Importance of ESG cited in access to LNG capital [LNG2023]
ESG, including equity and partnership opportunities for Indigenous groups, will be increasingly important in attracting financing for future LNG projects, a session on financing the next wave heard this week.
In North America, ESG may take the form of indigenous equity and partnerships and can play a critical role, said session moderator Michele Harradence, EVP and president, gas distribution and storage at Enbridge Inc.
“Sometimes actually having a social licence to operate or even partnering with a First Nation can unlock financing through various government initiatives,” added Kristy Kramer, vice-president of gas and LNG research for Wood Mackenzie.
Session attendees in an instant poll also agreed that an LNG project becomes more attractive to lenders if it has better ESG attributes, with 80% of those polled supporting the statement.
But ESG by itself isn’t enough, said Dan Brouillette, president of Sempra Infrastructure. “[Financiers] are looking for low-carbon, high-value projects.”
Banks or institutional investors will be more interested if a company can show a project has economic or security to the extent it is replacing hydrocarbons in the market, he said.
WoodMac also saw carbon-neutral LNG shipments decline in 2021 when security of supply came to the forefront, said Kramer. However, when the market returns to normal, it expects ESG, whether carbon-neutral shipments or other ESG attributes, to come back to the forefront, she said.
In recent years, there also have been changes in the economic model for LNG projects with more infrastructure in addition to resource monetization, said Kramer.
In the meantime, traditional banks will continue to be critically important for foundational capital and have embraced infrastructure as an asset class, said Chris Buckingham, director, project finance Americas for MUFG Bank. However, those face increased competition from other projects such as offshore wind.
In recent years, there also have been changes in the economic model for LNG projects with more focus on infrastructure in addition to resource monetization, said Kramer. However, to support infrastructure such as LNG, “we also have to have the pipelines to support it because it is a value chain,” said Dena Wiggins, president and CEO of the Natural Gas Supply Association which represents producers and operators.
It has become more difficult to get pipelines permitted and put into service, she said. Promises in the US debt ceiling bill to reduce regulatory red tape may be a start, though, she said.
A small sliver of silver lining in the Russian invasion of Ukraine is that it shone a spotlight on the importance of supply security, she said. It also has prompted a discussion about energy affordability, according to Wiggins.
“As we are trying to get to a lower carbon energy future, we have to keep our eyes on multiple balls at the same time and they are all very important.” And while early in the Covid pandemic, there was concern about lack of supply, the industry “has come roaring back” with record or near-record levels of natural gas production in the US, she said.
This feature was originally published in the LNG2023 Daily, produced by NGW during the LNG2023 conference in Vancouver July 10-13.
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”