. All three deals were signed to provide LNG for terms of 10 years at prices linked to the Title Transfer Facility and Japan-Korea Marker.

The SEC filing came just days after Tellurian announced that it had withdrawn a high-yield bond sale, citing the impacts of inflation and uncertainty in the debt market. Shortly after that announcement, Executive Chairman Charif Souki said in a video on YouTube that the company would instead seek equity partners to help fund the Driftwood project. He said that the process started months ago.

Souki said withdrawing the bond sale put the company “in jeopardy to deliver gas on the schedule that we were hoping to stay to” by 2026.

However, Tellurian said Friday that the termination of its deals with Shell and Vitol would create more flexibility in its LNG portfolio.

“The potential corporate and strategic partners we are seeking may want LNG volumes that they can sell globally and now we have some capacity to offer that option,” said the CEO Octávio Simões.

The company’s stock price plummeted Friday. It issued a limited notice to proceed with construction earlier this year, including site preparation.

“We have made good progress on our construction plan and will continue funding that with our cash and operating cash flow,” Simoes said, noting the company’s upstream assets in the Haynesville Shale, which generate revenue and produced 9 Bcf in the second quarter.

The project has been in the works since Souki was ousted from Cheniere Energy Inc. in 2015, a company he co-founded. Tellurian applied for a Driftwood certificate at the Federal Energy Regulatory Commission in 2017 and received approval in 2019.

While it’s currently grappling with risk-averse markets as economies across the world are on the brink of recession, it’s faced repeated setbacks over the years.

[Understanding LNG: How does the price of natural gas at Henry Hub impact global LNG prices? Tune into NGI’s Hub & Flow podcast to learn more. Listen now.]

The pandemic upended the global LNG market. During that time, a supply deal with India’s Petronet LNG Ltd. expired, plans for two long-haul pipelines were dropped and jobs were cut. Simões was also brought in after his predecessor, Meg Gentle, left the company in late 2020.

Before it pivoted to SPAs with Gunvor, Shell and Vitol, Tellurian planned to build the project by offering equity partnerships in exchange for offtake deals.

Roughly two weeks before the three SPAs were signed last year, French supermajor TotalEnergies SE canceled its agreement to invest $700 million in the Driftwood projects and take up to 2.5 mmty because Tellurian missed a deadline to sanction the project.

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