Providing commercial due diligence on an operational US LNG project

Difficult to value

The project had long-term export contracts in place, but its import contracts were coming to an end within a few years. It also had a regulated pipeline, peak shaving and storage businesses. The multiple business streams, each operating under different contractual and regulatory situations, made the valuation more complex.

Questions to answer

Our work focused on finding answers to the questions that were most important to our client. Firstly, they needed to understand the value of the liquefaction export business beyond the end of the long-term contracts. This was the largest revenue source and the most critical part of the valuation.

Using our in-house supply and demand forecasts, our knowledge of LNG markets, and our understanding of the possibility and costs of creating new capacity, we assessed the potential ranges of value of export capacity within the global market in the long-term (post 2030).

The second largest revenue stream was the LNG import contracts, so we investigated the likelihood of growing availability of pipeline delivered gas displacing LNG imports, causing the cessation of this revenue.

With many parts of the asset subject to Federal Energy Regulatory Commission (FERC) regulation, we worked with our client to build a regulatory rate model that allowed for different scenarios to be analysed.

We also reviewed all data room documents relating to the transaction, then raised questions for the vendor and its advisors. This included detailed analysis of the contracts underpinning the business lines. We worked closely with the legal advisor to understand the mechanisms that could be exploited to create additional value by the project.

Transferable investment knowledge

Whilst our client did not complete the transaction - the due diligence provided them with a strong knowledge base and understanding of the long-term LNG market and the US regulatory system that will be of great value when they consider similar opportunities in the future.

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