In our previous articles, we note that LNG will be a key part of the world’s transition to net zero carbon emissions, and LNG to power projects will be an important feature of the next 30 years as the electrification of the global economy increases. In our first article, we looked at the evolution of LNG as a subsector of its own and how this was facilitated by the emergence of floating modular construction, new sales models created by LNG aggregators and traders and the creation of different pricing models.
To successfully deliver an LNG to power project, one needs to see the full picture to fully appreciate the multiple project-on-project risks involved. The full value chain is complex and runs from downstream all the way up to upstream, incorporating sponsors, lenders, governments, contractors and multiple other suppliers.
The downstream section of the overall value chain is where the concentration of project-on-project risk has emerged in a form unique to the concept of an LNG to power project. The addition of an LNG sale and purchase agreement, as well as the reliance on regasification either through an onshore re-gasification terminal or an FSRU through to the power plants and the despatch of energy to end users, changes the dynamic of a traditional gas-fired power project.
In this article, we consider the high-level challenges of project financing LNG to power projects.