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FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
FSRU RISK MANAGEMENT AND CONTROL
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FSRU RISK MANAGEMENT AND CONTROL

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FSRU (Floating Storage and Regasification Unit) LNG Terminal is the disruptive technology becoming the most popular solution for countries needing natural gas for their power, fertiliser and transport …

FSRU (Floating Storage and Regasification Unit) LNG Terminal is the disruptive technology becoming the most popular solution for countries needing natural gas for their power, fertiliser and transport sectors. This presentation is to understand the Risk Management, Financing, and insurance issues connected with this industry

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  • 1. RISK MANAGEMENT IN LNG FSRU PERSPECTIVES IN PROJECT FINANCE CONTRACT STRUCTURES IN LNG CHAIN & INSURANCE  BY HIMADRI BANERJI  EX CEO RELIANCE ENERGY  MD ECOURJA 1 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 2. PRESENTATION FLOW  INTRODUCTION TO FSRU  KEY RISK ISSUES  RISK ALLOCATION AND CONTROL  THE CHANGING PARADIGM : NON RECOURSE FINANCING “A REALITY IN LNG FSRU PROJECTS”  EVOLVING CONTRACT STRUCTURES FOR R-LNG FSRU  EVOLVING INSURANCE LNG FSRU TERMINALS 2 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 3. 3 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 4. INTRODUCTION The face of global LNG is changing. Oil majors are shifting from 'Traditional LNG' to 'Frontier LNG' by employing cutting-edge technology to realize value in an increasingly tighter gas market. Floating LNG , FSRU, is a ground-breaking innovation based on the integration of two existing technologies: Traditional LNG Processing and Yard /Shipping construction. 4 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 5. INTRODUCTION A series of key players are already positioned to develop mid-scale 'stationary' facilities (Shell, Petrobras, GDF) or working on smaller scale 'nomad' facilities, more appropriate for smaller LNG players (Delek, Flex). Due to the relatively unproven technology of FSRU we will focus on assessing the main risks of the FSRU (during completion and operation) and delivering the appropriate structures to mitigate risks to make them bankable on the Project Finance Market. 5 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 6. INTRODUCTION There are currently 11 FSRUs in operation and an additional 33 in various stages of construction. In Asia alone, we may soon see as many as 20 new FSRU projects. The region’s regas demand is expected to grow by 7.5 billion cubic feet per day over the next five years, while an FSRU has an average regas capacity of 350 million cubic feet per day. There are four types of construction that fall under the FSRU category: •Jetty based ship-to-ship transfer where vaporizers are installed onboard one ship, is perhaps the most conventional. •Buoy import systems involving subsea gas pipelines and LNG vaporization ships. •Island jetty based ship-to-ship transfer systems. •Converted LNG carriers with turret, subsea pipeline and vaporizer systems. 6 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 7. 7 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 8. 8 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 9. KEY RISK ISSUES LNG FSRU It is often said that the essential characteristic of project finance is the methodology of risk identification and subsequent risk allocation. Before entering into a discussion of the financing-specific aspects of FSRU it is worthwhile reviewing the various component elements of the LNG chain form the perspective of risk analysis. THE LNG CHAIN Generally lumped together for obvious reasons, oil and gas are very different in a number of critical respects, transportation being the most important. Within the gas industry, the LNG business is in a class of its own due to the enormous investment in infrastructure involved and the resultant rigidity of the contractual relationships throughout the chain. For these reasons, it is almost improper to speak of a global LNG market, as the industry is more an accumulation of contractual monopolies. 9 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 10. KEY RISK ISSUES LNG FSRU GAS MARKET In North America and, to a lesser extent, in Northern Europe, the gas business is a commodity trade with numerous buyers and sellers and gas put into the system will be taken for a price, which will fluctuate in accordance with supply and demand. Elsewhere, gas tends to be produced only in response to a long-term gas offtake agreement. 10 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 11. 11 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 12. RISK ALLOCATION AND CONTROL IN LNG FSRU 1.Project Interdependency 2.Construction Risk • Delays in construction • Cost-Overruns • Performance below guaranteed parameters • Materials and Labor Cost and Availability 3. Operating Risk • Operator performance • Equipment failures • Increased operational costs • Labor Availability (e.g., seafarers) 12 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore 4.Upstream Supply Risk • Insufficient Reserves • Failure of Supply 5.Downstream Market Risk • Lack of Market Demand • Competing Fuels • Downstream Buyer Credit Risk • Natural Gas Pricing • Regulatory / Legal Regime
  • 13. RISK ALLOCATION AND CONTROL IN LNG FSRU 6. Credit & Payment Risk • Risk of Non-Payment • LNG or Gas Offtaker Creditworthiness • Charterer Creditworthiness 7. Liquidity Risk • Cost-overruns • Invoice and cash-flow mismatches • Commissioning and ramp-up periods 13 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 14. RISK ALLOCATION AND CONTROL IN LNG FSRU TERMINAL 8. Force Majeure • “Unforeseeable” risk • Acts of God • Inter-dependency of force majeure clauses throughout LNG Supply Chain • Force Majeure Clauses frequently not back-to-back 9. Political Risk • Governmental support for project • Permitting and Authorizations • Role of State in Supply, Transportation and Offtake 14 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 15. RISK ALLOCATION AND CONTROL IN LNG FSRU 10. Legal Risk • Breach of contract and non-performance • Enforceability • Contractual ambiguity or silence • Dispute resolution • Developed vs. Developing Regulatory Environment 11. General Economic Risk • LNG and Gas Demand and Supply • LNG Vessel Demand and Supply 15 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 16. Market Risks for FSRU 16 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 17. RISK ALLOCATION AND CONTROL IN LNG FSRU TERMINAL 17 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 18. RISK ALLOCATION AND CONTROL IN LNG FSRU TERMINAL 18 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 19. 19 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 20. Financing LNG FSRU Terminals The emergence of a new type of LNG buyers has stressed the need to adapt the finance structure of this capital-extensive industry. Developing markets such as India and China represent the largest potential for the LNG FSRU business while European nations, Japan, Korea and Taiwan’s consumption have stabilized for the last couple of years. Contrasting with investments backed on state-to-state agreements among high investment grade major oil companies and equivalent rated utilities, new LNG FSRU investments rely on below investment grade entities to ensure sufficient longterm revenues to support a multi-billion dollar investment chain…. the non recourse financing The issues raised by this situation are compounded by the approach being taken towards the financing of the different in-country components of the chain; the LNG port / import terminal / FSRU unit and storage on the one hand and the distribution network and power plants on the other hand, with the emphasis being placed on the private sector, IPPs and Clean Energy Development 20 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 21. Non Recourse Financing a Reality in LNG FSRU Terminals Key factors to success of non recourse financing The creation of a strong regulatory framework as well as The limitation of project risks allocated to the LNG Terminal Company. Risk Mitigated Project Contract Structure A well defined project risk allocation and control methodology Preference to Project Tolling Structure, which transfers some of the LNG import business risks such as supply and market risk on foreign or third parties. 21 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 22. Non recourse Financing a reality in LNG Import terminals 22 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 23. Non Recourse Financing Reality in FSRU Until the 1990s, the industry was largely financed on the back of state-to-state agreements among strong national counter-parties with the active involvement of high investment grade-rated major oil companies and equivalently rated utilities. The projects implemented over the past decade have seen an increasing reliance on limited recourse finance, but with high or medium investment grade countries on either end of the chain and very strong industry players managing the process. Significantly, the only large project during the period not fitting that approach or benefiting from structural supports to achieve that result, Nigeria NLG, was developed from sponsors’ own equity funds. Even those that were implemented using project finance for the most part involved a critical combination of host government’s supports and undertakings on the supply and offtake ends and the integration into the overall financing of multilateral agency or export agency credits. 23 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 24. 24 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 25. Evolving Project Contract Structure helps Risk Management Merchant 25 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 26. Evolving Project Contract Structure helps Risk Management TOLLING STRUCTURE 26 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 27. Evolving Project Contract Structure helps Risk Management GAIL PETRONET CONTRACT STRUCTURE 27 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 28. Evolving Project Contract Structure helps Risk Management 28 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 29. Evolving Project insurance Structure helps Risk Management 29 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 30. Evolving Project insurance Structure helps Risk Management 30 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 31. Evolving Project insurance Structure helps Risk Management 31 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 32. 32 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 33. VALVE STATION: An LNG Tanker being filled...courtesy Germanischer Lloyds THANK YOU QUESTIONS PLEASE? 33 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 34. RISK ALLOCATION AND CONTROL IN LNG FSRU Dr. Himadri Banerji :Project Advisory & Structured Finance in Energy Industries (Oil, Gas, Power) • Assistance to agencies for implementation of projects with private sector participation through BOOT/BOT/BOO routes. • Assistance in preparation of bid documents including relevant contracts and agreements, evaluation of bids and selection of bidder. • Assistance to private parties in preparation and submission of bids for projects through competitive bidding • Assistance in tariff filing to generating, transmission and distribution companies and franchisee / restructuring and privatisation of State Electricity Boards. • Policy advisory to Central & State Governments, Centre and State Electricity Regulatory Commissions. • Preparation of Business, Investments and Financing Plan • Identification of sources of Finance and Syndication of Rupee and Foreign currency loan. 34 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore
  • 35. RISK ALLOCATION AND CONTROL IN LNG FSRU Dr. Himadri Banerji :Project Advisory & Structured Finance in Energy Industries (Oil, Gas, Power) • Advisory for renewable energy projects with Advisory for Projects under Indian Solar Mission • Appraisal of projects in various Energy industry sectors. • Investment appraisals for review of capital budgeting decision process of companies • Securitisation and other structured finance products Due Diligence Capital Structuring Financial Modelling Risk Analysis Financial Viability Studies Project Development EPC Contract Risk Management Support 35 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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