Saturday, 19 January 2019

On the gas with projects in 2014

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It was another eventful year for the global project market, particularly in the LNG sphere – where the US LNG project finance market finally came of age. Three mega deals were done, in addition to the constant fundraising programme undertaken by Sabine. And hey, as gas prices fell at year-end, importers started to get in on the act too.

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But it isn’t all plain sailing. The very existence of the new US projects, and associated oil production too, is one reason why the energy markets are in such a state of flux. US production is pushing global oil and gas prices down and who knows where they will end up.

For LNG, the market sector that has been a serial user of project finance over the last two decades, US projects have introduced the new, to LNG, Henry Hub pricing model and, quite frankly, it had all got a bit confusing. Here’s what Frank Harris of Wood Mackenzie said at the PFI LNG roundtable event during the summer.

“There are a whole lot of risks appear that I’m not sure everybody is really thinking through, such as buying US LNG linked to Henry Hub, selling national balancing point (NBP). The really scary one is somewhere in East Africa selling LNG on a linkage to Henry Hub, where their fundamental cost of production has no linkage to Henry Hub at all; I’m not sure that one has really been thought through.”

By late October an Osaka Gas official said Henry Hub was competitive with the Japanese crude cocktail (JCC) pricing formula at above US$70. We are now down into the low 60s.

Still, what to do with gas is a joy compared with the straits other project developers found themselves in. Yamal LNG was the big European project finance hope for 2014 but it soon hit the deep ice when the Ukrainian crisis blew up in March. Even the huge ice breakers the project has on order can do little to shift the obstacles in its way now.

US Russian sanctions applied in the summer meant that no less a name than Mr LNG himself, Bill Voge, had to tell his colleagues that working on the Yamal financing was over. L&W and White & Case partners, who jointly had legions working on the deal were more than a little upset. Still, the overseas financial adviser SG stuck with the deal … well for a month or two … to be replaced by its close rival China Development Bank.

In Egypt, gas was being produced. Well actually it is being produced but unfortunately it is now being diverted away from the LNG schemes – Segas and ELNG 1&2. This sometimes happens to projects, for one reason or another they simply lose their economic rationale. In Europe, a few project-financed gas-fired thermal power stations are now not running but being kept open in order to pay debt service from tolling contracts. In Egypt, the three LNG trains involved are being run on a care and maintenance basis in order to pay the lenders. BG called force majeure on its ELNG trains early in the year.

Then a neat, perhaps too neat, solution emerged. Why not send gas from the monster Leviathan field off the Israeli coast into the idle Egyptian LNG schemes. It really is neat. The Leviathan sponsors would not have to build expensive bits of LNG kit and Segas and ELNG 1&2 would get plenty of gas. Well, apart from one minor detail….! Still, BNP to the rescue.

So now it is the turn of the importers. Regas terminals and plenty of new gas-fired IPPs please!

Death. Never far away and of course the same this year. The death of the Total CEO, Christophe de Margerie, The Big Moustache and Mr Middle East, on a Moscow airport runway was perplexing to say the least. He had pushed his company into new and exciting Y areas - Yemen LNG and then Yamal LNG. Indeed he was continuing to push Yamal until the day he died.

One tragic consequence of the Ukrainian problem was the downing of a Malaysian airline over Ukrainian airspace in July and the loss of all on board, including the highly regarded Therese Brouwer, a managing director at ING and head of structured finance utilities, power and renewables for EMEA, and her family. Her colleagues still speak fondly of her.

And back in March, we lost one of our colleagues Alan Gersten, who covered the Latin American markets for PFI for eight years. I came across his last bylined story for PFI, on February 26, recently and was stuck dumb for a few seconds. He is sadly missed.









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