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LNG World Shipping

Six FLNG projects, four financing models

Mon 06 Nov 2017

Six FLNG projects, four financing models
Leverage: Melanie Lovatt

If all things go to plan for the sponsors of the Fortuna project in Equatorial Guinea, by year-end a sixth floating liquefaction project should have completed its fundraising, writes Melanie Lovatt

Fortuna LNG should be the second floating LNG (FLNG) venture to reach a final investment decision this year, following Eni’s Mozambique FLNG project Coral South FLNG, approved in June. These projects, and the four that have so far completed their funding, reveal the diverse financing models supporting this nascent sector.

Malaysia’s Petronas shipped the first cargo from 1.2 million tonnes a year PFLNG Satu in April, having financed its unit from its own resources.

Shell took the same route, using its balance sheet to finance Prelude FLNG, the largest floating offshore structure ever built. Prelude, which weighs 600,000 tonnes with its tanks full, reached northwest Australia in July.

Golar LNG attracted US$960M worth of funding in July 2015 for the 126,200 m3 Hilli Episeyo from China’s CSSC (Hong Kong) Shipping Co. CSSC provided the funds in a sale and leaseback structure. It cost some US$1.2Bn to convert 42-year-old LNG carrier Hilli into an FLNG unit at Singapore’s Keppel yard. Hilli Episeyo left Singapore, destination Cameroon, in October.

With Fortuna LNG, financing for the converted Golar LNG carrier Gandria will also come from a China-backed sale and leaseback structure. The project costs some US$2.1Bn, with about US$1.2Bn to be debt financed. The vessel is estimated to cost US$1.5Bn, with the upstream costs making up the remainder. Gandria costs more than Hilli Episeyo, being equipped for harsher conditions, in a more open marine environment.

Increasingly, LNG shipowners have turned to Chinese funding, securing sale and leaseback structures to finance LNG carriers, floating storage and regasification units and FLNG units.

Exmar’s newbuild 500,000 tonnes a year Caribbean FLNG unit cost US$300M. The Belgian company took the classic route, securing funds from banks and an export credit agency (ECA). It has received US$200M from Bank of China, China’s ECA Sinosure and Deutsche Bank. This vessel has yet to be fixed.

Finally, the 3.4 mta Coral South project, valued at US$8Bn, has taken a financing route common for large-scale projects. Using a project finance structure, it received debt funding in May of US$4.7Bn from international banks and ECAs.

Project finance structures are common in liquefaction projects that cost billions of dollars. However, Coral South is the first FLNG project to use this structure.

Future finance

Financing for future FLNG projects will reflect the size of the project and the type of sponsor. Gas majors are likely to turn to classic project finance, like Eni, or to use their balance sheets, like Petronas and Shell. Everything depends on:

  • The strength of a company’s balance sheet and whether it has partners.
  • The location of the project.
  • Company preference.

Projects using a vessel leased from a shipping company could continue to secure finance via sale and leaseback structures from Chinese providers, which often provide higher leverage than commercial banks and ECAs.

The financing could apply to the vessel only, as with Hilli, or to the vessel and other parts of the project, as with Gandria, where part of the upstream is being financed.

We will have to wait and see whether tried and tested patterns emerge, or whether the next generation of FLNG projects embraces new funding methods. And, of course, as with land-based projects, difficult market conditions have led to many FLNG projects delaying their final investment decisions.

Melanie Lovatt is finance advisor at the Business Intelligence division of Poten & Partners, based in Cyprus. A version of this article appeared in Gastech Insights