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Beaten Down LNG Giant Tellurian Gets Much-Needed Lifeline

LNG producer Tellurian sold $35 million worth of new stock to a group of institutional investors to prop up its finances as the outlook for LNG remains pessimistic.

The company said it had issued 35 million shares at a price of $1 apiece, noting the proceeds it would pocket after expenses would amount to $32.5 million.

Times have been hard for liquefied natural gas producers, especially U.S. ones, as the pandemic has affected demand adversely while competition has continued to intensify, meaning more supply coming into the market.

This has led to a price collapse comparable to that in oil. As Tellurian’s own CEO, Charif Souki, explained when the company said it would postpone the final investment decision on its Driftwood LNG project, prices on the Asian spot market need to rise to $5 per million British thermal units. That’s twice current prices.

Yet there has been some good news for Tellurian: earlier this week, India’s largest gas importer, Petronet, renewed a preliminary agreement with Tellurian for LNG supplies, which had expired earlier this year, sparking worry whether the Driftwood project would ever see the light of day. Under the deal, Petronet will buy up to 5 million tons of liquefied natural gas from the Driftwood facility.

“The long-term LNG fundamentals have not changed, just slowed by COVID-19. India continues to need a large amount of LNG and the U.S. continues to produce the lowest cost LNG, so it stands to reason Tellurian would continue to work with all LNG buyers in India,” Tellurian told Reuters in comments on the news.

Yet while Driftwood’s future looks all but secured, this is not the case with the gas industry as a whole. The International Energy Agency last month published a new report on gas and LNG in which it said that “natural gas is expected to experience its largest demand shock on record in 2020 as the Covid-19 pandemic hits an already weakened market.” 

This shock will cause a 4-percent drop in global gas demand. The IEA said the lost demand would start returning next year, but it added that the shock will still lead to lost demand of some 75 billion cu m of natural gas in the period to 2025.

By Charles Kennedy for Oilprice.com

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