Japanese LNG financing

From Global Energy Monitor

In September 2019 the Japanese government announced that it was pledging US$10 billion, through a combination of Japanese public and private sources, for LNG development globally.[1] This fresh funding commitment follows previous US$10 billion funding for the fossil fuel sector which was announced by the Japanese government in October 2017 and which has since been deployed via several large investments for LNG terminal infrastructure.[2]

Of the initial US$10 billion tranche, media articles citing Japanese industry ministry sources suggest it has been mostly used up through spending or funding commitments to "four large-scale projects".[2] These are:

  • LNG Canada
  • Arctic LNG 2
  • Mozambique Prosperidade LNG 1
  • Cove Point LNG

An additional unspecified LNG project in Papua New Guinea is also slated to be receiving financial assistance from the state agency Japan Bank for International Cooperation in the next two to three years.

LNG Canada Terminal

Also known as the Kitimat LNG Export Facility, it is a joint venture of Japanese trading house Mitsubishi Corp. (15% stake), Royal Dutch Shell (40%), Malaysia's Petronas (25%), PetroChina (!5%) and Korea Gas (5%). The estimated cost is US$31 billion, making it the largest single private sector investment in Canada's history. The final investment decision for the project was announced in October 2018, though precise financing contributions from Japanese and/or other sources have not yet been disclosed other than a CAN$275 million investment from the Canadian government pledged in June 2019.[3]

The project comprises construction of an LNG export terminal in Kitimat, British Columbia. It includes the construction of a natural gas liquefaction plant, and facilities for the storage and export of liquefied natural gas, including marine facilities and shipping. It will have an export capacity of up to 12 million tons per annum (mtpa) with an option to expand to 24mpta. The terminal construction has been under way since October 2018 and is planned to be finished before 2025. The Coastal GasLink Pipeline project, currently under construction, is connected to the planned Kitimat terminal and has been facing challenges in early 2020 from Wet'suwet'en indigenous peoples concerning the pipeline's routing through tribal territory, though construction is reported to have restarted as of March 11.[4]

On March 18, 2020, LNG Canada announced that it is cutting its workforce in half as a precautionary measure against the Coronavirus and to help local communities deal with the outbreak. The cuts are being made to construction workers flying in on rotation though could be extended to cutting back staff numbers to levels required for only maintaining site security and environmental controls.[5]

Arctic LNG 2 Terminal

Led by Russian gas producer Novatek (80% stake), the final investment decision for the US$21.3 billion project on the Gydan peninsula in Russia was reached in September 2019. The project's other shareholders are Total (10%), Japan Arctic LNG (10%) and the Chinese companies CNOOC (10%) and CNPC (10%). The project envisions construction of a gas plant and storage units on floating platforms in the Gulf of Ob. Financial close, expected to involve 30% debt financing, is not expected until 2020.[6] Currently, IJGlobal has identified only China Development Bank as a project financier (no financial figures are provided).[7] As of March 16, 2020, Novatek claims in the media that the project remains on track despite turbulence in the commodities markets.[8]

The Arctic LNG 2 project will have a production capacity of 19.8mtpa and is due to export its first LNG cargo by 2023 - with the second and third train to start up by 2024 and 2026, respectively. According to Hiroshige Seko, Japan’s Minister of Economy, Trade and Industry, “Arctic LNG 2, based on its costs, is the largest project in the history of Japanese-Russian relations”.[9]

While heavy environmental impacts have occurred with Novatek's associated LNG plant project on the Yamal peninsula,[10] the initial environmental assessment for Arctic LNG 2 was approved in early 2018 by the Yamal government and representatives of the Yamal Association of Indigenous Peoples.[11]

Mozambique Prosperidade LNG 1

In June 2019, U.S. energy firm Anadarko Petroleum Corp announced the final investment decision for the construction of a US$20 billion gas liquefaction and export terminal in Mozambique. According to Wood Mackenzie: “Flexible commercial arrangements, including an innovative co-purchase agreement with Tokyo Gas and Centrica, have been instrumental in securing the project a roster of high-quality customers in a crowded LNG market”.[12]

Financing will be used to develop an LNG liquefaction terminal in connection with the recent gas discoveries in the Rovuma Basin offshore of Mozambique. The plant entails developing Block 1 (which includes the Prosperidade and Golfinho fields) and Block 4 of the Rovuma basin, and delivering gas to an onshore liquefaction plant on Mozambique’s Afungi peninsula. The facility's initial plan includes three 6-million-tonne-per-annum liquefaction trains. Anadarko operates Offshore Area 1 and the company is developing Mozambique’s first onshore LNG plant consisting of two initial LNG trains with a total capacity of 12mtpa. The sponsors of Block 1 are: Anadarko (26.5% and operator), Mitsui E&P (20%), Empresa Nacional de Hidrocarbonetos (ENH, 15%), ONGC Videsh (10%), Bharat Petroleum (10%), PTT Exploration and Production Public Company Ltd (PTTEP) (8.5%) and Beas Rovuma Energy Mozambique (10%).

It has been reported that the Japanese trading house Mitsui will invest approximately US$2.5 billion in the project.[13] The Export Import Bank of the United States approved a US$5 billion loan in September 2019, noting among other things that "Global demand for LNG is expected to continue to rise significantly. The LNG to be exported by the Mozambique LNG project is targeted primarily to meet the demand of Asian markets."[14] In November 2019, the African Development Bank approved a US$400 million loan for the project.[15]

Other ECAs and DFIs understood to be considering support for the project include: Japan Bank for International Cooperation (JBIC) NEXI, SACE, ECIC and China Exim. Financial close for the project is predicted to take place in the first half of 2020. [16]

The project is being challenged by Friends of the Earth Mozambique and US, and others. The project impacts are expected to be severe, including forced displacements, and climate and biodiversity impacts.[17] [18]

Cove Point LNG

The Cove Point LNG export terminal, owned by Dominion and located on the Chesapeake Bay in Lusby, Maryland, south of Baltimore, commenced operations in April 2018. Dominion Energy Cove Point LNG comprises an LNG import, export and storage facility, and includes a 136-mile pipeline that connects the facility to the interstate pipeline system. Approximately 2.3mtpa are planned to be exported to Japan: 1.4mtpa to Tokyo Gas Group and 0.8mtpa to Kansai Electric Group. Commercial LNG deliveries from Cove Point began in April 2018.[19] These contracts are understood to be 20 year 'take or pay contracts' - fixed monthly cargo volumes and prices are agreed between producers and buyers with very limited flexibility - meaning that Dominion's Cove Point is not susceptible to record low Asian LNG prices in March 2020.[20]

Financial close for the project took place in September 2018. US$3 billion in debt financing was agreed for the project, estimated to have overall costs of US$3.4-3.8 billion. A consortium of 21 international commercial banks are involved in the loan, with the largest tranches of US$250 million coming each from Mitsubishi UFJ, Mizuho, Sumitomo Mitusi, JPMorgan and Scotiabank.[21]

In January 2020, Dominion Energy was forced to sell a 25% stake in Cove Point LNG to Brookfield Asset Management after falling into debt in 2018 following its acquisition of competitor Scana Corp by issuing $7.9 billion in new stock and assuming $6.7 billion of the target's debt. The acquisition of the stake in Cove Point LNG involved Brookfield Asset Management providing US$775 million in equity with an accompanying bond issue of US$1.325 billion coming from SMBC Nikko Securities, MUFG, Mizuho and Scotiabank.[22] Despite this setback, deriving from a taxation rule change introduced by the US Federal Energy Regulatory Commission, as of February 2020 Dominion appeared to have weathered the storm by selling off the portion of Cove Point.[23]

Backing for new LNG project in Papua New Guinea

In June 2019 it was announced that the governments of Australia, Japan and the US have selected an LNG project in Papua New Guinea as their first US$1 billion investment as part of the Indo Pacific Infrastructure Initiative. Planning on the US$1 billion loan is to be finalised over the next two to three years. Neither the location of the project within Papua New Guinea or the project's form was identified.[24]

The Indo-Pacific Infrastructure Initiative formed by Australia, Japan and the US is being seen as a counterweight to China's Belt and Road Initiative, and Japan is believed to have been the prime mover behind the new initiative. The Indo-Pacific Infrastructure Initiative will utilise the resources of Australia’s Department of Foreign Affairs and Trade (DFAT) and its Export Finance and Insurance Corporation (Efic), the Japan Bank for International Cooperation (JBIC), and the U.S. Overseas Private Investment Corporation (OPIC) to address the development needs of many countries within Asia.[25]

LNG and other fossil fuel ventures in Papua New Guinea over the last two decades bear the hallmark of 'The Resource Curse'. ExxonMobil’s US$19 billion LNG plant in Papua New Guinea, operational since 2006, has been highly controversial and socially divisive in the island state.[26]

Resources

References

  1. "Japan to invest $10 billion in global LNG infrastructure projects: minister," Reuters, Sep. 26, 2019.
  2. 2.0 2.1 "Japan to pump $10bn into LNG as move away from Mideast oil," Nikkei Asian Review, Sep. 24, 2019.
  3. "Government of Canada investing $275M in $40B Kitimat LNG complex," Green Car Congress, Jun. 27, 2019.
  4. "Construction on the Coastal GasLink Pipeline Picks Up," Pipeline Technology Journal, Mar. 11, 2020.
  5. LNG Canada says it's cutting its workforce in half to protect local communities from COVID-19 Vancouver Sun, Mar 18, 2020
  6. "FID for Russia's Arctic LNG 2," IJGlobal, Sep. 5, 2019.
  7. "Arctic LNG 2," IJGlobal, Sep. 9, 2019.
  8. "Arctic LNG 2 project on track despite market volatility," upstream, Mar. 16, 2020.
  9. "Novatek Greenlights $21 Billion Russian Arctic LNG 2 Plant," Bloomberg, Sep. 5, 2019.
  10. "Russia’s grand LNG project takes its toll on Arctic environment," The Barents Observer, Jan. 8, 2018.
  11. "Arctic gas plant threatens native peoples," China Dialogue, Apr. 3, 2018.
  12. "Anadarko approves $20 billion LNG export project in Mozambique," Reuters, Jun. 18, 2019.
  13. "Mitsui & Co. to invest up to around $2.5 billion in LNG project in Mozambique," Japan Times, Jun. 20, 2019.
  14. "EXIM Approves $5 Billion to Finance U.S. Exports to Mozambique LNG Project", Export-Import Bank of the United States, Sep. 26, 2019.
  15. "African Development Bank approves $400 million to support Mozambique’s ambition to become global LNG player", African Development Bank, Nov. 26, 2019.
  16. "Investors expedite financial close on Mozambique LNG Project," Power Engineering International, Nov. 27, 2019.
  17. "Mozambique LNG Dodgy Deal," BankTrack.
  18. "Mozambique LNG Destroys Villages and the Environment," Rainforest Action Network, Mar. 29, 2019.
  19. "Cove Point LNG Project in the U.S. starts commercial operation," Sumitomo Corporation, Apr. 16, 2018.
  20. "Dominion Energy: Dividend Love In The Time Of Coronavirus," Seeking Alpha, Feb. 12, 2020.
  21. "Dominion Cove Point LNG Facility," IJGlobal, Sep. 2018.
  22. "Acquisition of 25% in Dominion Cove Point LNG Facility," IJGlobal, Jan. 30, 2020.
  23. "The 1 Thing to Watch at Dominion Energy in 2020," The Motley Fool, Feb. 1, 2020.
  24. "Three-government block to back Papua New Guinea LNG," IJGlobal, Jun. 26, 2019.
  25. "Australia, Japan, US Start Down Their Own Indo-Pacific Road in PNG," The Diplomat, Jun. 26, 2019.
  26. "Papua New Guinea's resource course," The Monthly, May 2018.

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