SMALL SCALE LNG CATALYST FOR GROWING GAS MARKETS April 24-25, 2018 - - PowerPoint PPT Presentation

SMALL SCALE LNG

CATALYST 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 terminals LNG 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 Chain

Revamped focus area for IFC as it provides high economic value and development impact investment

• pportunities 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… 1 2 3

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 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

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

• il 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 Africa

Firm 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 Africa

Plan 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

• perations 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…

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 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 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 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 Sivam e: hsivam@ifc.org

• : +1-202-473-1113

m: +1-202-415-0356 Giancarlo Ortega e: gortega@ifc.org

• : +1-202-458-9738

m: +1-202-403-1694 Alan Townsend e: atownsend1@ifc.org

• : +1-202-473-8654

m: +1-202-600-6982