LNG Project Valuation with Financial Leasing Contracts

Financial leasing is prevalent in LNG projects. Actually, in many LNG infrastructure projects,leasing is the only option for oil companies. A common approach in such settings is to treatfinancial leasing costs as operating cost and discount with the firm s weighted average cost ofcapital (WACC). This method, which is applied on huge investments in LNG infrastructure,overstates project profitability and may lead to overinvestment. Since financial leasingpayments are contractual and deterministic, a separate cash flow valuation is called for, with alower discount rate for financial leasing costs...