A Risky Business Utilities wrestle with how much to charge for their product.
The trading model has many good points, including the imposition of market discipline upon...
different, and possibly less stringent, permitting regime. The [Federal Energy Regulatory Commission] has recognized that regulating LNG facilities the same way that you regulate pipelines is not a feasible way to attract capital. 3
Show Me the Money
The economics of LNG constrains financing options. Gas infrastructure in general, and LNG facilities in particular, are highly capital-intensive projects, requiring years to develop. Before investing in production and liquefaction, gas producers typically want their output committed under long-term contract.
On the other hand, the U.S. gas industry has evolved into a highly liquid trading market. In such a market, long-term contracts are considered an expensive way to secure gas supplies.
In the midst of this apparent dilemma, LNG project developers have a limited number of financing options available-and they all involve lots of equity, or at least a set of firm, long-term contracts with creditworthy companies.
Within these limitations, developers are getting creative about how to structure their projects. To discuss these approaches, Fortnightly interviewed Keith Meyer, president of Cheniere LNG; Darcel Hulse, president of Sempra Energy LNG Corp.; Otto Granli, vice president for Atlantic Basin LNG with Statoil in Norway; and Rob Bryngleson, vice president with Excelerate Energy LLC. Ineson of CERA and Dweck of Sutherland, Asbill & Brennan added their observations as well.
Fortnightly: How are LNG regasification plants and tankers being financed in the face of the apparent economic mismatch? Must projects have a gas producer as an equity stakeholder, as seems to be the case for most advanced projects?
Keith M. Meyer, president, Cheniere LNG: We own a 30 percent interest in the Freeport, Texas, facility. Most of the capacity is now subscribed by Dow Chemical and Phillips. We expect to have a significant foundation customer for each of our projects, and it's logical that the customer would be a large party with equity gas … that is, with its own product to bring to market. We'd welcome that, but it's not a requirement.
Darcel Hulse, president, Sempra Energy LNG Corp.: We will use our internal cash flows to finance construction of our facilities. The projects are structured so they can be debt-financed, but we don't need that financing in place to construct the plants.
Sempra does not have any production. With these plants, we will take gas and market it in North America for those who don't have a marketing presence. Or, for those entities that have marketing capabilities, we offer a service that is purely capacity in our facility, much like capacity in a pipeline.
Otto Granli, vice president for Atlantic Basin LNG, Statoil: The financing issue may vary from country to country. In Norway, we finance our infrastructure on our balance sheet, so it's not project financed. That is the cheapest way for companies with the necessary credit to finance such projects. But it depends on what partners you have, and what country you are in.
In the United States you have a liquid market, and as long as you are able to deliver and sell gas according to the terms and conditions of that market,