Anatomy of an LNG terminal development financing: the Gulf LNG Energy project.

The recently financed Gulf LNG Energy project in Pascagoula, Mississippi was presented with number of unique challenges during its development and financing, most of which in the end made it a better structured and stronger overall project. This article will explore the evolution of this important project and some of its unique structural and contractual attributes, and will provide some insight into the general financing structure and key challenges that were faced in bringing this project to financial closing.

The Project

The project consists of an onshore liquefied natural gas (LNG) import and regasification terminal facility located in Pascagoula. It is designed to receive LNG from large specialized tank vessels, temporarily store the LNG in two cryogenic storage tanks having a total storage capacity of 320,000 cubic meters, and then to vaporize the LNG and send out the resulting natural gas through a 36-inch diameter, five-mile send-out pipeline at a rate of up to 1.5 Bcf/d. The natural gas send-out pipeline is interconnected with a number of main gas transportation pipelines serving the U.S. Southeast and mid-Atlantic markets, with onward pipeline access to the U.S. Northeast markets as well.

The project development efforts were originated by Crest Investments, a Houston-based private investor and developer that was involved in the early stages of the successfully developed LNG import terminal project in Freeport, TX. A highly experienced Crest team undertook all of the early-stage site selection, acquisition and project design and permitting activities, together with the supervision and coordination of the substantial preliminary engineering and environmental work that was necessary to support such permitting activities.

Sonangol, the Angolan State oil company, later joined the project as a significant investor, and brought with it the desire to contract for more than half of the terminal's total throughput capacity as an outlet for the LNG production expected to come from the first LNG production train under development in Angola. With these new ownership arrangements successfully in place, the negotiation of the first of two baseload LNG terminal use agreements (TUAs) began.

During the course of these negotiations, which spanned nearly two years, Italian oil company Eni, which had decided to join Sonangol and several other oil majors in the upstream LNG production project in Angola, decided to separately contract for the remaining balance of the project facilities' baseload capacity in order to support its U.S. natural gas marketing activities. With the negotiation of two baseload customer-service agreements then under way, the project's commercial viability was fully validated.