U.S.A. / Investment and Loan Insurance for Freeport LNG Project
- First Coverage against Risk of Legitimate Policy Changes -
Nippon Export and Investment Insurance
Nippon Export and Investment Insurance ("NEXI") has decided to provide insurance for investment and loan programs for the Freeport LNG Project ("Project") under which the liquefaction facility will be constructed and operated in the US. The Project will be implemented by FLNG Liquefaction LLC ("FLIQ1"), a company jointly invested by Freeport LNG Expansion, L.P. ("Freeport"), Chubu Electric Power Co.,Inc. ("Chubu Electric") and Osaka Gas Co., Ltd.("Osaka Gas").
Under the Project, the existing LNG receiving terminal located in Freeport, Texas will be utilized to build and operate the first train of a new natural gas liquefaction facility with a contracted capacity of 4.4 million tons per train per annum (*1). Chubu Electric and Osaka Gas signed liquefaction tolling agreements with FLIQ1, under which Osaka Gas and Chubu Electric will each acquire a 2.2 mtpa production capacity at Freeport for 20 years.
(*1) In tandem with this project, Freeport is planning to cooperate with IFM, an Australian infrastructure fund manager, to construct and operate another liquefaction facility (one train) within the same premises. Together with the plant to be built under the project, the liquefaction facilities will be producing LNG of at least 8.8 mtpa (4.4 mtpa contracted x 2 trains). BP, the British multinational oil and gas company, also signed a liquefaction tolling agreement to acquire a 4.4 mtpa production capacity.
In July this year, the US Federal Energy Regulatory Commission ("FERC") issued the authorization for the construction and operation of the project's liquefaction facility ("FERC Order"). Also, as the Department of Energy ("DOE") is likely to issue a final authorization to export LNG to non-FTA countries ("Non-FTA Export Authorization") shortly, the export of the US LNG to Japan is expected to begin as early as in 2018.
<Insurance for Investment>
NEXI will provide insurance for investment made in the Project by Chubu Electric and Osaka Gas respectively. As the Project can lead to offtake deals directly by the Japanese power and gas companies, it is a crucial project in terms of securing stable energy supply and resource diversification. NEXI will therefore provide Investment Insurance for Natural Resources and Energy. Also, by adding a special insurance condition for risk of legitimate policy changes, NEXI's Overseas Investment Insurance will cover risk against bankruptcy as a result of the revocation of the LNG export authorization by DOE. This is the first time for NEXI to cover a legitimate policy change risk (*2).
(*2) The "legitimate policy change risk" is a risk that a company invested by the insured may go bankrupt due to general and legitimate actions (e.g. policy change) by the government of the invested company, not as a result of the violation of any international treaty or bilateral investment treaty. Generally such a risk is not covered by NEXI's investment insurance. It can be covered under a special insurance condition that specifies covered risk events.
<Insurance for Loan>
Also, it is the first financing successfully closed for a US shale gas LNG project participated in by Japanese power and gas companies. FLIQ1 is planning to obtain USD 3.85 billion in total through project financing (on which the loan agreement was signed on October 29, 2014). NEXI will provide the Loan Insurance for Natural Resources and Energy for the loan of USD 1.15 billion provided by The Bank of Tokyo Mitsubishi UFJ, Ltd. (agent bank), Sumitomo Mitsui Banking Corporation, Mizuho Bank, Ltd., Sumitomo Mitsui Trust Bank, Limited, Mitsubishi UFJ Trust and Banking Corporation and ING Bank N.V., Tokyo Branch. Japan Bank for International Cooperation (JBIC) has also signed the loan agreement for the project.
NEXI will continue to support projects that will promote stable resource and energy supply to Japan.
| Insured | Chubu Electric Power Co.,Inc. Osaka Gas Co., Ltd. |
| Covered Risk | US Political Risk (including risk of legitimate policy changes) 100% |
| Special Program | Investment and Loan Insurance for Natural Resources and Energy Legitimate Policy Change Risk Cover Program |
| Borrower | FLNG Liquefaction LLC. |
| Insured (Japanese Lenders) | The Bank of Tokyo Mitsubishi UFJ, Ltd.(Agent Bank) Sumitomo Mitsui Banking Corporation. Mizuho Bank, Ltd. Sumitomo Mitsui Trust Bank, Limited. Mitsubishi UFJ Trust and Banking Corporation. ING Bank N.V., Tokyo Branch |
| Insurable Value | Approx. USD 1.15 billion |
| Covered Risk | US Political Risk (100%) and Commercial Risk (97.5%) |
| Special Program | Loan Insurance for Natural Resources and Energy |