From the editor: the rise, fall and rebirth of Driftwood LNG [Global Gas Perspective]

Driftwood’s LNG’s fortunes have see-sawed up and down, but raising sufficient finance to progress to a final investment decision (FID) has ultimately eluded its developer Tellurian. The sale price of the company to Australia’s Woodside is $1.00 per share, less than a seventh of its price at the end of 2019. 

Woodside will buy all the outstanding shares in Tellurian, valuing the deal at $1.2bn, including a cash payment of $900mn.

It could have been different 

Back in 2021, Tellurian appeared on the cusp of an FID for first phase development of the project, which is located at Lake Charles, Louisiana. It could have meant a full start to construction just ahead of Russia’s invasion of Ukraine at the end of February 2022. 

The developer had landed offtake agreements with two trading houses, Gunvor and Vitol, both for 3mn t/yr to add to an existing Heads of Agreement with France’s TotalEnergies, struck in 2019, for 2.5mn t/yr. This latter offtake agreement was to come with a $500mn equity investment in the project and a $200mn investment in Tellurian itself. The two trading house deals were shortly followed by a deal with Anglo-Dutch major Shell for 3mn t/yr.

The deals were a major breakthrough as an earlier memorandum of understanding with India’s Petronet, which could potentially have led to an offtake agreement for 5mn t/yr, had fallen through in 2020, leaving a big hole in Tellurian’s plans. 

However, worrying signs were never far away. 

The new deals apparently came at the expense of the one agreed with Total. Just ahead of the announcement of the deal with Shell in July 2021, Total pulled out, exercising an option to exit by the end of June that year, if an FID had not been reached. Tellurian said the deal had been scrapped because it was not consistent with the deals reached with other companies.

Worse was to come. The agreements with Shell and Vitol were dependent on particular conditions, which it appears Tellurian was unable to meet. Both deals were terminated on September 23, 2022. 

This left Gunvor as the only man standing, but this deal too was terminated, in August 2022, as the “parties were unable to reach agreement on the commercial terms of an amendment to the agreement,” according to Tellurian.

Having landed commitments of more than 10mn t/yr in total, Tellurian by the end of 2022 had little to show for its efforts and its share price plunged to less than a dollar a share.

Back off the ropes, but still groggy

In early 2024, Tellurian was granted a three-year extension from the Federal Energy Regulatory Commission (FERC), keeping the project alive, if only on life support, but importantly allowing it to avoid the Biden ‘pause’ on new LNG project approvals announced in January 2024. 

A Clean Water Act Section 404 permit from the US Army Corps of Engineers struck another positive note, which was followed by the announcement of a deal with US company Aethon Energy Management, to which Tellurian sold its integrated upstream and midstream assets for $260 million. 

This deal was closed on July 1 and was accompanied by a Heads of Agreement for 2mn t/yr offtake from Driftwood LNG by Aethon.

Woodside swoops in

Just three weeks later, the news broke that Woodside Energy would become the new owner. Tellurian had finally thrown in the towel. 

After years of searching, finding new off-takers to secure development finance must have seemed a daunting task in the face of the increased supply coming to market from other US projects already under construction and Qatar’s major LNG expansion, which is expected to start coming on-stream in 2026/27.

Now, however, the acquisition, if approved, brings in an experienced LNG operator with a strong balance sheet, capable of financing a large part of the project and marketing a substantial proportion of the LNG itself. Woodside says it will not go it alone, but will look for additional partners, selling down its stake to about 50%. 

For Woodside, if it can pull off the development of Driftwood, which is fully permitted, it will create a large Atlantic basin production base to complement its Australian output and make it one of the largest independent LNG producers in the world. 

What next?

There are still questions to be answered. In terms of permitting, the three- year extension provided by FERC imposes a timeline. Woodside does not have unlimited space to mull its options. Much depends on whether the company waits to find appropriate partners and/or decides to revisit Driftwood LNG’s construction concept. It is far better placed to attract project partners than Tellurian. 

Under Tellurian the first phase was to consist of eight liquefaction units, two storage tanks and one loading berth. Each of two subsequent phases would add four liquefaction units and one additional loading berth. Each liquefaction unit would produce 1.38mn mt/yr of LNG using Chart’s Industries proprietary Integrated Pre-Cooled Single Mixed Refrigerant (IPSMR) liquefaction technology. 

The use of small-scale liquefaction units for a modular build up of capacity is a very different concept to the large units used in Woodside’s two-operated LNG facilities in Australia, Pluto LNG and North West Shelf.

In addition, given the delays in moving towards an FID under Tellurian, deals struck with the major contractors involved – Bechtel, Chart and GE – will almost certainly be revisited. 

Tellurian claimed in 2021 that it could build the plant for $560/t of capacity, but that is unlikely to be the case today. A lot of inflation has flowed under the bridge since then. 

The company also estimated it would take four years to build the plant from FID, but there are more US plants starting construction ahead of Driftwood, raising questions over liquefaction plant supply chain capacity. Even if Woodside moves apace, Driftwood phase one is probably unlikely to start producing until close to 2030. 

However, Woodside would not be buying Tellurian, if its intent was not to build the LNG facility. The question now is whether it can navigate the US business environment, with which it is familiar, and quickly breathe new life into Driftwood LNG.