LNG Finance in World Markets Featured Article

US Export Projects Poised to Boost Funding Totals

This current feature was extracted from the latest edition of Poten’s LNG Finance in World Markets, a monthly service published on November 14, 2022.

External fund-raising for the LNG sector has stayed robust this year. It was buoyed in the second quarter when two US LNG export project developers secured billions of dollars in loans. Other US developers are poised to follow suit after signing agreements to sell a large portion of their production, which brings them nearer to the critical mass of offtake needed to obtain project finance loans.

However, with the first three quarters of 2022 over, it is unclear if they will finalize their commercial arrangements in time to wrap up funding this year. If not, 2023’s totals, rather than this year’s, could get a US-driven bump higher.

In 2Q Venture Global obtained $13.2 billion in bank loans for its Plaquemines LNG export project in Louisiana and Cheniere got $5.5 billion for its Corpus Christi Liquefaction Stage 3 in Texas (see US report in Liquefaction section). Australia also saw some activity this year, with debt secured for the Pluto Train 2 expansion in 1Q 2022 and a refinancing for Ichthys LNG in 3Q 2022.

LNG Funding by Year

Ship funding climbed to $5.8 billion in the first nine months of 2022 from $3.4 billion in the same period last year (see LNG Ship Finance section). LNG import infrastructure funding was just under the average yearly level, with a quarter yet to play out.

Funding will continue to be available for well-structured LNG deals underpinned by strong commercial arrangements, but costs have climbed. Dollar bond pricing has gone up as the US Federal Reserve has put up interest rates, which has cut the amount of US liquefaction project finance debt that is being refinanced in the bond market.

For bank loans, base rates are up, which is already making it more expensive to borrow money, with the climb in interbank funding costs also putting upward pressure on the bank margins that are applied on top of base rates. This means that the all-in cost of bank loans – base rate plus the margin – have risen. There will be no respite for borrowers because the Federal Reserve needs to tame inflation, with further rate hikes expected.

LNG Funding at Quarterly Average in 3Q 2022

Increased funding costs and the climb in the price of engineering, procurement and construction contracts that results from more expensive labor and raw materials will make project implementation more challenging for liquefaction project sponsors. Increased costs are pushing them to raise their LNG prices.

This could make LNG contract talks with end-users more protracted – consumers are already struggling with the high energy prices that result from Russia’s invasion of Ukraine in February so they won’t want to give away too much ground.

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