COVID19 disruption Casts Shadow on PLL-Tellurian Deal

In what may be a big casualty of Covid-19 related market disruptions, India’s Petronet LNG Ltd. may push back its $2.5 billion investment plan in US LNG developer Tellurian’s upcoming Driftwood LNG terminal in Louisiana or shelve the investment plan altogether.

Government sources said that with spot LNG prices now crashing to about $2-3 per million British thermal unit (mmBtu) and gas widely available in the market, it would make little sense to sign an agreement committing to pay on sea price of $3.5 to $4.5 per mmBtu for 40 years for the gas. The delivered price of gas would be even higher

The deal would have to be renegotiated given the current market prices or shelved, sources said.

A PLL official also said that with prices at record low levels and easily available, the company is more concerned about signing LNG supply contracts rather than investing in greenfield project that will meet needs after five to seven years.

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

The term of the MoU was to expire on March 31, 2020, which was extended to May 31 in February. It has now been extended till December end. But with deadline latest extension also nearing, PLL seems in be on no mood to commit investment. The change of government in the US has also made decision to move out from the project easier.

As a test to determine gas prices available on long-term contract basis now, PLL earlier this year invited bids for one million tonne per annum of LNG for 10 years. It asked bidders to quote a price below Japan/Korea Marker (JKM) that takes the price on long term as well as closer to spot prices. Though Tellurian placed its bid for the supply contract, it did not qualify from a list of 13 other suppliers.

The Tellurian deal, if concluded, will be the first 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.

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