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The Financing of Gas Projects Enrico Grassi Principal Banker, Natural Resources EBRD.

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Presentation on theme: "The Financing of Gas Projects Enrico Grassi Principal Banker, Natural Resources EBRD."— Presentation transcript:

1 The Financing of Gas Projects Enrico Grassi Principal Banker, Natural Resources EBRD

2 2 EBRD – Who are we? International financial institution, owned by 60 countries and two inter-governmental institutions Promotes transition to market-based economies in 27 countries from central Europe to central Asia Capital base of 20 billion Cumulative commitments 21.7 billion

3 3 EBRD facilities Loans Guarantees Equity All risk guarantees Specific risk guarantees (e.g. political) Commodity-backed instruments Trade facilitation programme Non/partial recourse to sponsors Project specific Hard/local currency Medium and long term Floating/fixed rates New equity Privatisation Quasi-equity

4 4 EBRD Natural Resources portfolio 1.7 billion committed to 10 billion projects Future portfolio will be more diversified: –60% oil / 40% gas –20% pipeline and downstream projects –significant growth in regional projects involving several countries Oil and Gas Extraction Metal Ore Mining Pipeline Transportation Petroleum Refineries

5 5 The Financing Gas/LNG Projects

6 6 Why the world go for Natural Gas? Improvements in combined cycle gas turbine power generation drove increase in gas consumption Environmental concerns Concerns regarding stable oil supplies Reduction in investment requested along the whole chain Big gas reserves in the oil companies books

7 7 How to bring gas to the market which is far? The answer is LNG

8 8 What are the challenges to the market players who want to participate in LNG rush? (1) LNG projects require huge investments and have long payoff periods: today prices are high but what may happen if they collapse? High gas prices is good news for the oil companies not for consumers: will the market reconsider coal and re-evaluate nuclear power?

9 9 What are the challenges to the market players who want to participate in LNG rush? (2) LNG prices have been historically indexed to oil but more and more starting being priced against hub gas prices: how to understand the trend of new pricing? Market see many greenfield projects: to which extent the financial world will accept the risk and on which terms?

10 10 How LNG market has changed in the recent years? Contracts are characterised today by flexibility in: destination volumes duration Development of the spot market Shipping arrangements are moving from DES to FOB

11 11 Why oil companies look for MLA/ECAs financing? To share the risk and to receive: Political cover Longer maturities Flexible repayment profile Leadership in large scale financing Knowledge of and experience in gas/LNG projects

12 12 What are the classic challenges in financing gas and LNG projects? (1) Construction / Completion Risk –contractual structure (delays, cost over-runs, etc.) Operational Risk –technological integration and experience / viability Utilisation / Supply Risk –type of throughput arrangement –fundamentals (Market/Competition)

13 13 What are the classic challenges in financing gas and LNG projects? (2) Competition / Market –effect of oil price (linked to gas and oil products) –regional supply / demand –impact on tariff Political & Regulatory Risks –regulatory intervention (tariffs & export volumes) –political turmoil / disputes / violence / nationalisation –discriminatory taxation

14 14 Risks and their mitigation Economic & financial –minimised through financial package and due diligence Technical risks –reliance on strong and technically competent sponsor Environmental risks –sponsor commitment to appropriate guidelines Political risks –minimised through involvement of IFIs and ECAs

15 15 Available Financing Sources Equity –Strategic investors(oil and gas majors) –Investment funds (limited scope) –IFIs (EBRD, IFC) Debt Financing –IFI's (EBRD, IFC) (own funds) –EIB(European portion) –Commercial banks (participating in IFI B Loans) –ECAs(Hermes, Coface, JBIC, Exim…) Capital Markets –Equity (IPO's) –Bonds

16 16 Debt as Financing Source Loans –Tailor made instruments with negotiated conditions –Bank lenders familiar with different structures Bonds –Relatively rapid issuance process –No covenants for straight instruments –Tradable instruments –But lack of flexibility

17 17 Each LNG project consists of a continuous chain of activities linking the gas production to the gas user Production Oil & Gas field development and pipelines Regasification LNG receiving terminal Shipping LNG tankers Liquefaction LNG plant and oil & LNG export terminal This Project Sakhalin II Project (1 of 3)

18 18 Sakhalin II Project (2 of 3)

19 19 Sakhalin II Project (3 of 3) Oil & Gas pipelines stretching the length of the island Additional offshore platform Development of Lunskoye gas field through offshore platform Construction of LNG plant and oil export terminal

20 20 Shah Deniz Project – Overview (1 of 4) Reserves: proven and probable gas-in-place of approximately 31 trillion cubic feet (tcf) – world class reserves; likelihood of an additional 22 tcf Project: 4-stage development of the Shah Deniz gas and condensate field with Stage 1 cost of USD 2.3 billion Local participation: State Oil Company of Azerbaijan Republic (SOCAR) also holds a 10% interest in this project (through AzSD: EBRD will part-finance their cash calls)

21 21 South Caucasus Pipeline – Overview (2 of 4) Pipeline route: a 690 km gas pipeline starting at the Sangachal Terminal, traversing Azerbaijan and Georgia and connecting with the BOTAS domestic gas distribution system at the Georgian-Turkish border Construction & timing: SCPs Right of Way runs parallel to BTC and construction of SCP will occur concurrently with that of BTC Capacity & cost: a peak capacity of over 20 billion cubic feet (bcf) per annum and will cost over USD 1 billion

22 22 South Caucasus Pipeline – Route (3 of 4)

23 23 SD and SCP Project – Sponsors (4 of 4)

24 24 Contact Details Enrico G. Grassi Principal Banker Natural Resources Team European Bank for Reconstruction and Development 1 Exchange Square London, EC2A 2JN Tel. 44 (0) Fax 44 (0)

25 25 More information:


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