1. The Financing of Gas Projects
Enrico Grassi
Principal Banker, Natural Resources
EBRD

2. EBRD – Who are we?
International financial institution, owned by 60 countries and two inter-governmental institutions
Promotes transition to market-based economies in 27 countries from central Europe to central Asia
Capital base of € 20 billion
Cumulative commitments € 21.7 billion

3. EBRD facilities Guarantees Loans Equity All risk guarantees
Specific risk guarantees (e.g. political)
Commodity-backed instruments
Trade facilitation programme
Non/partial recourse to sponsors
Project specific
Hard/local currency
Medium and long term
Floating/fixed rates
New equity
Privatisation
Quasi-equity

4. EBRD Natural Resources portfolio
€1.7 billion committed to €10 billion projects
Future portfolio will be more diversified:
60% oil / 40% gas
20% pipeline and downstream projects
significant growth in “regional” projects involving several countries
Petroleum Refineries
Metal Ore Mining
Pipeline Transportation
Oil and Gas Extraction

5. The Financing Gas/LNG Projects

6. Why the world go for Natural Gas?
Improvements in combined cycle gas turbine power generation drove increase in gas consumption
Environmental concerns
Concerns regarding stable oil supplies
Reduction in investment requested along the whole chain
Big gas reserves in the oil companies books

7. How to bring gas to the market which is far? The answer is LNG

8. What are the challenges to the market players who want to participate in LNG rush? (1)
LNG projects require huge investments and have long payoff periods:
today prices are high but what may happen if they collapse?
High gas prices is good news for the oil companies not for consumers:
will the market reconsider coal and re-evaluate nuclear power?

9. What are the challenges to the market players who want to participate in LNG rush? (2)
LNG prices have been historically indexed to oil but more and more starting being priced against hub gas prices:
how to understand the trend of “new” pricing?
Market see many greenfield projects:
to which extent the financial world will accept the risk and on which terms?

10. How LNG market has changed in the recent years?
Contracts are characterised today by flexibility in:
destination
volumes
duration
Development of the spot market
Shipping arrangements are moving from DES to FOB

11. Why oil companies look for MLA/ECAs financing?
To share the risk and to receive:
Political cover
Longer maturities
Flexible repayment profile
Leadership in large scale financing
Knowledge of and experience in gas/LNG projects

12. What are the classic challenges in financing gas and LNG projects? (1)
Construction / Completion Risk
contractual structure (delays, cost over-runs, etc.)
Operational Risk
technological integration and experience / viability
Utilisation / Supply Risk
type of throughput arrangement
fundamentals (Market/Competition)

13. What are the classic challenges in financing gas and LNG projects? (2)
Competition / Market
effect of oil price (linked to gas and oil products)
regional supply / demand
impact on tariff
Political & Regulatory Risks
regulatory intervention (tariffs & export volumes)
political turmoil / disputes / violence / nationalisation
discriminatory taxation

14. Risks and their mitigation
Economic & financial
minimised through financial package and due diligence
Technical risks
reliance on strong and technically competent sponsor
Environmental risks
sponsor commitment to appropriate guidelines
Political risks
minimised through involvement of IFI’s and ECA’s

15. Available Financing Sources
Equity
Strategic investors (oil and gas majors)
Investment funds (limited scope)
IFI’s (EBRD, IFC)
Debt Financing
IFI's (EBRD, IFC) (own funds)
EIB (European portion)
Commercial banks (participating in IFI B Loans)
ECAs (Hermes, Coface, JBIC, Exim…)
Capital Markets
Equity (IPO's)
Bonds

16. Debt as Financing Source
Loans
Tailor made instruments with negotiated conditions
Bank lenders familiar with different structures
Bonds
Relatively rapid issuance process
No covenants for straight instruments
Tradable instruments
But lack of flexibility

17. Sakhalin II Project (1 of 3)
Each LNG project consists of a continuous chain of activities linking the gas production to the gas user
This Project
Production
Oil & Gas field development and pipelines
Liquefaction
LNG plant and oil & LNG export terminal
Shipping
LNG tankers
Regasification
LNG receiving terminal

18. Sakhalin II Project (2 of 3)

19. Sakhalin II Project (3 of 3)
Additional offshore platform
Oil & Gas pipelines stretching the length of the island
Development of Lunskoye gas field through offshore platform
Construction of LNG plant and oil export terminal

20. Shah Deniz Project – Overview (1 of 4)
Reserves: proven and probable gas-in-place of approximately 31 trillion cubic feet (tcf) – world class reserves; likelihood of an additional 22 tcf
Project: 4-stage development of the Shah Deniz gas and condensate field with Stage 1 cost of USD 2.3 billion
Local participation: State Oil Company of Azerbaijan Republic (SOCAR) also holds a 10% interest in this project (through AzSD: EBRD will part-finance their cash calls)

21. South Caucasus Pipeline – Overview (2 of 4)
Pipeline route: a 690 km gas pipeline starting at the Sangachal Terminal, traversing Azerbaijan and Georgia and connecting with the BOTAS domestic gas distribution system at the Georgian-Turkish border
Construction & timing: SCP’s Right of Way runs parallel to BTC and construction of SCP will occur concurrently with that of BTC
Capacity & cost: a peak capacity of over 20 billion cubic feet (bcf) per annum and will cost over USD 1 billion

22. South Caucasus Pipeline – Route (3 of 4)

23. SD and SCP Project – Sponsors (4 of 4)

24. Contact Details Enrico G. Grassi Principal Banker
Natural Resources Team
European Bank for
Reconstruction and Development
1 Exchange Square
London, EC2A 2JN
Tel.   44 (0)
Fax   44 (0)

25. More information: www.ebrd.com