Dr. Himadri Banerji presented at the 2nd FSRU Conference in Singapore on risk management in LNG FSRU projects. He discussed key risks including construction delays and cost overruns, operational issues, upstream and downstream market volatility, and political and legal risks. Effective risk allocation and control requires well-defined contracts that allocate risks to parties best able to manage them. Non-recourse project financing is increasingly common through structures that limit risks for terminal operators, such as tolling agreements that transfer supply and market risks. Evolving contract and insurance structures also help manage risks in LNG FSRU projects.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

33. VALVE STATION: An LNG Tanker being filled...courtesy Germanischer Lloyds
THANK YOU
QUESTIONS
PLEASE?
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Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore

34. RISK ALLOCATION AND CONTROL IN
LNG FSRU
Dr. Himadri Banerji :Project Advisory & Structured Finance in
Energy Industries (Oil, Gas, Power)
• Assistance to agencies for implementation of projects with
private sector participation through BOOT/BOT/BOO routes.
• Assistance in preparation of bid documents including relevant
contracts and agreements, evaluation of bids and selection of
bidder.
• Assistance to private parties in preparation and submission of
bids for projects through competitive bidding
• Assistance in tariff filing to generating, transmission and
distribution companies and franchisee / restructuring and
privatisation of State Electricity Boards.
• Policy advisory to Central & State Governments, Centre and
State Electricity Regulatory Commissions.
• Preparation of Business, Investments and Financing Plan
• Identification of sources of Finance and Syndication of Rupee
and Foreign currency loan.
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Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore

35. RISK ALLOCATION AND CONTROL IN
LNG FSRU
Dr. Himadri Banerji :Project Advisory & Structured Finance in
Energy Industries (Oil, Gas, Power)
• Advisory for renewable energy projects with Advisory for Projects
under Indian Solar Mission
• Appraisal of projects in various Energy industry sectors.
• Investment appraisals for review of capital budgeting decision process
of companies
• Securitisation and other structured finance products
Due Diligence
Capital Structuring
Financial Modelling
Risk Analysis
Financial Viability Studies
Project Development
EPC Contract Risk Management Support
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Presented by Dr. Himadri Banerji at the 2ND
FSRU Conference 26th to 29th Nov 2013
Singapore