An Unnecessary Deal

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Oh, you gotta love American “chamber of commerce” capitalism. You really do.

It seems the Export-Import Bank of the United States, a fine and upstanding financial institution whose job it is to “guarantee” loans made to American companies investing overseas, has gone and underwritten a $930 million private loan to Exxon Mobil and Qatar Petroleum, part of the $7 billion in financing being arranged to build the Qatargas-2 liquefied natural gas project.

The press release from the Ex-Im bank says the loan guarantee will “support the exports of US goods and services” and “will create and sustain an enormous number of jobs at US suppliers throughout the country.”

Sure it will. As part of the project, Texas-based Chicago Bridge and Iron (CB&I) has been awarded a $750 million contract to design and build a natural gas receiving plant — in the UK. And a German shipping company and a US tanker firm have been tabbed to build and operate eight giant LNG tankers, with South Korean shipbuilders Hyundai and Samsung splitting the construction, valued at about $1.7 billion.

Oh, and KBR is involved in this too, probably with logistics and engineering, according to the Ex-Im Bank press release.

The first question that leaps to mind is: why on earth is Exxon Mobil, the world’s biggest privately owned oil and gas company, with third-quarter 2004 revenue of more than $76 billion, earnings of $5.7 billion, and current cash reserves of $21 billion, getting a government-guaranteed loan? Why is Qatar Petroleum, a state-owned oil company sitting atop some of the world’s largest reserves of natural gas, receiving any financial support from the US government?

(“Ex-Im Bank has supported two previous Qatar LNG projects,” the press release continued, “the Qatargas and Ras Laffan projects, both in 1996.” Bully.)

It’s not as if there’s any actual risk to this project. There isn’t. Barclay’s Bank will get its money back. Qatar is already a proven producer of liquefied natural gas, largely for customers in the rapidly growing economies of India and China. Exxon Mobil has decided to invest $13 billion of its own money (well, maybe) in natural gas production and processing in Qatar over the next few years, including a gas-to-liquids facility that will convert natural gas into clean diesel fuel and other gas liquefaction units (called trains) that will eventually ship super-cold Qatari natural gas to terminals and ports in the EU and the US.

(For example, Exxon Mobil and RasGas-3 — another Qatar LNG operation — have recently signed a deal with FPL to supply liquefied natural gas to a as-yet unbuilt terminal in the Bahamas, which will in turn be connected by undersea pipeline to Florida Power & Light’s natural gas pipeline system. All this should be up and running by 2008, if all of the governments involved give their approval.)

There was absolutely no need for this. The parties involved all have good credit and the risk of default or nonpayment is virtually nonexistent. Private lenders were clearly willing to finance the deal on their own, and if the deal is that important, the Qatari government should have been more than able to pick up any slack on a deal like this. Aside from the cost of evaluating the project, and any underwriting costs (I have no idea how this stuff works; I steer clear of things the Ex-Im Bank), it’s not as if taxpayers are going to get stuck with much. There’s a market for Qatar’s natural gas, and it isn’t going away.

So why have Uncle Sam co-sign a portion of the loan? Well, the guarantee will lower the interest rate paid on that $930 million. I’m no financier, but I suspect that’s a good chunk of change, even if “repayment is based on project revenues” as the Ex-Im Bank says. Even a company as well positioned as Exxon Mobil is happy to shave a few points off by leveraging whatever kind of political influence it has.

The Emir of Qatar was also probably happy to receive any thanks he can get in appreciation for his government’s continued support of US military operations in Iraq. This lowers his costs too, a little.

And the fact that a number of the US companies involved — Exxon Mobil, KBR, marine construction outfit J. Ray McDermott, CB&I — are based in Texas probably doesn’t hurt either.

Like I said, you just gotta love “capitalism.”

Charles H. Featherstone [send him mail] is a Washington, D.C.-based journalist specializing in energy, the Middle East, and Islam. He lives with his wife Jennifer in Alexandria, Virginia.

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