SMALL SCALE LNG CATALYST FOR GROWING GAS MARKETS. April 24-25, 2018

Transcription

1 SMALL SCALE LNG CATALYST FOR GROWING GAS MARKETS April 24-25, 2018

2 Access to Reliable Energy In the Emerging Market context, small-scale LNG demand could comprise of small (<200 MW) LNG-to-Power, off-grid distributed LNG market, conversion of transportation fleets to run on CNG/LNG, conversion of industrials from diesel usage to LNG, etc. As an illustration, Emerging Market countries with scope for increased access to energy where LNG terminals currently operate, LNG developments underway or being contemplated: Bangladesh (62%) Cameroon (57%) Cote d Ivoire (62%) Ghana (78%) India (79%) Kenya (36%) Mauritania (39%) Mozambique (21%) Myanmar (52%) Namibia (50%) Existing LNG terminals or potential for future terminals LNG schemes are underway or being contemplated Nigeria (58%) Papua New Guinea (20%) Senegal (61%) The Gambia (47%) South Africa (86%) Botswana (57%) Lesotho (28%) Swaziland (65%) Zambia (28%) Zimbabwe (32%) Tanzania (16%) Source: World Bank, Sustainable Energy for All,

3 Evolution of IFC s Focus on Gas Value Chain Revamped focus area for IFC as it provides high economic value and development impact investment opportunities in Emerging Markets 3 Primary area of focus for IFC the prior 20 years in O&G sector

4 What Has Made the Recent Emerging Market Gas Evolution Possible? A Confluence of Unique Developments 1 Cheap and abundant LNG supply Growth of the North American LNG supply option Increased large gas finds has lead to LNG developments in Emerging Markets and increased role of smaller producers The role of LNG aggregators/traders 2 Rapid Evolution in Technical Solutions Advent of FSU/FSRU has significantly reduced the midstream constraints Small-scale LNG liquefaction has enabled modular gas distribution schemes FLNG schemes have enabled stranded gas fields to be monetized into riskdiversified LNG schemes with more manageable incremental LNG supply 3 Structural Changes in the LNG Market Economic downturn-led disruption to longstanding SPA standards have actually made the supply of LNG more flexible, growth of spot market Shorter and more flexible off-take contract appeals to new potential buyers Acceptance of lower credit SPA counterparties => Emerging Markets New Emerging Market Gas Demand Integrated LNG-to-Power solutions even in merchant power markets Gateway (floating) LNG terminals to supply power and other usages Distributed small-scale LNG concepts for off-grid solutions Open access (floating) LNG terminals on a willing buyer-seller basis 4

5 The Case of Southern Africa Restricted regional zones where access to gas is available in constrained volumes and large portions of the coastal area deemed not suitable for LNG importation terminals The region has in excess of 40,000 MW of coal-fired power plants and heavy use of diesel oil for industrial energy needs. In addition to gasfired power generation, modernizing the economies through gas usage is essential. Roughly 200 bcf/year of natural gas, equivalent of 3.9 Mtpa LNG, flows from Pande-Tamane field Western & Southern Cape deemed not suitable to host an LNG import terminal 5 Diminishing offshore supplies to PetroSA GTL plant

6 The Case of Southern Africa Firm plans are in place to grow flexible, gas-fired power generation in the region Standalone L2P & G2P IPP schemes will significantly strengthen power supplies, promote lower carbon generation and RE penetration, but likely will not further the growth of the non-power gas market. 480 MW Gas-to- Power IPP by ,000 MW LNG-to- Power IPP by ,000 MW LNG-to- Power IPP by

7 The Case of Southern Africa Plan to grow the non-power gas market through small-scale LNG distribution network, on the basis of future LNG-to-Power schemes IFC promoting landed natural gas to be converted through smallscale LNG scheme into vast trucking operations to cover most of Western Cape industrial region and part of Namibia and Botswana. Est Mtpa demand by MW Gas-to- Power IPP by ,000 MW LNG-to- Power IPP by ,000 MW LNG-to- Power IPP by 2025 IFC promoting bring forward FSRU associated with IPP, to 2022, to grow other gas usage, including trucking of LNG for industrial and mining usage. This demand is estimated at 0.5 to 1.0 Mtpa of LNG 7 Viable estimated range for 20-tonne LNG truck around 1,200 km with good infrastructure & LNG-on-Diesel market

8 Similar Small-Scale LNG Operations in With increased likelihood LNG flow into Emerging Markets, IFC is experiencing an uptick in investment opportunities in small-scale LNG schemes India In appraisal to invest in a large-scale conversion of buses and heavy usage trucks currently running on diesel. Cheaper than diesel, reduces city pollution levels Jamaica May participate with NFE where LNG flows have already expanded beyond fueling power plants to also supply industries China Already invested in small-scale liquefaction, LNG transportation and 400 LNG filling stations for long-haul buses and trucks Indonesia Potential deal for breaking bulk of from conventional LNG terminals to serve the needs of smaller, distributed demand through dedicated LNG shipping and regasification infrastructure Dominican Republic Already invested in an LNG distribution scheme from an existing conventional LNG terminal 8

9 Unique Small-Scale LNG Investment Risk Factors Is the risk worth the reward? - Significant deviation from typical concession-based IPP project financing. Effectively selling energy into merchant markets, with price and demand variability, cross-currency risks, and extensive retail aspects to the business model - As much a logistics operation as an energy infrastructure investment, calling for crosssector sponsor experience and operations - Gas price and gas transportation price regulations subject annual review and redetermination causing additional commercial risks. Full pass through of indices such as Brent and Henry Hub might be not always be possible - Unique technological solutions that primarily comprise of a small-scale LNG concept custom made shipping vessels, ISO containers, road transport vehicles are most often not readily transferable or adaptable to general LNG value chain elsewhere - Lack of scale within small-scale LNG solutions or inability to scale up to match demand Especially when combining small-scale LNG projects with LNG-to-Power project financing, the project finance cultural difference between the two types of investments should not be underestimated. But the underlying projects complement each other. 9

10 Financing Considerations for Small-Scale LNG Projects Common Sense Risk Mitigation Measures - If the investment is an add on feature to existing natural gas field operation or LNG import terminal operation, it is already significantly de-risked (i.e., break-bulk type operation) - Initially more conservative capital structure, gradually increasing leverage - Increases ability to withstand regulatory risks - Manage inability to readily pass through index variations - Reduces susceptibility to natural gas demand variation - Less of a focus on asset security and more on market growth - Local/regional currency long-term debt and therefore the ability of the local capital markets to finance the investment needs - Depend on lease arrangements to the extent possible reducing capital expenditure - Ensure fundamental commercial basis for the project is long-term gas-on-diesel value proposition - In most markets, first mover advantage critical to success Above all, partner with IFC who generally will have extensive local infrastructureenergy investment experience, access to flexible long-term local currency lending and a strong appetite for early equity through entrepreneurial partnerships! 10

11 Long-term, Flexible and Cost-Effective Financing One stop shop for full range of adaptable financing instruments EQUITY Private placement in listed equities Traditional private equity Risk capital aimed at project development Typically 5-20% shareholding Not just financial investor, adding to shareholder value MEZZANINE / QUASI EQUITY SENIOR DEBT & EQUIVALENTS Subordinated loans Income participating loans Convertibles, preferred shares Corporate loans - Reserve based lending, Straight corporate debt, Partial credit guarantees for bonds Long-term project finance - Greenfield, Expansion Mobilization of funds from other lenders and investors, through financings, syndications, underwritings and guarantees Fixed and floating rates Local currencies Up to 20-year maturity 11

12 Thank You Haran Sivam e: o: m: Giancarlo Ortega e: o: m: Alan Townsend e: o: m: