after Russia's February invasion of Ukraine squeezed supplies. The project’s precarious state raises questions about whether Souki, who is credited with building the LNG industry, has taken his aggressive deal-making too far.
That"mousetrap" is of a universal design in the U.S., where all operating LNG facilities, according to the Institute of Energy Economics and Financial Analysis, rely on 15- or 20-year contracts with buyers who pay a fixed price for turning natural gas into a liquid by cooling it to 260 degrees below zero. The guaranteed income provides financial stability to repay debt, carry on operations and turn a profit.
“With the molecule today, you make a $15 or $20 margin. With the concept of service you make 50 cents,” Souki said. “And people say, but at least my 50 cents is guaranteed. No it's not. Your 50 cents can blow up in a second. So I'd rather take a risk on $10 than a risk on 50 cents.” At Tellurian, he set out to do what he hadn’t been able to convince his colleagues at Cheniere to do — expose more of the company to the spot market instead of locking it up in fixed contracts, and open the company up to more profits. At Cheniere, Souki had aimed to leave at least 20 percent of the company’s capacity open to the spot market, which can net huge profits when prices are high, while Icahn was more conservative.
As Souki struggles to make his case to potential investors, inflation is rising and the cost to build Driftwood’s 11 million-metric-ton first phase has ballooned to $13.6 billion from $11.9 billion.