US gas export pioneer’s venture flounders amid ravenous demand

US energy tycoon Charif Souki’s plans to build a $25bn natural gas export plant are on the rocks after the project had lost pivotal buyers and failed to raise funds despite rising global demand for the fuel following Russia’s invasion of Ukraine.

The stumbles are a big blow to Souki, a pioneer in the US liquefied natural gas business, and could signal trouble in the effort to quickly expand America’s capacity to ship more energy to Europe.

The setback comes as European officials press the US to send out more LNG to relieve countries on the brink of recession after their supplies of Russian gas were squeezed by Moscow.

Shares in Souki’s company Tellurian tumbled around 40 per cent last week as investors lose faith in his ability to deliver the massive Driftwood LNG project on the Louisiana coast, designed to liquefy up to 27.6mn tonnes of American gas a year.

Tellurian disclosed on Friday that oil supermajor Shell was pulling out of a gas sale agreement with the company and that it had to terminate a similar deal with Vitol. The long-term contracts, each for 3mn tonnes a year, were crucial financial underpinnings for Driftwood.

The deals were scrapped days after Tellurian had to abandon a $1bn bond sale in which it offered investors a yield of more than 12 per cent, signalling it was not going to be able to raise financing for the project anytime soon.

Souki said in a video posted to YouTube that the inability to raise cash “set us back definitely” and added that he would turn to trying to sell equity in Driftwood LNG to a “strategic partner”. Tellurian declined to make Souki available for an interview on Friday.

Analysts said Souki risked missing a golden opportunity amid furious global LNG demand.

“If Driftwood can’t make it now, under what circumstances could it?” said Clark Williams-Derry, analyst at the Institute for Energy Economics and Financial Analysis. “If they’re losing banks’ interest and they’re losing their customers’ interest right now, that says something pretty fundamental.”

Driftwood’s troubles are all the more significant as it was Souki who pioneered seaborne exports of US gas, capitalising on soaring production from shale drilling when he converted his former company, Cheniere Energy, from an importer to exporter of the LNG.

Cheniere later ousted Souki just weeks before its first cargo in a boardroom coup orchestrated by activist investor Carl Icahn. It is now the largest US exporter of LNG by far, with more than half of total capacity.

Line chart of Change in share price since January (%) showing Charif Souki’s Tellurian loses momentum

Souki returned to the industry in 2016 with the launch of Tellurian, using his star power in the business to raise capital and sign initial deals with industry majors. But he has struggled to maintain momentum, even as others such as Cheniere and Venture Global have moved ahead with new projects in Texas and Louisiana.

Moscow’s invasion of Ukraine has offered an opportunity for Souki and other proposed LNG plants in the US as Europe turned to America for gas supplies. Souki told the Financial Times earlier this month that US producers would benefit from the gas crunch and said that Europe’s “lack of strategic thinking” was to blame for its energy crisis.

Analysts still expect a few projects to be built in the next couple of years. But problems at Driftwood suggested the reality remained difficult, given long-term doubts about demand for the fossil fuel, Williams-Derry said.

“What I see is an end to the euphoria and a grounding of the hype about US LNG and a re-evaluation of which of these projects is really going to be financially viable for the next 20 years,” he said.

Source link

Comments are closed, but trackbacks and pingbacks are open.