Bank of China contributes to a $3 billion USD syndicated loan for the Queensland Curtis Liquefied Natural Gas (QCLNG) Project (Linked to Record ID#97355)

Project narrative

On September 17, 2013, a syndicate of 11 banks — including the Bank of China (BOC) and China Construction Bank Corporation (CCB) — signed a $3 billion USD syndicated loan agreement with China National Offshore Oil Corporation (CNOOC) for the Queensland Curtis Liquefied Natural Gas (QCLNG) Project. This loan was divided into two tranches: a $2 billion USD tranche with a maturity period of one year and an interest rate of an unspecified rate plus around 80 basis points (bps) and a $1 billion USD tranche of five years and an interest rate of an unspecified rate plus around 140 bps. BOC's contribution is captured by Record ID#49967. CCB's contribution is captured by Record ID#97355. In addition to BOC and CCB, the following lenders contributed to the loan syndicate: Australia and New Zealand Banking Group (ANZ), Bank of America Merrill Lynch (BAML), Barclays Bank Plc, Citigroup, Commonwealth Bank of Australia (CBA), Goldman Sachs, HSBC Bank PLC, Mizuho Bank, and Sumitomo Mitsui Banking Corporation (SMBC). The proceeds of this loan were to be used by the borrower to invest in the QCLNG Project. The QCLNG Project had a cost of $20.4 billion USD and was developed by Queensland Gas Company (QCQ) (later known as QGC Pty Ltd), a wholly-owned company of BG Group. The QCLNG Project sought to construct a liquefied natural gas (LNG) plant, specifically consisting of two LNG processing trains with a capacity of a 8.5 million tons per annum (mtpa) with room for expansion to 12 mtpa, gas-treatment facilities, a nitrogen rejection unit, two LNG storage tanks with a capacity of 140,000 cubic meters each, a LNG terminal with jetty and docking facilities, a material offloading facility for maritime traffic, maritime infrastructure such as a berth pocket, swing basin, connecting channel, and upgrades to existing port channels, all located on a 270 hectare site at North China Bay on Curtis Island, Gladstone, Queensland. The QCLNG Project also sought to expand the exploration and development of coal seam gas (CSG) reserves in the gas fields Surat Basin of Southern Queensland via development of approximately 6,000 gas production wells, gas and water gathering systems, gas processing and compression systems, and other metering equipment, and construct a 340-kilometer underground pipeline network transporting the gas fields in the Surat Basin to the Curtis Island processing plant, where the CSG would be converted into LNG. The proven and controlled mining reserves of the QCLNG Project's coalbed methane sources measured 350 billion cubic meters. The QCLNG Project had an estimated contribution to Queensland's economy of $32 billion USD by 2021, was to provide thousands of jobs, provided fuel for Queensland power lands, and was also to provide 30 to 40 million tons of clean water to the project area as part of a water purification scheme of discharged water during coalbed methane production. In March 2010, CNOOC signed a 20-year off-take agreement with BG Group for 3.6 mtpa of LNG from QCLNG beginning in 2015. Then, in October 2012, CNOOC signed a Heads of Agreement (HOA) with BG Group to acquire, among other things, a 40% equity stake in the first LNG train of the project for $1.93 billion USD. Then, in May 2013, CNOOC signed a binding agreement with BG Group for the acquisition. The $1.93 billion USD deal included an 20-year off-taking of an additional five mtpa of LNG and the sale by BG Group to CNOOC of the following assets: a 40% equity stake in QCLNG Train 1 (increasing CNOOC's stake from 10% to 50%), a 20% interest in the reserves and resources of certain BG Group tenements in the Walloons Fairway region of the Surat Basin, Queensland (increasing CNOOC's stake from 5% to 25%), and a 25% equity interest in other upstream tenements held by BG Group in the Surat and Bowen Basins of Queensland. It also included a joint investment of the construction of two LNG ships in China, in addition to two ships previously committed in LNG agreements from March 2010 and the option for CNOOC to participate in up to 25% in any expansion trains at QCLNG; it excluded QCLNG Train 2, the transmission pipeline, and the common facilities (LNG storage tank and jetty) and QGC Pty Limited remained the operator and majority owner of the QCLNG Project. The transaction was completed in November 2013. CNOOC injected $6 billion USD in equity for the QCLNPG Project. In March 2010, Tokyo Gas signed a 20-year off-take agreement with BG Group for 1.2 mtpa of LNG from QCLNG beginning in 2015; it also acquired a 2.5% equity stake in the second LNG train in March 2011. In May 2011, Chubu Electric signed a 21-year LNG off-take agreement with BG Group. Off-take agreements were also struck with GNL Chile and the Energy Market Authority of Singapore. In December 2012, the Export-Import Bank of China entered into a $1.8 billion USD direct loan agreement with BG Energy Holdings Ltd. to support the QCLNG Project, specifically the LNG Trains which used U.S. exports in construction. Bechtel Corporation was the engineering, procurement, and construction (EPC) contractor responsible for project implementation. GL Noble Denton was responsible for verification services for the project. Murphy Pipe and Civil Constructions was responsible for the installation of the gas and water gathering pipelines for the Surat Basin gas fields via a $250 million AUD May 2012 contract. A joint venture of Transfield and Clough was responsible for the natural gas processing facilities via an October 2012 contract, for front-end engineering and planning for gas compression facilities via an $80 million AUD contract, and for bulk earthwork, piling, and construction of concrete foundations. Boral Limited was responsible for the supply of high specification concrete for the LNG storage tanks. Waltz Group was contracted to provide structural, mechanical, and piping services for the installation of Train 2. John Holland Group and its subcontractor Arup was responsible for the design and construction of the jetty for the LNG Loading Jetty for QCLNG. GE provided gas turbines, centrifugal compressors, and generators for the QCLNG facility. ABB provided automation, safety, electrical distribution, and telecommunication systems for the upstream and midstream portions of the project. In June 2010, the State Government of Queensland issued project approval. In October 2010, a positive final investment decision (FID) was made. Construction began in late 2010. The first production from LNG Train 1 began in December 2014. Commercial production on Train 1 began on May 20, 2015. Commercial production on Train began later in 2015. This project was the source of controversy over its environmental aspects. The QCLNG Project was the first LNG plant in the world to convert CSG into LNG. Coal steam gas is formed by the geological process of heating and compressing of plant matter to form coal; in this process, methane forms within the coal, which is trapped by water in the gaps and cracks between coal molecules, known as cleats. Coal steam gas is increasingly extracted through hydraulic fracturing (fracking), and is thus seen as environmentally problematic. Furthermore, Curtis Island is located on the edge of the Great Barrier Reef. All three of the LNG projects on Curtis Island (QCLNG, the Gladstone LNG Project and the Australia Pacific LNG Project) required the dredging and widening of Port of Gladstone, which caused ocean turbidity changes and potential damage to local wildlife and the fishing industry. In October 2010, fisherman began to complain of issues with their catch; acid sulphate, released from dredging, is suspected to have harmed or killed sea turtles in fish. In 2011, the State Government of Queensland announced the closure of up to 311 square miles (500 square kilometers) of coastline to fishing and warned against the consumption or handling of seafood. In 2017, a Bloomberg article cited the presence of these three LNG terminals as a case of 'infrastructure duplication', with each of the terminals' jetties crowding the coastal land when using shared infrastructure could have produced the same amount of LNG with a lesser footprint and significantly cheaper cost. Additionally, due to the commissioning of multiple LNG plants in the United States and other countries, the global LNG market began to become oversupplied, leading to concerns about the viability of LNG exports from the Australian LNG plants in Gladstone, including the QCLNG Project. CSG fields have high operating costs and the Australian LNG projects had high capital costs, making them vulnerable to lower prices. The project also initially had a $15 billion USD budget, which was blown-out by 36% (over $5.4 billion USD) due to high local construction costs, competition for local resources, and a surge in the value of the Australian dollar. In September 2016, CNOOC was actively seeking a $1 billion USD loan to refinance the $3 billion USD loan (presumably the $1 billion USD five-year tranche). Later, in early November 2016, CNOOC entered into a $1 billion USD loan to refinance the the $3 billion USD QCLNG Project. It carried an interest rate plus an margin of between 90 to 99 bps. It is unclear if any Chinese state-owned banks participated in this loan.