Financial Services Monitor: FLNG Closer to Project Financing

“Project financing for floating LNG (FLNG) projects is getting closer to being realized, tanker consultancy Poten and Partners is predicting. China’s Export-Import Bank and the World Bank’s International Finance Corp. are planning to offer funding to the Caribbean FLNG project in Columbia. Other ways of financing projects can be seen in the example of Ophir Energy, which is looking to monetise its Block R reserves in Equatorial Guinea through FLNG. Risk for commercial banks ‘Ideally, commercial banks would like to see an FLNG operating track record before they consider providing funding via a project finance structure,’ Poten said. This is due to the nascence of FLNG, which brings with it new technology risks. ‘Even if they embraced it, banks would charge a hefty premium.’ “So far only four projects have achieved final investment decision (FID). These are Shell’s Prelude FLNG (the first project to be reach FID), Exmar and Pacific Rubiales’ Caribbean FLNG, and two Petronas FLNG projects offshore Malaysia. But bankers do believe that FLNG can secure commercial bank funding via project financing Poten said. “Given FLNG is new technology, project completion support and stringent completion testing before this support is released will be required by lenders at least for the first few projects,’ said Poten. This should not be a problem for the bigger players, but for smaller companies, ‘There can be a big mismatch between the required FLNG capital expenditure, typically $2 billion-plus, and the balance sheet of the project sponsor and/or the service company providing the FLNG vessel on a charter basis.'”