Qatar’s $5Bn Barzan Project Financing Progresses

Qatar’s $5Bn Barzan Project Financing Progresses

The financing of Qatar’s 1.5bn cfd Barzan gas project is moving along with the release of some key documents that pave the way for the release of the preliminary information memorandum (PIM). Non-disclosure agreements have been submitted to potential lenders, who have to sign and return them, and this will allow the PIM to be released in the next few weeks, MEESunderstands. Sponsored by RasGas (the Qatar Petroleum/ExxonMobil joint venture) the project is expected to cost around $5bn and funding will be sourced from multiple sources. In addition to securing loans from banks, the project sponsor will be provided with funding and/or cover from export credit agencies (ECAs) and is also planning to tap the bond market. The ECAs participating on the project are from Japan (Japan Bank for International Cooperation, and NEXI), Korea (KEXIM) and Italy (SACE). The onshore engineering, procurement and construction (EPC) contract was awarded to Japan’s JGC, and the offshore EPC contract to South Korea’s Hyundai Heavy Industries.

The Barzan financing is expected to be similar to those conducted for Qatar’s RasGas 2/3 LNG project and the regional Dolphin pipeline (MEES, 3 August 2009), where banks and bonds were played off against each other to secure the best pricing. The Barzan project is expected to attract considerable interest from lenders and investors, not only due to its premium sponsors, but also because its represents the last of the Qatari projects conceived before the North Field moratorium was declared in 2005. Also, the Qatari economy has remained strong and will continue to remain so, particularly amid the heightened activity that results from the country’s hosting of the 2022 football World Cup. However, while international banks are now in a better position than they were during the worst of the credit crunch, to what extent the Basel III regulations affect international bank appetite for project finance in general remain to be seen. These regulations which are being ushered in from 2015-18 potentially make project finance assets, which are long term and illiquid, more expensive to hold.

The financing, which is expected to be completed this year, could also include an Islamic tranche, although ultimately this will depend on how competitive it is with the other sources of funding being tapped (MEES, 25 April). Barzan was originally planned for 2012 start‐up, but that date was put back to 2014. Barzan is a two‐train project and will initially produce 1.5bn cfd, although it can be expanded if needed. When initially announcing the project, QP had said that Phase 2 could add another 2bn cfd and Phase 3 another 2.5bn cfd. Barzan will be supplied from a designated block (the Barzan block) in the North Field and is aimed at supplying Qatar’s growing domestic market, particularly the power and desalination sectors. It will benefit from the infrastructure already in place at the Ras Laffan site. QP will hold 90% and ExxonMobil 10%. The Royal Bank of Scotland (RBS) is acting as financial adviser (MEES, 21/28 December 2009).

Copyright MEES 2011.