Tellurian, which is developing the Driftwood LNG export project on the US Gulf Coast, has signed a 15-year memorandum of understanding (MoU) to supply LNG to commodities trader Vitol.
The MoU was announced on December 6. It marks Tellurian’s first preliminary offtake deal for its Driftwood LNG project and was entered into by the company’s UK subsidiary, Tellurian Trading UK. If the MoU leads to a binding sales and purchasing agreement (SPA), Tellurian will supply 1.5 million tpy of LNG from the Driftwood LNG export terminal once operations begin.
Located on the Calcasieu River, south of Lake Charles, in Louisiana, the terminal aims to reach capacity of 27.6 million tpy and to start operations by 2023.
Innovatively, the supply deal is based on the Platts Japan Korea Marker (JKM), which is the benchmark price assessment for spot LNG cargoes delivered ex-ship (DES) into Japan, South Korea, China and Taiwan. US long-term deals are usually priced against the US Henry Hub gas indexation.
“The LNG business is evolving into a true commodity market, which includes LNG purchases and sales based on actual LNG prices rather than indexing to other energy products,” said Tellurian’s president and CEO, Meg Gentle. Furthermore, Vitol is considering a potential equity investment in the Driftwood Holdings partnership, according to Tellurian.
Tellurian said an SPA would be dependent on receiving regulatory approvals and an FID on the construction of the export terminal. Tellurian has estimated that the US Federal Energy Regulatory Commission (FERC) will approve construction of Driftwood in January 2019, which would enable it to take an FID in the first half of 2019.
Tellurian had previously said it was in talks with about 25 prospective customers, including Total, General Electric (GE) and Bechtel, which has a US$15.2 billion contract to build the LNG terminal.
As part of its unconventional marketing arrangements, Tellurian at one point offered equity interest in Driftwood at a set price per tonne of LNG delivered, which it said would remove the risk of volatile LNG prices for customers.