LEASE VS BUY

Methodology:
When opting for a floating regasification solution, a developer has to consider
multiple constraints and options which can potentially influence whether to
buy/construct a new FSRU/FSU or lease one. Some of these options/constraints
may include availability of upfront capital with the regasification terminal
developer, level of customization of FSRU/FSRU required in the project,
term/duration of the project, and the downstream gas demand profile. For
example, if a floating solution is just a bridging one (short-term) then leasing an
FSRU can save significant upfront investments. Considering the multitude of
options and constraint the lease vs buy decision of an FSRU follows four major
steps.
Firstly, the developer should narrow down and prioritize the number of options
which can influence a lease vs buy decision. Some of these decisions may
include

Whether funding for a newbuild/retrofitted FSRU/FSU can be arranged

The duration of the project is favourable for one of the options
Legal and regulatory barriers for owned vs leased vessels
Type of business structure (BOT, BOOT or own) favourable, and;
Technical configuration necessary for a floating solution to be viable.

Such a narrowing down of option will define a concrete basis and limited levers
to compare pros and cons of buy and leasing an FSRU/FSU.
Secondly, a developer needs to quantify the economic value proposed through
the narrowed down options from the past step. This can be done by comparing
the incremental present value of investment in a newbuild FSRU/FSU vs cost of
lease of an FSRU/FSU over the life of the project.

For a buy option, quantification of value will require more certainty around
technical configurations of FSRU and investors appetite to exposure to
upfront investment in CAPEX, OPEX, and expectation on returns and the
asset residual value. This step will require building a detailed financial
model and test various sensitivity analysis to understand the risk profile of
a leased FSRU compared with an owned one.
For a lease option, such valuation will require more certainty on FSRU
market dynamics including sourcing of an FSRU/FSU (to attribute the
oligopolistic state of FSRU market), current market expectations on charter
rates, availability of options to extend the charter duration, possibility of
BOOT, BOT and other business structures and finally the contract terms
alignment with the project requirements

Finally, the developer needs to ascertain which one of the two options buy an
FSRU/FSU or lease an FSRU/FSU is consistent with the long-term investment
perspective in the country. The team shall collate the information gathered from
previous section and recommend, based on the inputs, which of the two option
(buy or lease) make economical/financial sense to pursue and identify necessary
guidelines to approach an FSRU purchase/lease

Inputs Required: Following are some inputs required for such analysis as
mentioned above:

CAPEX of Ships of sizes 120,000 to 217,000 m3 ordered in last 5 years

(will be collected by the consultant)
Long-term Charter rate of LNGCs for estimation of IRRs (will be estimated
by the consultant)
CAPEX of newbuld FSRUs (will be estimated by the consultant)
OPEX (categorized) in FSRUs (will be estimated by the consultant)
Fuel consumption pattern in retrofitted vs new vessels (will be estimated
by the consultant)
Scrap value of FSRUs (will be estimated by the consultant)