The Bankability of LNG
Standard Bank’s Paul Eardley-Taylor discusses landmark LNG financing deals in the first of a two-part series.
What do you see as the trends in financing for Africa’s oil and gas sector in 2018?
Generically, it depends on what aspects of the sector you are in.
In upstream, reserved-based lending projects have been traditionally more equity financed and that continues to be the case. With the recovering oil price, we see more private equity interests moving into the market.
Midstream can be leveraged. The challenge with midstream is always making sure the connection is there between the upstream and downstream markets.
Downstream continues to be a great source of opportunity for trade finance and also corporate facilities.
One of the big things that is coming through — and this is something that is being talked about at AOP — is the development of mega projects, where you have multi-billion-dollar projects that represent a high percent of the country’s GDP, and in many cases are in new resource countries. And that is one of the big things that we see coming through.
Mozambique’s Coral FLNG is one of few mega projects to reach FID. What was attractive about that project for Standard Bank? What sets that particular project apart?
In that particular case, you have a project that was the world’s first project-financed FLNG and Standard Bank was very proud to be the only African bank involved in the project and also the largest commercial lender. What is interesting for us about that project, is really a few aspects.
First — the overall development of Coral is about 75 percent to 80 percent of country GDP, including the upstream portion. The debt piece on its own is around 40 percent of the country’s GDP.
It is a major technology innovation in the sense of FLNG project financing, which showed it can be done in a country such as Mozambique with no history of offshore LNG production at that stage. Probably most important of all, it is the launchpad for the long-awaited major gas development in Mozambique.
Even as Mozambique’s FLNG project moves forward, other mega projects across the continent are struggling to get to FID. What factors have influenced the success of LNG in Mozambique but not yet others, such as Fortuna FLNG and Rovuma LNG?
I think what is important about the LNG market at the moment is to try and design individual projects for the target customer base – the offtaker. Without talking too much about particular countries and projects, what was interesting in the Coral case was that the medium-sized nature of the project lends itself to a single offtaker.
When you generically go into a higher scale of LNG — the mega projects that are 10 million tonnes per annum and above like Mozambique LNG, Rovuma FLNG and so on — you need one of two things. You either need an ability to sell to multiple offtakers, which by definition does take more time to be executed, or you need a situation where you have a sponsored route that is established enough and strong enough in the market to offer equity listing as an option. And that breaking of the golden knot with the offtaker allows an acceleration of project development.
When you get to the smaller sized projects, you obviously have dis-economies of scale compared to larger projects, although they can be made more convenient with a single offtaker. But in those cases, you have technology innovation, so in many cases adaptation of vessel and that can make it a little harder to raise debt financing. So bankability issues are raised, and you are depending more on equity funding.
There are increasingly developed models for a medium-sized project, such as Coral. I think what is interesting, and this is really a topic for the future of Africa, is small-scale LNG. This is something that a lot of people are developing and we are aware of a number of cases in Asia and we are having preliminary conversations about others about how small-scale LNG can be rolled out in Africa.
Paul Eardley-Taylor will take part in The Outlook on Mega Projects panel at Africa Oil & Power 2018, on September 5-7, 2018. Register online to get your delegate pass.