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The planned Driftwood LNG facility will be capable of producing up to 27.6 million tons of liquefied natural gas a year.

Bechtel Oil, Gas and Chemicals Inc has agreed to design and build Tellurian Inc.'s Driftwood LNG, a proposed liquefied natural gas facility near Lake Charles, for $15.2 billion.

Driftwood includes 20 liquefaction units, each expected to produce up to 1.38 million tons of LNG per year; three LNG storage tanks with 8.3 million cubic feet of storage; and three marine loading berths. The project will be built in four phases, and Bechtel has agreed to four fixed-price, lump-sump, turnkey arrangements.

Tellurian President and Chief Executive Officer Meg Gentle said the agreements with Bechtel guarantee the facility will be built at a cost of $550 per ton, making it one of the lowest-cost liquefaction construction projects in the world.

Bechtel has built 42 production units on 17 LNG projects in 10 countries, Gentle said. The Bechtel-built facilities account for 30 percent of the world’s LNG capacity.

Lowering construction costs is a key piece of Tellurian's business strategy. In October, Tellurian announced it could deliver natural gas to Japan at $6 per thousand cubic feet thanks to a new business model that relies on buyers, like large utility companies, for financing. Tellurian will give buyers equity with agreements to buy 1 million tons of LNG for $1.5 billion, payable over four years.

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Investors/customers will own 60 percent to 75 percent of Driftwood Holdings, which will consist of the LNG terminal and pipeline and a natural gas production company.

David Dismukes, executive director the LSUCenter for Energy Studies, said Cheniere is reporting shipping costs of around $2 per thousand cubic feet.

Tellurian is saying it can get the gas for $3 per thousand cubic feet, so its total costs would be less than $6 per thousand cubic feet, but just barely, Dismukes said.

"So, yes, they can potentially do this, but they have to liquefy for a very, very low amount, and their margin, at least on this facility, would likely be relatively low," Dismukes said.

Tellurian's business model is a departure from the one used by almost all of the other LNG export facilities under construction.

Those facilities rely on tolling agreements, or charging to liquefy and process the gas, said Jason Lord, LNG analyst with consultants Genscape.

Tellurian has included an equity stake in Driftwood to the tolling agreement, Lord said. Doing so provides a return on capital on the LNG terminal, pipeline and upstream assets to customers to take an equity stake in the project.

Lord described Tellurian founders Martin Houston and Charif Souki as two of the best LNG visionaries.

Souki, the former head of Cheniere Energy, is also responsible for the company’s business model. Cheniere convinced LNG buyers to sign long-term contracts and used those contracts to secure the financing to build LNG export facilities, including Sabine Pass LNG Terminal in Cameron Parish.

Proposed LNG facilities have had difficulty using that model to finance construction. A glut of LNG has made buyers reluctant to sign long-term contracts.

"I think Tellurian’s business model has the potential to be successful based on the track record of Cheniere and adding yet more flexibility, equity ownership and cost-cutting strategies to the ever-evolving U.S. LNG industry," Lord said.

A lot of the conventional LNG buyers are tapped out so new business models need to be made to target new customer segments, Lord said.

Follow Ted Griggs on Twitter, @tedgriggsbr.