New Delhi: Tellurian Inc. has signed a $7.5 billion agreement for India’s Petronet LNG Ltd to buy a stake in its proposed liquefied natural gas (LNG) terminal in Louisiana, in what could potentially be one of the largest foreign investments in the US for shipping shale gas abroad.
Petronet will spend $2.5 billion for an 18% equity stake in the $28 billion Driftwood LNG terminal, the largest outside holding so far in the project, and negotiate the purchase of 5 million tonnes of gas per annum. The remainder of the total will come from debt, Tellurian chief executive officer (CEO) Meg Gentle said.
The companies plan to complete the agreement by 31 March, by which time Tellurian hopes to have signed up partners to enable it to proceed with the project.
“We will sign the document sometime in the first quarter and we will have financing ready to close simultaneously, and then we will begin construction," Gentle said in a telephone interview. “India is one of the fastest growth markets for LNG and should soon become the second-largest LNG importer," she said.
The deal, signed in Houston in the presence of Prime Minister Narendra Modi, underscores a record year for the LNG industry, with tens of billions of dollars worth of export projects given the green light. The surge of new supply from the US’ trove of shale gas has rendered the once-premium fuel accessible for emerging markets such as India, currently the sixth-largest buyer of US LNG.
“People should not be surprised this came," said Tellurian co-founder Charif Souki, who also founded America’s largest LNG exporter Cheniere Energy Inc. “The United States and India have a significant issue diametrically opposed. We have too much gas that we don’t know what to do with and India needs greater gas, and 1 million tons a time is not going to solve the problem."
The pact was signed on the sidelines of Modi’s meeting with top executives of US energy majors in Houston. In his first engagement during his week-long visit to the US, Modi met 17 CEOs of US energy companies such as Tellurian Inc., Exxonmobil, BP Plc, Cheniere Energy, Dominion Energy, and Total SA. He was accompanied by petroleum secretary M.M. Kutty, external affairs minister S. Jaishankar, foreign secretary Vijay Gokhale, and India’s ambassador to the US Harsh Vardhan Shringla.
India has been sourcing LNG and crude oil from the US, with Indian companies investing $4 billion in US shale gas assets.
“Petronet will invest $2.5 billion in Tellurian’s proposed Driftwood LNG export terminal, in exchange for the rights to 5 million metric tonnes of LNG per year over 40 years," said Raveesh Kumar, external affairs ministry spokesperson.
India, the biggest emitter of greenhouse gases after the US and China, has been pushing for a gas-based economy and plans to connect 10 million households to piped natural gas by 2020. It plans to reduce its carbon emissions by 33-35% from its 2005 levels by 2030, as part of its commitments to the United Nations Framework Convention on Climate Change adopted by 195 countries in Paris in 2015.
In a tweet, PM Modi said, “It is impossible to come to Houston and not talk energy! Had a wonderful interaction with leading energy sector CEOs. We discussed methods to harness opportunities in the energy sector. Also witnessed the signing of MoU between Tellurian and Petronet LNG."
“Increasing natural gas use will enable India to fuel its impressive economic growth to achieve Prime Minister Modi’s goal of a $5 trillion economy while contributing to a cleaner environment," said Gentle.
Gas comprises about 6.2% of India’s primary energy mix, far behind the global average of 24%. The government plans to increase this share to 15% by 2030. India’s gas demand is expected to be driven by the fertilizer, power, city gas distribution, and steel sectors.
“The MoU signed in Houston is a part of wider energy cooperation under the India-US Strategic Energy Partnership and will further deepen our energy trade and investment relationship," India’s oil minister Dharmendra Pradhan said in a tweet.
India’s energy demand is expected to grow at 4.2% per year over the next 25 years. It currently consumes 145 million standard cubic meters a day (mmscmd) of gas. This includes LNG, making India the world’s fourth-largest LNG importer.
India and US plan to strengthen their strategic energy partnership launched in New Delhi in April last year. This may include larger energy imports from the US by state run firms such as Indian Oil Corporation Ltd (IOCL).
In a first, IOCL, the country’s largest refiner, has also inked two term contracts totalling 4.6 million tonnes (mt) of US crude for 2019-20 from Norway’s Equinor ASA and Algeria’s state energy company Sonatrach.
The National Democratic Alliance (NDA) government has been holding conversations with the Trump administration on the issue of energy imports from sanctions hit Iran. Modi’s visit also comes against the backdrop of drone attacks on Saudi Aramco’s production facilities that has caused the biggest-ever disruption in global crude oil supplies. Yemen’s Houthi rebels have claimed responsibility for the audacious attacks, but the US has blamed Iran, further escalating tensions in the Persian Gulf.
India was among Iran’s top oil buyers with imports of 23.5 million tonnes in 2018-19. With the US’s conditional waiver for Iranian oil imports to eight countries, including China and India, expiring on 2 May, India stopped all oil imports from Iran. While sourcing crude from other suppliers is not an issue, the price at which it is bought will impact the Indian economy.
US secretary of state Mike Pompeo on his part has promised India of adequate crude oil supplies even as the world’s third-largest oil importer has been trying to buffer its consumers from fluctuations in global prices. India’s exports to the US in 2017-18 stood at $47.9 billion, while imports were at $26.7 billion.
With inputs from Bloomberg