A lender’s perspective on the most attractive gas pricing index

Luca Tonello's picture
Luca Tonello, Deputy General Manager and Head of Project & Export Finance, Sumitomo Mitsui Banking Corporation
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With LNG finding a role as a fuel of choice in new markets, there has been a significant increase in demand. The most notable increase comes from Asian markets, with China’s LNG consumption dramatically increasing by approximately 35% each year.

Participating at the 2017 Gas Asia Summit in Singapore 25-27th October, Gastech Insights spoke Deputy General Manager and Head of Project Finance for Asia, Luca Tonello, to discover more about sourcing capital to support upcoming projects in Asia and the rest of the world.

Gastech Insights: What are the main challenges in the emerging LNG market and how can we overcome these?

Luca Tonello: The main challenges to address are: Gas demand forecast and its ramp-up period, as well as investment in related infrastructure, such as pipeline and gas fired power plant / petrochemical plants.

As most of the emerging LNG market are looking for LNG as their strategic fuel, a key solution will be that the government will need to provide some comfort to investors in terms of the country usage and profile. This will provide confidence to LNG infrastructure investors as well as related infrastructure investors.

Gastech Insights: In relation to pricing index, what would you say is the most attractive in the buyers' market today?

Luca Tonello: The cheapest! The recent "switch back" to oil linked contracts somewhat confirmed that buyers are looking for competitive pricing, rather than any specific rationale behind a switch to hub pricing. Some form of middle ground will likely be attractive for both sides to ensure flexibility. From a lender’s perspective, they may welcome other indexes provided there is enough depth of contracts and history to model future behaviour so as to assess the cashflow profile of the project, so we believe regional hub pricing will also be used more in the future.

Gastech Insights: How can more capital be sourced to support upcoming big projects?

Luca Tonello: Export Credit Agencies continue to play a key role in financing the multi-billion projects. We have also seen renewed interest from multilateral agencies on receiving terminal projects, as these are vital for the development of the power infrastructure in a lot of countries. As well as these, commercial banks who have extensive experience in PF and the LNG value chain will continue to play a leading role.

Gastech Insights: With Asia's emerging LNG markets set to import approximately 16 mmtpa by 2025, what can they learn from successful LNG project financing?

Luca Tonello: Innovative solutions to ensure appropriate risk allocation is important. Successful LNG project financing tends to have precise risk allocation through a robust contractual structure. Getting experienced advisors and consultants will also help mitigate any execution risk in terms of "making things happen" in such complex projects.

Gastech Insights: Speaking at this year's Gas Asia Summit in October, what are you most looking forward to?

Luca Tonello: Meeting industrial experts to share views and come up with solutions to problems so as to enable projects to move ahead!

Share your insights and join the conversation: Do you agree with Mr Tonello on the most attractive pricing index in today’s buyers’ market? Leave your comment below.

The Gas Asia Summit will feature a 3-day conference programme, offering business critical strategic insights and innovative technological solutions to help you stay on top of regional developments. Download the full agenda and register now.

Image courtesy of Sumitomo Mitsui Banking Corporation