Funding diversity for 6 FLNG projects

Melanie Lovatt's picture
Melanie Lovatt, Finance Advisor, Poten & Partners
Comments: 1

If all things go according to plan for the sponsors of the Fortuna project in Equatorial Guinea, three floating liquefaction (FLNG) projects will manage to complete their fundraising this year. Fortuna would join Eni-led Coral South in Mozambique and Exmar’s Caribbean FLNG.

Looking at the funding for these three projects and the three other FLNG projects that completed their funding prior to 2017 shows funding diversity is already emerging in this nascent sector:

1. Malaysia’s Petronas: Shipped the first cargo from 1.2-MMt/y PFLNG Satu in April 2017 and financed its unit from its own resources.

2. Shell: Took the same route by using its balance sheet to finance the giant Prelude FLNG, the largest floating offshore structure ever built. Prelude, which weighs 600,000-t vessel with its tanks full, arrived at its offshore location in northwest Australia in July 2017.

3. Golar LNG: Attracted $960 million worth of funding in July 2015 for its 126,200-m3Hilli Episeyo from Chinese company CSSC (Hong Kong) Shipping Co. Ltd, which provided the funds in a sale and leaseback structure. The cost of converting the Hilli, a 42-year-old LNG carrier transformed into an FLNG unit at Singapore’s Keppel yard, was estimated at $1.2 billion. The Hilli Episeyo is scheduled to leave the yard for its nearshore location in Cameroon at the end of the third quarter.

4. Fortuna: Financing for the Gandria – another converted Golar LNG carrier – will also be provided via a sale and leaseback structure from Chinese lenders. The overall cost of the project is about $2.1 billion, with about $1.2 billion to be debt financed. The cost of the vessel is estimated at $1.5 billion, with the upstream part of the project accounting for the remaining cost. The Gandria is costing more than the Hilli Episeyo due to the equipment needed to contend with the harsher conditions of a more open marine environment.

LNG shipping companies have stepped up their use of Chinese funding provided in the form of sale and leaseback structures, using this type of funding for LNG carriers, FRSUs and FLNG units.

5. Exmar: For its newbuild 0.5-MMt/y Caribbean FLNG unit, costing $300 million, the Belgian company took a more classic route, securing funds from banks and an export credit agency (ECA), receiving $200 million from: Bank of China, China’s ECA, Sinosure and Deutsche Bank.

6. Coral South: The 3.4-MMt/y project, which is costing around $8 billion, also took a financing route that is common for large-scale projects. It used a project finance structure and received debt funding totaling around $4.7 billion from international banks and ECAs. Project finance structures are commonly used in liquefaction projects, which cost billions of dollars, although Coral South is the first FLNG project to use this structure.

The financing methods used for future FLNG projects are likely to be determined by the size of the project and the type of sponsor. Gas majors are likely to turn to either classic project finance, like Eni, or use their balance sheets, like Petronas and Shell. This will depend 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 see these units financed via sale and leaseback structures from Chinese providers, which can often provide higher leverage than commercial banks and ECAs. The financing could be applied to the vessel only, as with the Hilli, or the vessel and other parts of the project, as with the Gandria, where part of the upstream is being financed.  

However, it might take a while to see if these tried and tested patterns emerge, or if new funding methods are embraced. Like land-based projects, many FLNG projects have seen their final investment decisions delayed as a result of the difficult market conditions.

Share your insights and join the conversation: Where do you see the FLNG industry progressing in the next 10 years? Leave your comment below.

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