Project Financing for Freeport LNG Project in U.S.
Securing Stable Supply of Energy Resources to Japan and Diversifying LNG Procurement Sources through Supporting Japanese Company's Participation in U.S. LNG Export Project
- Area: North America
- Energy and Natural Resources
- [Project Finance]
- Overseas Investment Loans
The Japan Bank for International Cooperation (JBIC; Governor: Hiroshi Watanabe) signed on October 29, a loan agreement in project financing*1
, totaling up to approximately USD 2.6 billion (JBIC portion) with FLNG Liquefaction, LLC (FLIQ). The loan is cofinanced with private financial institutions including the following 6 private financial institutions; The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui Banking Corporation, Mizuho Bank, Ltd., Sumitomo Mitsui Trust Bank, Limited, Mitsubishi UFJ Trust and Banking Corporation, and ING Bank N.V., Tokyo Branch. The cofinanced portion is insured by Nippon Export and Investment Insurance (NEXI).
This loan will finance Freeport's construction and production of LNG made from shale gas and conventional gas produced in the U.S., upon a new construction of the first train of a liquefaction plant (with contracted annual production of 4.4 million tons per year per train) in Texas, the United States. FLIQ is invested by Osaka Gas (OG), Chubu Electric (CE), and Freeport LNG Expansion, L.P. (Freeport). OG and CE, upon obtaining the liquefaction plant use rights as LNG tollers will offtake LNG.
After the Great East Japan Earthquake, the environment of Japan's energy supply has become increasingly severe. Especially, it is becoming important for Japan's policy issue to secure stable supply of and to reduce procurement cost of LNG that consists of over 40% of Japan's power energy mix at present. The promotion of diversification of LNG procurement sources, including the U.S., and LNG pricing formula has been touted in the "Strategic Energy Plan" approved by the Cabinet in April 2014. This is the first project for Japanese utility companies to invest to a liquefaction project and import LNG from the lower 48 U.S. to Japan based on a long-term contract using the pricing formula linked to the U.S. gas market index, which is different from the existing LNG pricing linked to crude oil price. This project contributes to the diversification of LNG procurement sources and pricing formula. Thus, the support for this project by JBIC will contribute to the securing of a stable supply of energy resources to Japan, as well as the steady implementation of the energy policy of Japan.
As Japan's policy-based financial institution, JBIC will continue to financially support the acquisition of interests and development of energy resources by Japanese companies, by drawing on its various financial facilities and schemes for structuring projects, and performing its risk-assuming function.
- *1 Project finance is a financing scheme in which repayments are made solely from cash flows generated by the project and secured only on the project assets.