India remains chronically energy-poor with per capita primary commercial energy consumption at about 30% of the global average and around 25% of the Chinese level. India’s aspiration to double her per capita GDP, to cross the current bottom threshold for an upper middle-class country, is critically dependent upon India’s ability to eliminate her energy poverty. Adequate universal access to affordable modern commercial energy is essential, if India is to meet her stated socio-economic goals. Given domestic energy resource constraints, tying up competitive long-term supplies of different energy resources from a diversified group of energy exporting countries would be the way to go. Given this context, the signing of the Petronet-Tellurian MOU during the recent visit of the Indian Prime Minister to USA should be welcomed whole heartedly as a step in the right direction. However, nothing is ever as logical and simple as that about India’s hydrocarbon sector.

Petronet LNG Ltd (PLL) has not released any specifics about the MOU it has signed with Tellurian other than saying that it is non-binding when the markets reacted negatively. A proposed investment of US$ 2.5 billion by PLL and the likely annual off-take of 5 million tons (mtpa) of LNG for 40 years has been reported. An 18% “equity stake in the $28 billion Driftwood LNG terminal” is also reported. Even sketchy details about the off-take arrangements for the LNG have not been disclosed. Quite strangely, the press release posted on Tellurian’s website neither mentions the $2.5 billion number nor the 18% stake although, as explained later, these numbers can be derived from Tellurian’s disclosures as a listed US company. Tellurian’s website makes all the customary disclaimers and provides cautionary warnings towards interpreting its “forward looking statements” but, nevertheless, carries the hope of powering India’s march to a US$ 5 trillion economy with “cheap LNG”. It talks of India’s resolve to raise the share of gas in the Indian energy market from the current 6% to 15% by 2030 and projects a regasification capacity of 60 mtpa in India by 2023 when Driftwood LNG Facility is expected to start LNG production.

Meg Gentle, President and CEO of Tellurian, announced Tellurian’s 27.6 Million Ton Driftwood LNG Facility at the World Gas Conference in June 2018 with a promise to deliver LNG at $3.0 per million BTUs (MMBTU) FOB US gulf port; based on captive shale acreage in the Hayensville Basin with existing reserves of 1.5 trillion cubic feet (Tcf), new acquisition in the same basin with reserves of 15 Tcf, and a captive pipeline network for feeding the natural gas to the Driftwood LNG Facility located near the shipping terminal. In her latest videos Ms. Gentle now talks of an LNG price of $3.0-$4.0/MMBTU from the Driftwood LNG Facility FOB US Gulf Coast and a CIF price of $5.0-6.0/MMBTU for India. Still very reasonable compared to the past fiascos of PLL in negotiating long-term LNG contracts. How come, PLL, that typically gloats over insignificant achievements, is not taking a triumphant bow? Instead, press reports suggest that the PLL Board was not enthused by the MOU PLL first signed with Tellurian in February 2019 and may have signed a second MOU to coincide with the Prime Ministers Modi’s visit.

Truth is that the US is awash with natural gas with a number of fields delivering well-head gas price of under US$1.0/MMBTU. There are competing integrated LNG projects, similar to Tellurian’s Driftwood Facility, seeking to convert available cheap natural gas to LNG for export. Funding for these projects is conditional upon assured long-term off-take arrangements that ensure viability of the underlying investment. Thus, an off-taker willing to invest in an LNG facility would enjoy significant leverage in shaping the deal. Judicious use of this leverage by the off-taker would ensure a long-term favorable price for the underlying gas being fed to the LNG facility. This is essential to enable off-take of LNG at a favorable long-term price. Off course no details are available on this crucial aspect of the proposed PLL deal with Tellurian.

PLL’s track record in negotiating LNG contracts is dismal to say the least. Who can forget that PLL was actually offered 7.5 mtpa of LNG by Qatar for 20 years at maximum price of $3.04/MMBTU? Yet it signed a differently structured deal that resulted in a price as high as US$14/MMBTU. PLL also accepted that 2.5 mtpa of the above quantity would be lean gas and gave up the option it had for buying a 5% stake in Ras Gas. The Australian deal for the Kochi terminal was even costlier. Deeply vested interests in India’s gas sector have ensured that gas prices in India remain high and PLL with its unique shareholding structure has actually become a tool for ensuring this. PLL’s track record does not instill any confidence in its capacity to negotiate a fair and transparent deal with Tellurian.

Industry Analyst John Bromels in an August 31, 2019 piece, categorized Tellurian as a “highly speculative” investment. He pointed out that Tellurian had still not made the final investment decision (FID) for its Driftwood LNG Facility. Again, on September 29, 2019 Jason Hall, another Industry Analyst, called Tellurian a “high-risk-high-reward” investment and maintained that “Tellurian is little more than a collection of very talented people, a business plan, and a handful of important government approvals to build an export facility”. Hall nevertheless admitted that Tellurian was slightly ahead of some of its competitors in obtaining necessary approvals and acknowledged that the Tellurian team had earlier built Chenier and concluded: “These people have done it before and have skin in the game”. Fact is that Tellurian’s market cap is only US$ 2.05 billion, EPS are at negative US$0.64, and the one-year forward P/E ratio is a negative 12.2. In Jason Hall’s words “Tellurian doesn’t have a cash-positive business to fund its operations; heck it doesn’t even have an existing business at all”.

Tellurian’s web-site confirms all of the above and clearly states that the FID for Driftwood is still pending even though it is hopeful that the FID for Driftwood’s first phase will be realized by mid-2020 with LNG production in mid-2023. For financing the first phase, Tellurian needs to get investment linked off-take commitments for 12 mtpa of LNG for a total equity of US$ 6 billion at US$ 500 million/mtpa of LNG. Tellurian claims that it already has undertakings for 8 mtpa of LNG as detailed below with good prospects for tying up the balance 4 mtpa of LNG on the same basis.

In July 219 Tellurian reached a “definitive” off-take arrangement for 1 mtpa of LNG with Total combined with an investment of US$500 million in the Driftwood LNG Facility. In addition, Total has invested in Tellurian stock and contracted to buy an additional 1.5 mtpa of LNG from Tellurian Marketing at a price linked to Platts Japan-Korea Marker (JKM) index. Tellurian claims that the sum of Total’s investments puts an “implied” valuation of US$ 13.8 billion on the Driftwood LNG Facility. Tellurian has an MOU for off-take of 5 mtpa by Petronet in combination with an investment of US$ 2.5 billion by Petronet; which is 18% of the US$ 13.8 billion “implied” valuation for the Driftwood LNG Facility as reported by Tellurian. The third equity investor in the Driftwood LNG Facility is Tellurian Marketing with a commitment to off-take 2mtpa of LNG. Tellurian Marketing is confident that it will raise its US$ 1 billion equity investment in the Driftwood LNG Facility through private equity investors.

The above details resemble a hall of mirrors and fail to give any comfort to an independent reader, especially without the full disclosure of the deal with Total and the proposed deal with PLL as well as the terms for the supply and transportation of natural gas to the Driftwood LNG Facility.

In conclusion, one is left with an uneasy feeling of another commendable initiative of Prime Minister Modi coming to nothing or falling well short of its potential because of deeply vested interests, lack of transparency, and the absence of committed and upright individuals, with an understanding of such international deals, in the negotiating team that represents India and protects India’s interests.