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SMALL SCALE LNGCATALYST FOR GROWING GAS MARKETS
April 24-25, 2018
Access to Reliable Energy
As an illustration, Emerging Market countries with scope for increased access to energy where LNG terminals currently operate, LNG developments 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%)
Existing LNG terminals or potential for future terminalsLNG schemes are underway or being contemplated Source: World Bank, Sustainable Energy for All, 2014
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Bangladesh (62%)Cameroon (57%)Cote d’Ivoire (62%)Ghana (78%)India (79%)Kenya (36%)Mauritania (39%)Mozambique (21%)Myanmar (52%)Namibia (50%)
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.
Evolution of IFC’s Focus on Gas Value ChainRevamped focus area for IFC as it provides high economic value and development impact investment opportunities in Emerging Markets
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Primary area of focus for IFC the prior 20 years in O&G sector
What Has Made the Recent Emerging Market Gas Evolution Possible?A Confluence of Unique Developments…
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Cheap and abundant
LNG supply
New Emerging
Market Gas Demand
Structural Changes in
the LNG Market
Rapid Evolution in
Technical Solutions
• 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
• 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 risk-
diversified LNG schemes with more manageable incremental LNG supply
• 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
• 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
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The Case of Southern AfricaRestricted 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
Roughly 200 bcf/year of natural gas, equivalent of 3.9 Mtpa LNG, flows from Pande-Tamane field
Diminishing offshore supplies to PetroSA GTL plant
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 gas-fired power generation, modernizing the economies through gas usage is essential.
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Western & Southern Cape deemed not suitable to host an LNG import terminal
The Case of Southern AfricaFirm plans are in place to grow flexible, gas-fired power generation in the region
2,000 MW LNG-to-Power IPP by 2025
1,000 MW LNG-to-Power IPP by 2025
480 MW Gas-to-Power IPP by 2022
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.
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The Case of Southern AfricaPlan to grow the non-power gas market through small-scale LNG distribution network, on the basis of future LNG-to-Power schemes
2,000 MW LNG-to-Power IPP by 2025
1,000 MW LNG-to-Power IPP by 2025
480 MW Gas-to-Power IPP by 2022
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
IFC promoting landed natural gas to be converted through small-scale LNG scheme into vast trucking operations to cover most of Western Cape industrial region and part of Namibia and Botswana. Est. 0.3-0.5 Mtpa demand by 2022
Viable estimated range for 20-tonne LNG truck around 1,200 km with good infrastructure & LNG-on-Diesel market
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Similar Small-Scale LNG Operations in…
IndiaIn 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
JamaicaMay participate with NFE where LNG flows have already expanded beyond fueling power plants to also supply industries
ChinaAlready invested in small-scale liquefaction, LNG transportation and 400 LNG filling stations for long-haul buses and trucks
IndonesiaPotential 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 RepublicAlready invested in an LNG distribution scheme from an existing conventional LNG terminal
With increased likelihood LNG flow into Emerging Markets, IFC is experiencing an uptick in investment opportunities in small-scale LNG schemes
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Unique Small-Scale LNG Investment Risk Factors
- 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 cross-sector 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
Is the risk worth the reward?
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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.
Financing Considerations for Small-Scale LNG ProjectsCommon 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 infrastructure-energy investment experience, access to flexible long-term local currency lending and a strong appetite for early equity through entrepreneurial partnerships!
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Long-term, Flexible and Cost-Effective Financing
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› Subordinated loans› Income participating loans› Convertibles, preferred shares
› 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
› 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
EQUITY
MEZZANINE / QUASI EQUITY
SENIOR DEBT &
EQUIVALENTS
› Fixed and floating rates
› Local currencies
› Up to 20-year maturity
One stop shop for full range of adaptable financing instruments
Thank You
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Haran Sivame: [email protected]: +1-202-473-1113m: +1-202-415-0356
Giancarlo Ortegae: [email protected]: +1-202-458-9738m: +1-202-403-1694
Alan Townsende: [email protected]: +1-202-473-8654m: +1-202-600-6982
