IFM invests additional $1.1bn in Freeport LNG

The investment comes in the form of senior secured notes issued by Freeport LNG Investments, complementing IFM’s asset-level investment of $1.3bn.

Melbourne-based IFM Investors has committed to invest up to $1.1 billion in Freeport LNG Investments, one of the limited partners of Freeport LNG Development, which owns and operates an existing liquid natural gas (LNG) regasification terminal near Freeport, Texas.

“We see this as a complementary investment to our Train 2 investment,” Julio Garcia, IFM’s head of infrastructure for North America, told Infrastructure Investor in an e-mailed response.

In December 2013, the fund manager committed to invest $1.3 billion in Train 2, a plant and loading facility located on Quintana Island, near Freeport.

The Freeport LNG project involves expanding the existing LNG regasification terminal, which has been in operation since 2008, with the addition of three liquefaction trains. Of the three trains’ total capacity of 13.92 million tonnes per year – each one has a nameplate design capacity of 4.64 million tonnes annually – approximately 13.2 million tonnes has been contracted under use-or-pay liquefaction tolling agreements with Osaka Gas, Chubu Electric, BP, Toshiba and SK E&S LNG.

The expansion project is being developed by Freeport LNG Expansion, a wholly-owned subsidiary of Freeport LNG Development.

“[The second investment] is complementary as the additional investment diversifies IFM’s exposure across the entire liquefaction project – with three trains as opposed to just Train 2 – as well as across the existing regasification facility,” he explained.

The new investment is in the form of senior secured notes issued by Freeport LNG Investments, one of the limited partners of Freeport LNG Development. It further diversifies IFM’s exposure since it is a fixed-rate returning investment with a different risk/return profile and counterparties compared to Train 2.

Last month, Freeport LNG Expansion said it had reached financial close for Trains 1 and 2, securing $11 billion in financing – approximately $1.36 billion more than the estimated cost. Financing for Train 3 is expected in the second quarter of 2015.

The additional $1.1 billion “is not going directly towards project construction, but covers previous development costs,” Garcia said.

Last November, Freeport LNG received final approvals for the expansion project from the US Federal Energy Regulatory Commission (FERC) and the US Department of Energy (DOE), giving it the go-ahead to begin construction. Trains 1 and 2 are expected to become operational in 2018 and 2019, respectively. Train 3 is expected to go in service in 2019 with construction slated to begin in the second quarter this year.

Freeport LNG has also gained approval from the DOE to export gas to both Free Trade Agreement and non-Free Trade Agreement countries, under certain conditions.
The existing regasification terminal was initially developed by exploration and production company Cheniere Energy, which chose Freeport as the project site because of its proximity to “two of the largest gas hubs in the world, Katy and the Houston Ship Channel,” according to its website. The location had the added benefit that it could only accommodate one LNG terminal, thus eliminating the possibility that a competing terminal would be built later on nearby.

Michael Smith, chief executive and exclusive owner of Freeport LNG, became involved in the initial project being developed by Cheniere. According to the Freeport LNG website, he was instrumental in signing Dow Chemical as the regasification terminal’s first customer. Dow also became a shareholder with the purchase of a 15 percent equity stake in Freeport LNG.

Smith is also owner of Freeport LNG Investments and FLNGI Option Holdco – two of Freeport LNG Development’s four limited partners. The other two limited partners are ZHA FLNG Purchaser, a wholly-owned subsidiary of Zachry American Infrastructure; and Turbo LNG, a wholly-owned subsidiary of Osaka Gas.