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LNG & Natural Gas Opinions

Japanese banks take top spots in Poten & Partners’ 2015 ranking of LNG project finance lenders
April 17, 2015
Japan’s Bank of Tokyo-Mitsubishi UFJ, Mizuho and Sumitomo Mitsui Banking Corp took the top three spots in Poten & Partners’ 2015 ranking of the world’s LNG project finance lenders. The rankings appear in Poten & Partners’ LNG Finance in World Markets published April 17. Japanese banks took five of the top 10 positions in the inaugural rankings published by Poten, a leading global brokerage, consultancy and business intelligence publisher. The Netherlands’ ING came in fourth and France’s Societe Generale was ranked number five. Forty eight lenders from 15 countries provided most of the global LNG project finance funds in 2014. In total, banks included in the rankings extended project finance loans of $12.28 billion in 2014.
 
Sliding Oil Prices Force LNG Developers to Push Pause
February 20, 2015
LNG project developers were surely starting to feel anxious about the economic viability of their liquefaction ventures when Brent crude oil prices sunk into the mid-$80s/bbl in early November. US liquefaction schemes were being called into question as Henry Hub-linked supply was in danger of being more expensive than existing long-term oil-linked LNG. Australian export plants coming online this year or ones under construction had cost blowouts that made $100/bbl oil almost essential with any substantial drop in oil prices will put them in trouble. It is new supply projects from the US, Canada, and East Africa that have not reached a final investment decision that are having to redo their oil price assumptions and cost of capital calculations amid the sharp drop in oil prices to see if their plans still match their minimum return on investment. Brent at $80/bbl was already threatening planners’ oil price stress test levels to the low end. But the stark decline in prices throughout December and January that brought Brent into the mid-$40s/bbl range blew through nearly everyone’s low-case oil price scenario. Crude’s downward move has already claimed some casualties in the LNG market but the overall response has been a collective pause as the market resets its expectations for oil prices.
 
Construction Under Way At Four US Liquefaction Projects
December 22, 2014
When the US Department of Energy gave Freeport LNG its final blessing on November 14 to send LNG exports from its Texas site to all but a few countries, initial construction had already started on the 13.2 MMt/y plant. By the end of the month, the project had closed $9.64 billion in financing for the first two trains, made a final investment decision and had given its contractors CB&I and Zachry Industrial the green light to begin building. Cameron LNG held a ground breaking ceremony at the end of October on its 13.5 MMt/y facility in Louisiana and CB&I and Chiyoda have been undergoing site preparation since July. Work has also begun at Dominion’s single-train Cove Point plant in Maryland, where Kiewit and IHI Corp are the contractors, despite the fact that the 5.75 MMt/y project has not been given final export approval from DOE. By the end of November, four US LNG export projects – totaling almost 50 MMt/y of capacity – had started construction. This liquefaction capacity is equal to about 6.85 Bcf/d of US market feed gas, a figure that is more than halfway to what many see as a potential red line for DOE in its decision on the cumulative amount of LNG exports it will ultimately allow.
 
Golar Pushes Forward With First Ever FLNG Conversion
October 27, 2014
Norway’s Golar LNG has continued with its aspirations of branching out into the floating LNG market. The company announced in its second quarter earnings call at the end of August that contracts to convert the 1975 built 125,000 m3 Hilli to an FLNG carrier had been fully executed. Although other companies are pursuing FLNG projects, with four currently under construction, GLNG’s work represents the first time an owner has attempted to convert a vessel for this technically-demanding use. GLNG has been toying with the idea of FLNG conversions for a while and has had past success converting several of its older vessels into floating storage and regasification vessels. If GLNG is successful in its FLNG effort, the company will have found a way to diversify its business beyond conventional and FSRU chartering.
 
Market Still Has Questions About Panama Canal Expansion
September 18, 2014
This month marks the 100 year anniversary of the Panama Canal which was opened to traffic on August 15, 1914. Another milestone is quickly approaching as the expansion of the Panama Canal, which will near double its capacity, is set to commence operations in January 2016. Despite the attractiveness of the route for LNG shippers, there continues to be a number of questions around certain logistics of canal transit along with a final tariff structure.
 
Singapore Grows As Asian Trading Nexus
July 18, 2014
Singapore’s reputation as an LNG center continues to rise as industry players with Asian market ambitions set up trading desks in the island state. Building on its legacy producing assets in Malaysia and Brunei, Royal Dutch Shell was the first player to establish a desk in Singapore back in 2005 and has steadily increased its presence in the country. Japanese trader Itochu followed with a small representative office two years later. But the trend really gathered momentum with the entry in 2009 of Russia’s Gazprom and others trading operations with profit and loss responsibility. "At the beginning you had the likes of Itochu with one or two guys looking to pick up market intel but without their own P&L statements," one veteran trader says. "The market only paid attention after Gazprom came into the picture and immediately staffed up to market its spot cargoes from Sakhalin 2." Others quickly followed, with BP setting up shop in 2010 backed by a full team of traders, originators, operations staff, shipping personnel and risk management experts. By 2013, Singapore was host to more than 20 LNG trading desks and the list is expected to grow further.
 
Floating LNG Moves Closer To Project Financing
June 25, 2014
There has been considerable speculation in the LNG industry over whether floating liquefaction facilities can be project financed by lenders in the same way as land-based operations. The possibility is growing as the number of proposed FLNG projects reaches a critical mass, with other developments also suggesting it is becoming more likely.
 
Market Braces For Further Delays At Queensland Projects
May 27, 2014
News that CEO Chris Finlayson was leaving BG after only 16 months in the job has inevitably raised speculation that more delays and cost overruns could be in store at its Queensland Curtis LNG project in eastern Australia. The 8.5 MMt/y project is absorbing huge amounts of capital just as the company is struggling with declining production in Egypt, where output dropped further in the first quarter, and recent upstream problems in the US and the North Sea. BG said on February 4 it planned to produce the first commercial cargo from train 1 in the fourth quarter. But this schedule is now expected to be pushed back to early 2015, possibly into February, with train 2 beginning exports six months later. BG cranked up drilling at its coal bed methane reserves in the Surat basin last year, and in November it signed a second third-party gas deal with Origin Energy for up to 30 petajoules, equivalent to 41 terajoules per day or 39 MMcf/d, in 2014 and 2015 that is being used to commission the plant. This followed an earlier 20-year purchase from Origin covering 190 PJ in 2015 and 2016, falling to 25 PJ annually over the next 18 years.
 
Gas Politics Take Center Stage In Ukraine Crisis
April 21, 2014
Russia’s annexation of Crimea has renewed concerns in Europe about the future of an energy mix that relies heavily on what decision-makers on the continent see as a capricious regime in Moscow. Russia is by far the single largest supplier of gas to continental Europe and Turkey, providing 30% of all gas consumed, and a cessation of its volumes would pulverize an already hard-pressed economic recovery. Across the pond in the US, liquefaction advocates have seized on the Crimean crisis to push regulators in Washington to expedite export approvals as a form of energy deterrence to Russia’s geopolitical gas weapon. But political wrangling has so far left European gas markets untouched (see related article above). For Ukraine, there is almost certainly going to be a move away from Russian gas and further deterioration in economic and diplomatic ties with its powerful neighbor. Although this will not be easy, it could mean a renewed push for a maiden LNG import scheme in the Black Sea. For others in the Baltic trying to reduce Russian gas dependence, the crisis underscores the importance of already fledgling import projects.
 
Master Limited Partnerships Tempt US Export Players
March 20, 2014
Five US liquefaction proponents with non-free trade country export authorization are in the throes of courting financiers to fund their projects. Freeport LNG in Texas is the latest to announce financing with a $1.2 billion capital injection from Chubu Electric and Osaka Gas, the two tolling customers in train 1, in the form of equally split equity funding for the 4.4 MMt/y unit. The first train is now expected to cost about $5 billion while the 13.2 MMt/y project’s total price tag has risen from $11 to $14 billion. In addition to the main $5 billion construction contract for the first two trains, there is $1 billion in refinancing and another $1 billion in owner’s costs and roughly $2.5 to $3 billion of interest during construction on these units. The third train will cost another $4 billion. While Freeport chose funding from its offtakers, the playbook for equity at Cheniere Energy’s 18 MMt/y Sabine Pass Liquefaction in Louisiana was issuing common units on a US stock exchange in a master limited partnership that continues to provide public investors an opportunity to invest in LNG. MLPs are common in LNG shipping, and 2013 was a record year for MLP public offerings in the US. At least three projects are now plotting to use MLPs to help finance US liquefaction capacity.
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