Dr. Himadri Banerji presented at the 2nd FSRU Conference in Singapore on evolving risk management strategies in LNG FSRU projects. He discussed key risks in the LNG supply chain including market, construction, operational, credit and political risks. To attract project financing, risks must be appropriately allocated through contract structures like tolling agreements that transfer risks away from project companies. Non-recourse financing is now possible for FSRU projects through strong regulatory frameworks and limiting risks allocated to terminal operators. Evolving contract and insurance structures also help manage risks and make projects bankable for private sector investment.

1. RISK MANAGEMENT IN LNG FSRU
PERSPECTIVES IN PROJECT FINANCE CONTRACT
STRUCTURES IN LNG CHAIN & INSURANCE
Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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 BY HIMADRI BANERJI
 EX CEO RELIANCE ENERGY
 MD ECOURJA

2. PRESENTATION FLOW
Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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 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

3. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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4. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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.
INTRODUCTION

5. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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.
INTRODUCTION

6. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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.
INTRODUCTION

7. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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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.
KEY RISK ISSUES LNG FSRU

10. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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.
KEY RISK ISSUES LNG FSRU

11. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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12. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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)
RISK ALLOCATION AND CONTROL IN
LNG FSRU
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. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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
RISK ALLOCATION AND CONTROL IN
LNG FSRU

14. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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

15. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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
RISK ALLOCATION AND CONTROL IN
LNG FSRU

16. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Market Risks for FSRU

17. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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
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RISK ALLOCATION AND CONTROL IN
LNG FSRU TERMINAL

19. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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20. Financing
LNG FSRU Terminals
Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th
to 29th Nov 2013 Singapore
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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 long-
term 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

21. Non Recourse Financing
a Reality in LNG FSRU Terminals
Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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.

22. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Non recourse Financing
a reality in LNG Import terminals

23. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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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.
Non Recourse Financing
Reality in FSRU

24. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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25. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project Contract Structure helps Risk Management
Merchant

26. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project Contract Structure helps Risk Management
TOLLING STRUCTURE

27. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project Contract Structure helps Risk Management
GAIL PETRONET CONTRACT STRUCTURE

28. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project Contract Structure helps Risk Management

29. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project insurance Structure helps Risk Management

30. Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project insurance Structure helps Risk Management

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FSRU Conference 26th to 29th Nov 2013
Singapore
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Evolving Project insurance Structure helps Risk Management

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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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FSRU Conference 26th to 29th Nov 2013
Singapore
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