Requirements on the financing of new gas infrastructure
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Requirements on the Financing of New Gas Infrastructure. Elvira Kruger Vice President ING Wholesale Banking Brussels, 9 November 2006. Content. Introduction to ING Group Demand for Gas Infrastructure: Key Drivers & Investment Requirements

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Requirements on the financing of new gas infrastructure

Requirements on the Financing of New Gas Infrastructure

Elvira Kruger

Vice President

ING Wholesale Banking

Brussels, 9 November 2006


Content

Content

  • Introduction to ING Group

  • Demand for Gas Infrastructure: Key Drivers & Investment Requirements

  • Project Finance: Key Considerations & Requirements

  • Case Study: Trans Austria Gasleitung GmbH

  • Conclusion

  • Contact Details


1 introduction to ing group

1. Introduction to ING Group


Ing group

ING Group

Introduction

As an organisation, we have many strengths. In particular we are recognised for providing our clients with innovative solutions across the globe supported by our powerful capital base

Insurance

Americas

Insurance

Europe

Insurance

Asia/Pacific

Wholesale

Banking

RetailBanking

ING

Direct

ING Group 1H 2006 figures

Total assetsEUR1,221bn

Shareholders’ equity EUR 33bn

Assets under management EUR546bn

1H 2006 net profitEUR4,020m

RatingsAa3/AA-

ING Group 2005 year figures

Total assetsEUR1,159bn

Shareholders’ equity EUR 37bn

Assets under management EUR547bn

2005 net profitEUR7,210m

RatingsAa3/AA-

Source: ING Group 1H 2006 figures, Published August 2006

Source: ING Group 2005 figures, Published February 2006


Ing group structured finance

ING GroupStructured Finance

Wholesale Banking

Wholesale BankingClients

Wholesale BankingNetwork

Wholesale BankingProducts

Corporate Finance &

Equity Markets

Financial Markets

Structured Finance

Natural Resources

Metals & Mining

Oil & Gas

Offshore Industry


2 demand for gas infrastructure key drivers investment requirements

2. Demand for Gas Infrastructure: Key Drivers & Investment Requirements


Demand for gas infrastructure key drivers

Demand for Gas InfrastructureKey Drivers

  • Declining indigenous production combined with growth in gas demand will increase dependency on gas imports.

  • Concerns over the security of supply drive the need for diversification of sources of gas imports.

  • Large seasonal swings in demand for gas require storage infrastructure to manage the physical gas flows.

  • Most existing infrastructure is contracted out on a long term basis. Market liberalization will drive new market entrants to seek infrastructure access.


Demand for gas infrastructure key drivers1

Demand for Gas Infrastructure Key Drivers

Net Gas Imports in OECD Europe are projected to rise to 499 bcm by 2030

Source: IEA & ING Estimates


Demand for gas infrastructure investment requirements

Demand for Gas Infrastructure Investment Requirements

Gas sector investments in OECD Europe are projected to exceed USD 375 bln between now and 2030.

Source : IEA & ING Estimates


3 project finance key considerations requirements

3. Project Finance: Key Considerations & Requirements


Project finance key considerations

Project FinanceKey Considerations

  • Source of finance to JV partners:

    • Risk sharing

    • Non-Recourse

    • Financial flexibility

  • Financing tenors reflect the economic life of the project facilities.

  • Debt amount is based on the cash flow generating capacity of the project.

  • Attractive debt/equity ratio.

  • Tailor-made financing solution.

  • Competitive pricing.


Project finance requirements

Project FinanceRequirements

  • Limited pre-completion risk:

    • Pre-completion guarantees

    • Turn-key contracts

    • Contingent equity

  • Reliable operator with strong track record in operating similar projects.

  • Stable cash flow underpinned by long-term utilization contracts with credit-worthy parties:

    • Contract tenors exceeding or at least equal to the tenor of the financing

    • Strong use-or pay provisions ensuring compliance with minimum utilization requirements

    • Transparent and consistent tariff-setting mechanism


Project finance requirements1

Project FinanceRequirements

  • Ownership structure:

    • Strong market position of the sponsors/shareholders

    • Maintenance of ownership requirements

  • Stable contractual framework underpinning the financing structure.


4 case study trans austria gasleitung gmbh

4. Case Study: Trans Austria Gasleitung GmbH


Case study trans austria gasleitung gmbh

Case Study: Trans Austria Gasleitung GmbH

  • Project Financing Details

  • Facility Amount: EUR 450 million

  • Tenor: 12 years

  • Amortisation profile: Fully amortising

  • Security Structure: The financing structure is underpinned by the use-or-pay transportation agreements with Eni and OMV.

  • Advisory Details

  • ING advised TAG on the financing of the expansion of the TAG Pipeline System (“Expansion 04”) project. Expansion 04 will result in an increase in capacity by approximately 6.5 bcm/yr.

  • ING’s Role

  • Sole Mandated Lead Arranger & Underwriter for the EUR 450m Project Financing

  • Financial Advisor for the financing of Expansion04.

Company Background

  • Trans Austria Gasleitung GmbH (“TAG”) is a natural gas transmission company which holds the transportation rights to the TAG pipeline system, a 382-km pipeline stretching across Austria from the border with Slovakia to the border with Italy.

  • Annual capacity: 37 bcm.

  • The TAG pipeline system is a key piece of European gas infrastructure as it transports approximately one-third of all Italian gas imports.

  • Shareholders of TAG are ENI International B.V. and OMV Gas GmbH.

  • TAG’s existing transportation capacity is allocated to ENI and OMV under long-term ship-or-pay agreements.

  • The pipeline system is operated by OMV.


Case study trans austria gasleitung gmbh1

Case Study: Trans Austria Gasleitung GmbH

  • Key Considerations:

    • Strategic piece of European gas infrastructure

    • Strong use-or-pay agreements with Eni and OMV

    • Credit quality of the shareholders

    • Established track record of the operator

    • Fixed tariff base ensuring stability of cash flows

  • Key Structuring Issues:

    • Role of TAG as a transmission operator

    • Integrity of the existing contractual framework in light of the changing regulatory environment

    • Third-party access requirements

    • Impact of regulation on tariff levels


5 conclusion

5. Conclusion


Conclusion

Conclusion

  • The need for new gas infrastructure continues to grow. Additional investments in gas infrastructure projects will be required.

  • New infrastructure is required for an attractive gas market.

  • Project Finance is an important source of financing for gas infrastructure projects, particularly for mega projects requiring large initial investments.

  • Banks have identified numerous opportunities for financing of gas infrastructure projects in the coming years and are keen to provide project finance.

  • A robust, stable contractual structure is key in financing large-scale gas infrastructure projects.

  • Uncertainties relating to the changes in the regulatory environment may raise concerns in respect of the integrity of the contractual framework underpinning the financing of mega projects. Such concerns will impact the appetite of banks for project financing.


6 contact details

6. Contact Details


Contact details

Contact Details

Structured Finance / Natural Resources - Oil & Gas

Elvira KrugerTel: +31 20 57 68375

Vice PresidentEmail: [email protected]

Oil & Gas (Europe / CIS)

Michiel de HaanTel: +31 20 56 34993

DirectorEmail: [email protected]

Head of Oil & Gas (Europe / CIS)

Michael KlemmeTel: +31 20 56 35509

Managing Director Email: [email protected]

Global Head of Oil & Gas

Jaap Jan Prins Tel: +31 20 56 35433

Managing DirectorEmail: [email protected]

Global Head of Natural Resources


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