How are energy projects being financed? Large-scale projects - whether they’re gas processing facilities, extraction of hydrocarbons or the development of wind and solar - usually run into the billions.
The development of such large facilities requires a massive amount of capital upfront. During the Pennsylvania oil boom of the late 1800s, steely-minded entrepreneurs such as John D Rockefeller and Henry Flagler used their own equity but also borrowed heavily from banks to finance the early start-up of the US oil industry. Big Oil companies would eventually grow to their size and scale by tapping their cashflows for investment and accessing bank credit.
National oil companies, particularly in the Middle East, have largely been self-funded. However, with the volatility in the oil markets and changes in consumption patterns, state oil companies are increasingly monetising parts of their business. Renewable energy projects are also seeking private credit and new ways of accessing capital.
This week, I take a look at how some critical energy projects in the region are being built.
Adnoc raises $11bn for gas project
Last week saw a few major deals in the region. Abu Dhabi National Oil Company raised $11 billion in structured financing from a consortium of 20 banks to develop gas processing facilities for its Hail and Ghasha concessions. The company will use the “pre-finance” amount to help construct facilities that will be used to process the ultra sour gas, which is expected to come online by the end of the decade. Hail and Ghasha are developed by Adnoc with its partners - Italy’s Eni and Thailand’s PTT. Russia’s Lukoil, which was one of the upstream stakeholders, exited the concession in November.
What does this financing model do?
It shifts repayment responsibility off Adnoc, Eni and PTT’s balance sheets, with the liability sitting entirely with the project.
Are the funds available immediately then?
According to sources close to the project, the funds will be available in “staggered phases” from the financiers, who also include Chinese banks
Beyond bank loans: how energy projects are getting financed
Adnoc also secured $2 billion for low-carbon energy projects from South Korea’s export credit agency last week. Asian investors including Japan Bank for International Co-operation have contributed to $5 billion in green financing to help Adnoc progress projects that will lower its carbon emissions.
ACWA Power, Saudi Arabia’s power developer, also secured an unspecified amount for a desalination project from KKR last week. It marked the asset manager’s first foray into the kingdom. Alterra, the UAE’s $30 billion climate fund, is meanwhile investing in a fund managed by Copenhagen Infrastructure Partners to support the global expansion of renewable energy.
Libyan push for investment
Meanwhile, Libya is inviting foreign companies to invest millions of dollars in greenfield projects to help raise production capacity stalled due to years of fractious politics. An Opec member, Libya is opening its oilfields to new investment for the first time in more than 17 years, aiming to raise output to 2 million barrels per day by 2030 from about 1.4 million bpd.
Who has qualified?
International oil companies, including BP, Chevron, ExxonMobil, TotalEnergies, Eni, Shell and OMV, have qualified for a new licensing round covering 22 oil exploration and development areas, split evenly between offshore and onshore blocks.
What can we expect?
“It’s reasonable to expect several hundred million to be committed in the round, higher if companies bid up offshore blocks,” Martijn Murphy, principal analyst for North Africa Upstream at Wood Mackenzie, told my colleague Fareed Rahman.
Jargon buster
Non-recourse financing: In which lenders are paid directly from the project's cash flow and not from the balance sheet of concession operators.
Big number
$2.85 per gallon
US holiday makers are in for a treat as US petrol prices fell to the lowest so far this year on Monday. Petrol prices have remained below $3 per gallon this month.
Special mention
Big Oil has its first female chief executive. Meg O’Neill will become the first woman to lead one of the world’s five largest oil companies from April 1, as BP refocuses on oil and gas after its push into renewables
Our top energy reads
The National produces a variety of newsletters across an array of subjects. You can sign up here.
