Equity Investors Key to New US LNG Projects

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Equity investors have become more crucial to spurring the next wave of greenfield US LNG projects, which are facing mounting macroeconoimic and industry challenges. Rising interest rates, cost inflation and a need to keep liquefaction fees competitive are changing the traditional model for financing US LNG projects. Developers are hoping to attract deep-pocketed equity investors to reduce their projects’ debt-to-equity ratios as they try to secure enough long-term offtake commitments to hit the 80% threshold to make a final investment decision (FID). Some banks’ slow shift away from gas/LNG financing is also raising questions for sponsors and buyers, as the ESG movement gathers momentum. Sempra’s FID of its 13 million tons per year Port Arthur Phase 1 project was supported by top US independent ConocoPhillips’ purchase of a 30% stake in the project, which included a 20-year, 5 million tons/yr offtake deal. Sempra also sold an indirect, non-controlling interest in Port Arthur Phase 1 to an infrastructure fund managed by KKR. The equity investments helped reduce the debt component of the $13 billion project to less than 55% instead of the typical 70% level. While majors may not have the same appetite for investing in US LNG projects, which have a different business model from integrated LNG schemes, the door is open for more commodity traders, US E&P players and investment funds to enter.

LNG Projects, Liquefaction, LNG Supply, Equity and Debt Markets
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