BP Secures $1B Financing Package for Six LNG Carriers

Leading LNG producer BP has secured $1 billion in financing for a series of six LNG carriers that are currently under construction at Daewoo Shipbuilding and Marine Engineering. 

The vessels were ordered in 2014 and will be delivered in 2018-19, in time for BP’s tolling contract with Freeport LNG, a new liquefaction plant in Texas that is scheduled to start commercial operation at the end of next year. Its first three liquefaction trains are all under construction, and the firm has applied with the Federal Energy Regulatory Commission (FERC) to build a fourth train.   

In 2013, BP signed a 20-year tolling agreement with Freeport for 4.4 million tonnes per annum (mtpa) of liquefaction capacity, roughly the annual production rate of the facility’s first train. Four other firms have also signed tolling agreements at the plant – notably Toshiba, which has been struggling to reduce its exposure to its contract due to changes in the LNG market. 

In 2013, Toshiba bought the rights to use 2.2 mtpa of Freeport's liquefaction capacity under a 20-year tolling agreement, a take-or-pay arrangement that is estimated to be worth $7-8 billion in total. Toshiba is reportedly seeking ways to resell or swap the cargo with other consumers – similar to the recent moves made by Jera, GAIL, and other overseas buyers with long-term U.S. LNG contracts. The Pacific basin LNG price has fallen drastically over the past several years as more Australian capacity comes on line, and American LNG cargoes are now seen as more competitive in the European market. 

At a press conference in August, Toshiba president and CEO said that his firm is still proceeding with resale activities, and that "we want to tie our shoes" on Freeport LNG. Japanese LNG giant Jera – the world's largest buyer of the product – is assisting Toshiba to find alternate customers. 

Unlike Toshiba, BP has a portfolio of signed contracts for its Freeport LNG capacity, including 1.2 mtpa for Japanese utility company Tepco and 1 mtpa for Thai energy firm PTT. Both contracts are flexible and allow BP to source the gas from a variety of facilities.