Financing LNG infrastructure using master limited partnerships

Abstract

In recent years, an unprecedented level of capital has been invested in developing Australia’s latest liquefied natural gas (LNG) projects, with several more still in the pipeline. In the wake of ever-increasing oil price volatility, and international competitiveness and uncertainty in the global financial markets, Australian LNG projects that are either under development or are being proposed continually face pressure to be more cost-efficient and value-accretive to their capital providers. The application of cutting-edge technology, such as floating LNG, together with more innovative financing strategies, are among the key factors that could provide more attractive project yields to make investing in new greenfield LNG projects more commercially viable. For many years, master limited partnerships (MLPs) have been used as a tax-effective financing vehicle in the North American energy and resources sector for funding the construction of gas infrastructure assets. This extended abstract explores the feasibility of holding Australian LNG infrastructure assets such as LNG pipelines and processing facilities within a MLP structure, including: how a typical MLP investment model would work in practice in the LNG sector; the fiscal treatment of a MLP and its impact on investor yield; the types of LNG assets that are appropriate for a MLP structure; the suitability of the MLP vehicle in the Australian context; commercial considerations in establishing and maintaining a MLP structure, including transactional costs and Australia’s unique Petroleum Resource Rent Tax regime; and, sustainability of the MLP model in the context of the current Australian and worldwide focus on fiscal accountability.