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PLL's US deal: A full analysis
Sep 23:
Through a $2.5 billion equity deal last Friday in return for a lifetime offtake of 5 msmcmd of LNG from Tellurian's 16.6 MMTPA LNG terminal in the US, Petronet LNG Ltd (PLL) has suddenly transformed itself from a sleepy and safe toll player in the Indian regasification business into a global risk taker.
8Based on 5 million mt/year offtake, Petronet would be responsible for underwriting $5 billion of Tellurian's total project debt in the Driftwood LNG plant. That is a big exposure by any yardstick. In that sense, PLL's exposure to the project is higher than that of the promoters, as the latter have undertaken to offtake only 4 MMTPA of LNG.
8The equity investment against a life time of LNG offtake implies that the risk is front ended, and borne by the investor cum buyer. So far, only Total, with a balance sheet many times larger than PLL, has bought into the terminal with an offtake of 1 MMTPA, a fifth of what PLL is now committed to.
8A host of traders, including Vitol, has been offered similar deals but they are yet to make up their minds.
8Currently, gas-indexed LNG is far cheaper than oil indexed LNG that PLL processes via long term contacts in its LNG terminals but that may not always be the case. If peak oil happens in 2022 as predicted by some, the price of crude may fall far enough to make oil indexed LNG cheaper from countries such as Qatar in relation to LNG from the US, thereby forcing PLL to scout the global markets to sell its committed offtake in the years ahead, unless of course PLL can work out a back to back arrangement with Indian offtakers for Tellurain LNG in exactly the same terms and conditions as was finalized last Saturday, something that will be difficult to push through to price sensitive Indian clients.
8Willy nilly, PLL has to grow up quickly and acquire the depth and punch needed for an international trader to survive in the LNG business.
Click on Details for more
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8Based on 5 million mt/year offtake, Petronet would be responsible for underwriting $5 billion of Tellurian's total project debt in the Driftwood LNG plant. That is a big exposure by any yardstick. In that sense, PLL's exposure to the project is higher than that of the promoters, as the latter have undertaken to offtake only 4 MMTPA of LNG.
8The equity investment against a life time of LNG offtake implies that the risk is front ended, and borne by the investor cum buyer. So far, only Total, with a balance sheet many times larger than PLL, has bought into the terminal with an offtake of 1 MMTPA, a fifth of what PLL is now committed to.
8A host of traders, including Vitol, has been offered similar deals but they are yet to make up their minds.
8Currently, gas-indexed LNG is far cheaper than oil indexed LNG that PLL processes via long term contacts in its LNG terminals but that may not always be the case. If peak oil happens in 2022 as predicted by some, the price of crude may fall far enough to make oil indexed LNG cheaper from countries such as Qatar in relation to LNG from the US, thereby forcing PLL to scout the global markets to sell its committed offtake in the years ahead, unless of course PLL can work out a back to back arrangement with Indian offtakers for Tellurain LNG in exactly the same terms and conditions as was finalized last Saturday, something that will be difficult to push through to price sensitive Indian clients.
8Willy nilly, PLL has to grow up quickly and acquire the depth and punch needed for an international trader to survive in the LNG business.
Click on Details for more
