U.S. LNG RISK

PLATTS - Cheap, abundant US supplies of natural gas combined with forecasts of growing global LNG demand early next decade are not enough to ease the uncertainty facing the next wave of LNG export projects, S&P Global Ratings said Tuesday, citing high construction costs and the challenges in securing long-term supply contracts.

The ratings agency is part of the same company that owns S&P Global Platts.

The main fear is that as developers along the US Gulf of Mexico and the Atlantic and Pacific coasts seek creative ways to finance liquefaction units, they will be open to shorter agreements with smaller quantities and more flexible terms, raising concerns about their ability to repay debt as contracts come up for renewal more often, S&P Global Ratings noted in a report.

There are more than a dozen LNG export projects currently being proposed to US regulators, though across the industry almost no final investment decisions have been announced over the last 18 months and some developers have delayed their decisions into 2018 or beyond. Few firm supply purchase agreements have been announced for the projects that have yet to commit to moving forward.

"The repayment of project finance debt is from cash flow generated by long-term LNG offtake agreements with investment-grade companies; however, for a variety of reasons, these contracts are increasingly difficult to procure," it said.

"The credit quality of new facilities could suffer if project finance structures are used but backed by shorter-term agreements (which introduce re-contracting risk) and/or merchant sales (and associated market risk) or include revenue counterparties that we rate below investment grade."

Cheniere Energy's Sabine Pass terminal in Louisiana is the only US facility currently exporting LNG produced from shale gas. The four liquefaction units that it is currently operating there were financed with 20-year take-or-pay contracts with credit-worthy buyers, setting a standard for the industry.

Dominion Energy's Cove Point export terminal in Maryland, which is expected to start shipping LNG later this year, has similar deals in place, as do the several other projects that are currently being built, including facilities in Freeport, Texas, and Corpus Christi, Texas.

But for projects still going through the regulatory approval process, the tap has been running dry of late. Bank decisions also are in the mix, S&P Global Ratings said. Earlier this month, French bank BNP Paribas decided to stop doing business with companies that are primarily involved in oil and gas production from shale, a potential impediment to other projects' ability to pay for construction if more banks follow suit.

"This isn't to say that liquefaction facilities will no longer be built in the US," S&P Global Ratings said. "However, the nature of these facilities could change. For example, we expect to see a greater number of smaller, more modular units, and potentially shorter-term contracts up to five years in length, with gas procurement arrangements changing as well."

"We think these changes will likely introduce a host of new credit issues such as market and recontracting risk, while possibly eliminating others such as counterparty risk," it added.

Cheniere recently told regulators it has decided to change the design of a later stage of its LNG export facility in Corpus Christi to incorporate mid-scale LNG trains, instead of large-scale units. The Houston-based company has been considering new mid-scale liquefaction opportunities as a way of reducing per-train construction costs and making it easier to find offtakers to buy the capacity.

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Earlier:

2017, August, 31, 12:15:00 U.S. LNG FOR EUROPE - 4 Last week, U.S. liquefied natural gas (LNG) made its way to the somewhat unlikely market of Lithuania. The former Soviet republic traditionally bought its gas from Russian state company Gazprom; this was its first shipment from the United States. For President Donald Trump, that must have been a gratifying sign of the success of his administration’s nascent energy diplomacy.

2017, August, 14, 14:05:00 U.S. GAS EXPORTS WILL UP The U.S. will export more natural gas than it imports in 2017. The United States has been a net exporter for three of the past four months and is expected to continue to export more natural gas than it imports for the rest of 2017 and throughout 2018. The United States’ status as a net exporter is expected to continue past 2018 because of growing U.S. natural gas exports to Mexico, declining pipeline imports from Canada, and increasing exports of liquefied natural gas (LNG).

2017, July, 19, 14:55:00 U.S. GLOBAL LEADERSHIP While US demand for gas is rising because of higher industrial consumption, more than half of the production increase will be used for LNG for export. By 2022, IEA estimates that the US will be on course to challenge Australia and Qatar for global leadership among LNG exporters.

2017, July, 5, 12:00:00 U.S. LNG FOR BRITAIN The UK's first US LNG cargo will arrive at the Isle of Grain terminal on around July 8, according to shipping sources.

2017, May, 26, 14:00:00 WORSE FOR LNG A balanced global crude oil market likely will remain elusive into 2018 because so many underlying dynamics have changed in the last 10 years. The outlook is worse for LNG because markets are saturated, prices are depressed, and economics are unfavorable.

2017, May, 15, 12:40:00 U.S. LNG TO CHINA The United States welcomes China, as well as any of our trading partners, to receive imports of LNG from the United States. The United States treats China no less favorably than other non-FTA trade partners with regard to LNG export authorizations. Companies from China may proceed at any time to negotiate all types of contractual arrangement with U.S. LNG exporters, including long-term contracts, subject to the commercial considerations of the parties. As of April 25, 2017, the U.S. Department of Energy had authorized 19.2 billion cubic feet per day of natural gas exports to non-FTA countries.

2017, February, 25, 12:15:00 U.S. LNG EXPORTS UP The United States is expected to become a net exporter of natural gas on an average annual basis by 2018. The transition to net exporter is driven by declining pipeline imports, growing pipeline exports, and increasing exports of liquefied natural gas (LNG). The United States is also projected to become a net exporter of total energy in the 2020s in large part because of increasing natural gas exports.