Tellurian's $2.5 billion Petronet deal expires, company fails to qualify for LNG supply

US energy upstart Tellurian has failed to qualify in a tender for supply of competitively priced gas to India just as its $2.5 billion tentative stake sale deal with Petronet LNG Ltd expired, officials said.

Petronet, India's biggest gas importer, had on September 21, 2019, signed a Memorandum of Understanding (MoU) for purchase of up to 5 million tonnes per annum of liquefied natural gas (LNG) from Tellurian Inc's proposed Driftwood LNG terminal for 40 years. The deal was concurrent with Petronet making an equity investment of $2.5 billion for an 18 percent stake in Driftwood.

The September MoU contemplated conclusion of the transaction by March 31, 2020, but the timeline was extended to May 31, 2020 after Petronet promoters questioned the rationale of making an equity investment at a time when gas was so abundantly available the world over, three officials involved in the negotiations said.

They also questioned locking in such large volumes from one supplier for a 40-year period at a time when global rates were falling due to glut in the market.

To satisfy promoters as well as test if LNG from Tellurian would be competitive, Petronet invited bids to buy 1 million tonnes per annum of LNG for 10 years. Suppliers were asked to quote a price lower than 30 cents minus Japan/Korea Marker (JKM) LNG price, which effectively brought the rate close to spot or current prices.

Tellurian was among the 13 suppliers that quoted in the Petronet tender but was not shortlisted, officials said.

"Only two companies have been qualified for the tender. Tellurian is not one of them," an official said.

In the meanwhile, the $2.5 billion deal MoU, which was non-binding, expired on May 31.

"There was a talk of extending it but it hasn't been extended so far," another official said.

Petronet's head of finance Vinod Kumar Mishra had in an investor call post announcing FY20 earnings on June 30 stated that the Tellurian deal has expired.

Its CEO Prabhat Singh on the same day in a media call had stated that the company was close to finalising a deal to import at least 1 million tonnes per annum (mtpa) of LNG with prices near the spot market levels.

LNG prices under Petronet's current long-term deals with Qatar and Australia stand at about $3.5-4.5 per million British thermal unit (mmBtu) compared to a spot price of about $2/mmBtu, Singh had said, adding discussions with Tellurian were continuing.

"Non-binding MoUs are like immortals," he had said. "Have you watched Anand (Hindi movie)? There is a dialogue (in the movie) that Anand never dies. Non-binding MoUs too are like that. And in today's date, we also have to explore possibilities. So we are continuing to explore the possibilities of getting cheaper and cheaper gas."

While Singh did not answer calls made for comments, Tellurian did not reply to an e-mail on the matter.

Officials privy to board deliberations said Petronet promoters, including state-owned gas utility GAIL India Ltd, refiner Indian Oil Corp (IOC) and Oil and Natural Gas Corp (ONGC) were not in favour of locking imports for 40 years together with an equity investment in the LNG terminal of Tellurian.

The company, they said, did not need board approval for signing a non-binding MoU but if the deal was to be finalised it had to be approved by the board.

Hoping the repeat his success at Cheniere Energy -- the US liquefied natural gas pioneer -- energy tycoon Charif Souki launched Tellurian four years ago but the 27.6 mtpa plant, costing $30 billion, remains unbuilt years after construction was due to begin.

The LNG market has been pummelled as the coronavirus pandemic has sapped demand.

Tellurian would have been the first long-term LNG import contract signed since the Narendra Modi government came to power in 2014. All the previous deals -- 7.5 mtpa with Qatar, 1.44 mtpa with Australia, 2.5 mtpa with Russia and 5.8 mtpa with the US -- were signed during the Congress-led UPA regime.

Officials said India is looking at reopening pricing of previously entered LNG import deals with the US as well as seeking a second price renegotiation for the Qatar deal to align them with the slump in gas prices seen in the spot market.

On June 30, Singh had said, "We are now in a position to come to a stage where very quickly we will be coming to the nation with virtually spot pricing for a long-term deal." He had, however, refused to give details.