The positives of private investment

Two deals emerging, one in the container and breakbulk trades and another in the burgeoning natural gas business – where the US is lining up capacity for exporting cheap gas – illustrate the power of big balance sheets.

In Virginia, APM Terminals – which has invested more than $540m in the East Coast’s most “state of the art” facility, in Portsmouth (across from Norfolk) – has now proposed a public-private partnership where it would operate a group of Virginia terminals over a 48 year period.

Under the proposal, the Commonwealth of Virginia would own the terminals, and APM Terminals, as operator, would pay a concession plus a share of revenues. Most importantly, in these financially troubled times, APM Terminals, rather than the Commonwealth of Virginia, would be making requisite capital investments which it estimates at between $750m to $1.1bn over the lease term.

Meanwhile, in Texas, local port officials gave Freeport LNG (tied to Conoco Philips, Dow Chemical and Osaka Gas, among others) a green light on a 30 year lease of land where the energy giant will build a three-train gas liquefaction project, which will cool down gas for export.

The company is already receiving LNG at a nearby terminal; low gas prices in the US compared with higher worldwide prices have tilted the economics towards exporting.

The port will benefit in the usual ways from the investment (pegged as being in the “several billion dollar” magnitude) through employment, taxes and multiplier effects. The port, itself, will benefit from increased marine traffic – annual exports of LNG convert back to a number approximating 14m tonnes.

The ports need to push for what works best in highly complex political environments, noting that the private guys face big risks.

Virginia may, or may not, emerge as the East Coast hub, and US gas prices may, or may not, stay below world levels. Virginia has tried to move down this road before with financial investors, while the path to LNG exports in Texas has required overcoming objections from environmental interests.

With governments at all levels butting up against scarce financing resources, the “private” part of PPP is very enticing.