$13.7 billion deals for $50B South American LNG project put into Bermuda firm’s hands

Bermuda-headquartered owner and operator of liquefied natural gas (LNG) midstream infrastructure Golar LNG has gotten hold of two multibillion-dollar assignments related to Argentina’s proposed liquefied natural gas (LNG) large-scale upstream and midstream integrated gas development project, estimated to be worth $50 billion, in the Sierra Grande Norte, on the South American country’s Atlantic coast.

Golar LNG has confirmed the final investment decision (FID) and fulfillment of all conditions precedent for the 20-year re-deployment charter of the floating LNG (FLNG) Hilli Episeyo, known as the FLNG Hilli. Thanks to a deal, first announced on July 5, 2024, the vessel will be deployed off the coast of Argentina and chartered to Southern Energy S.A. (SESA), a company formed to enable LNG exports from Argentina.

This is not the end of good news for the Bermuda-based player, as it also signed definitive agreements for a 20-year charter for the MKII FLNG with SESA, owned by a consortium of leading Argentinian gas producers, including Pan American Energy (30%), YPF (25%), Pampa Energia (20%), and Harbour Energy (15%), as well as Golar (10%).

This unit is currently under conversion at CIMC Raffles shipyard in Yantai, China. However, this charter remains subject to FID and the same regulatory approvals as granted to the FLNG Hilli project, expected within 2025. Therefore, Golar has entered into 20-year charter agreements for 5.95 million tons per year (mtpa) nameplate capacity in Argentina for what is said to be one of the world’s largest FLNG development projects, thanks to commercial terms for the FLNG Hilli with a nameplate capacity of 2.45 mtpa and the MKII FLNG with a nameplate capacity of 3.5 mtpa.

While the former’s expected contract start-up is in 2027, bringing net charter hire to Golar of $285 million per year, plus a commodity-linked tariff component of 25% of free on board (FOB) prices above $8/mmbtu, the latter’s contract start-up is anticipated in 2028, enabling the Bermuda-headquartered company to collect net charter hire of $400 million per year, plus a commodity-linked tariff component of 25% of FOB prices over $8/mmbtu.

Furthermore, the FLNG duo is set to add $13.7 billion in earnings backlog to Golar over 20 years, before adjustments, based on US-CPI, to the charter hire and before commodity-linked tariff upside. As a result, the total upside for the firm will be approximately $100 million for every $1/mmbtu above the $8/mmbtu, when both FLNGs are in operation.

According to the company, SESA may reduce the term of the agreement to 12 years for the FLNG Hilli and to 15 years for the MKII FLNG, subject to a three-year notice and payment of a fee. Golar LNG underlines that the commodity-linked tariff component is upside-oriented; thus, the firm will make 25% of realized FOB prices above a threshold of $8/mmbtu, with no cap to the upside for gas prices.

Moreover, the Bermuda-based player has agreed to a mechanism where the charter hire can be partially reduced for FOB prices below $7.5/mmbtu down to a floor of $6/mmbtu. As a result, the maximum accumulated discount over the life of both contracts has a cap of $210 million, and any outstanding discounted charter hire amounts will be repaid through an additional upside sharing if FOB prices return to levels above $7.5/mmbtu.

Golar, which is not exposed to further downside in the commodity-linked FLNG charter mechanism, claims that the gas producers have committed to supply their pro-rata share of natural gas to the FLNGs under gas sales agreements (GSA) at a fixed price per mmbtu before adjustments. These units will be situated offshore in close proximity of each other, within the Gulf of San Matias in the province of Rio Negro, Argentina.

Karl Fredrik Staubo, Golar’s CEO, commented: “Golar is excited to partner with the leading gas producers in Argentina in establishing the country as an LNG exporter. The vast resources of the Vaca Muerta formation will provide the LNG market with a reliable long-term source of attractive LNG supplies, and a significant contribution to Argentina. For Golar, the project adds robust earnings backlog, attractive commodity upside potential in the FLNG tariff and strong partner alignment through our shareholding in SESA.”

Recently, YPF penned a memorandum of understanding (MOU) with India’s Oil and Natural Gas Corporation (ONGC), Gas Authority of India Limited (GAIL), and ONGC Videsh to export LNG from the Argentina LNG project, which reportedly received the full support of the national and provincial governments in Argentina that granted all necessary approvals, encompassing the first-ever unrestricted 30-year LNG export authorization in Argentina; qualification for the incentive regime for large investments (RIGI); and provincial approval by the province of Río Negro for the offshore and onshore environmental impact assessments for the FLNG Hilli.

These FLNGs will be used to monetize gas from the Vaca Muerta formation, dubbed the world’s second-largest shale gas resource, located onshore in the province of Neuquen, Argentina. While the FLNG Hilli will initially utilize spare volumes from the existing pipeline network, SESA intends to facilitate a dedicated pipeline to be constructed from Vaca Muerta to the Gulf of San Matias to serve gas supply to the FLNGs.

The Argentina LNG project is forecast to benefit from significant operational efficiencies and synergies from two FLNGs in the same area. Golar’s FLNG deals come shortly after Eni and YPF inked a memorandum of understanding (MoU) to evaluate the Italian player’s participation in the Argentina LNG project.