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Energy Risk Deals of the Year
2012: BAML's LNG deal with
Gate
BAML facilitates Dutch Gate LNG terminal commissioning
David Wigan
07 March 2012
Last year Bank of America Merrill Lynch (BAML) became the first global
investment bank to facilitate commissioning of an LNG plant, structuring a
transaction involving liquified natural gas (LNG) supply, hedging and gas
send out for the new Gate terminal in the Netherlands.
The facility, the first regasification terminal in the Netherlands, became fully
operational in early September 2011. BAML managed the commissioning
process over a three-month ‘cool down’ and testing period, during which the
facility temperature was dropped to accommodate LNG’s –170-degree Celsius

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temperature requirement.
The Gate facility was jointly developed and is owned by Vopak and Gasunie, with
a total project cost of over €800 million, and was a significant milestone in
expanding LNG’s role in European gas supply.
“The key for us, having worked four years on this project, was that we needed a
company that could guarantee to supply the LNG and to take off the gas
molecules and sell them into the market,” says Stefaan Adriaens, commercial
manager at Gate terminal. “It was important that we had certainty on those two
parameters. We also needed a team that was pragmatic and flexible, to handle
any changes in the plan during the commissioning period. And the whole thing
had to be cost efficient.”
Gate spoke to a number of companies before whittling down potential service
providers to a group of five. BAML, which last year won plaudits for a supply and
marketing deal in UK coal-power, first had contact with the company in 2008 and
eventually won the tender in mid-2010. The bank “showed a good level of
transparency and kept us well informed of the different options and possibilities,”
Adriaens says.
Peter Abdo, managing director, head of EMEA commodities origination and
structuring at BAML, says a key advantage in its offering was the bank’s ability to
provide a full menu of services.
“One of the reasons we were successful was that we were in a unique position to
offer full scale capabilities from front to back – from LNG supply, price risk
management and gas molecule distribution on to the Dutch grid. Once we had
signed the deal the risk was ours – from price to delivery and structuring,” says
Abdo. “Over the period of the deal, there were a series of risks – around LNG
supply, particularly after the earthquake in Japan, managing the gas send out, as
We were in a unique position to offer full
scale capabilities from front to back – from LNG
supply, price risk management and gas
molecule distribution

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well as foreign exchange, credit and performance risk.”
In sourcing the gas, BAML spoke to a number of suppliers before eventually
contracting with BP for the three-month commissioning period, taking delivery of
several LNG cargoes over the summer of 2011. The cargoes needed to have
sufficient flexibility to allow for potential changes to the commissioning
programme – with provision for extended lay times and uneven discharge
requirements.
Once the liquid LNG was in situ, BAML’s team was available to allow short-notice
output testing and gas position management.
“We had a 24-hour, seven-day a week shift team here sitting on the desk looking
after the operation. Having those people here out of normal working hours was
critical to managing the physical gas position for the client,” says Abdo.
In addition, Gate wanted to mitigate its exposure to underlying commodity prices,
and in particular any price changes from the time of contracting to the moment of
delivery.
“Ownership remained with the bank but we were exposed to price risk during the
time we converted LNG into molecules,” Gate’s Adriaens explains. “We wanted
to transform our risk into certainty.”
With the LNG priced against the UK’s NBP index and the gas price against the
Dutch TTF price, BAML’s commodities team needed to manage the spread
between the two indices, as well as fluctuations arising from variable send out of
gas molecules.
“We hedged the spread between those two markets, using futures, index swaps
and managing risk in bilateral deals with the market,” Abdo says. “Because the
terminal was being commissioned, there was an uncertain schedule as to the
volume of molecules flowing out to the Dutch grid. In testing, they needed to max
out the terminal gas send out at certain points, which would have materially
impacted the market price without the hedging and position management we put
in place.”
A particular challenge during the commissioning period was the effect on the
LNG market of the devastating earthquake in Japan, and subsequent shutdown

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of the Fukushima nuclear power plant. For the BAML team, the earthquake
meant shoring up contracts and relationships on the supply side.
“In a complex transaction such as this, unexpected events can play their part.
This situation proved how important it is to have reliable partners involved
throughout,” says BAML’s Gabriel Gonzalez Laguna, Director, LNG origination.