Want the Gas? Buy the Company! A New Way to Finance US LNG

$3 Pricetag

The integrated model could allow Tellurian to load LNG onto a ship at $3 per million British thermal units or less after factoring in the price of the fuel and the cost of chilling and shipping it, according to Gentle. In January, the price for LNG at export for Cheniere’s Sabine Pass terminal in Louisiana was $3.15 to $6.15 per million Btu, Energy Department data show.

At the same time, the investors could end up paying more if gas prices or operating costs rise, the company has said.

Though the integrated model has been used to develop gas fields in Qatar, Mozambique and Australia, it’s only now starting to be pursued in the U.S. At least one other U.S. LNG project may employ a similar strategy: State-owned Qatar Petroleum is partnering with Exxon Mobil Corp. and ConocoPhillips to build the Golden Pass terminal in Texas. Exxon is reportedly in talks with Qatar over a partnership that could see the nation owning U.S. gas.

While added flexibility has been a much-discussed factor within the industry, buyers in Asia and other major gas-consuming regions may prefer the traditional model of an LNG contract linked to changes in oil prices, rather than signing for a fixed price, said Het Shah, head of natural gas research for Bloomberg New Energy Finance in New York.

“Most buyers would rather stick to an index and not speculate on price direction,” Shah said.

In the meantime, Tellurian has some financial breathing room: Souki and Tellurian co-founder Martin Houston, chairman of investment bank Tudor Pickering Holt & Co.’s international business, own more than half of the company, which allows them to play the long game and not sweat its volatile stock moves, Souki said.

Tellurian aims to begin construction of Driftwood in the first half of 2019, pending a final investment decision. If that time line holds, the terminal could be up and running in 2023.

To contact the reporters on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net; Ryan Collins in Houston at rcollins74@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Christine Buurma.