Moody’s analysts are have weighed in on prospects for liquefied natural gas (LNG) exports from the US, forecasting that chemical companies and utilities could see some negative impact from higher domestic natural gas prices, but not enough to bring down their credit ratings.
Moody’s expects US LNG export capacity to rise to 6.3 billion cubic feet per day by 2020 – equivalent to 178.4 million cubic meters per day, compared with global exports totaling 330.8 billion cubic meters per day in 2011, according to BP’s Statistical Review of World Energy. “We do not expect the volume of exports from North America will have a significant impact on the global LNG trade during this decade,” the rating agency said in a report, The Prospect of US LNG Exports Influences Pricing and Gas Markets Worldwide.
Its projections rest upon the assumption that the Department of Energy (DOE) will approve exports to countries with which the US has no free trade agreement (non-FTA) from three more export facilities – Freeport LNG, Cove Point and Cameron – and that these facilities will not be online for a full year until 2019. The Sabine Pass plant, slated for start-up as early as 2015, has DOE approval to export 2.2 bcf/d to non-FTA countries.
Forecasts exclude ConocoPhillips’ facility in Kenai, Alaska, which began shipping LNG to Japan in 1969. The company’s export licence from Kenai expired in March, and although ConocoPhillips retains the option to apply for new approvals and resume exports from the plant, deliveries have ceased.
The agency sees future LNG exports as a bright spot on the horizon for natural gas producers and midstream companies. The natural gas demand boost from exports could help to lift prices, spurring more exploration and production, as well as demand for pipeline capacity.
But natural gas consumers, such as chemical companies and utilities, will likely see rising feedstock costs as demand pull from LNG exports lifts prices.
In the chemical industry, higher feedstock prices could eat away at ethylene and propylene margins, the report said. And new investments in Gulf Coast chemical plants – such as a facility that Chevron is considering – could face stiff competition for labor and equipment from the Freeport and Cameron LNG projects.
Utilities would also face problem with feedstock costs, Moody’s said. “Commodity costs are passed through to customers, but much higher costs could make it more difficult to obtain base rate increases, and, moreover, often bring bad debt expense and more liquidity requirements.”
The impact of US LNG exports on domestic natural gas prices has been central to the debate over whether the Department of Energy (DOE) should approve additional exports to countries with which the US does not have a free trade agreement (non-FTA), and if so, how much. Chemical firms, such as Dow, have been at the forefront of the opposition to large-scale exports.
Moody’s projections do not envisage an actual credit rating change for chemicals producers or utilities. The agency forecasts a $4-$5 per million Btu price range through 2020 – in line with current prices.
“If there’s any increase in the cost of sales for these sectors, it’s a credit-negative,” Vice-President and Senior Credit Officer Mihoko Manabe said. “It might eat into their chemical margins and make it more difficult for utilities to raise their rates.”
But “we don’t think that the costs are going to rise all that much”, Manabe added.” The modest price range that we expect through the end of the decade should be overall credit ratings-neutral for these companies.”
Other analysts and energy experts, such as Charles Ebinger, have also indicated that the impact of LNG exports on domestic prices would likely be relatively modest. The Energy Information Administration noted in January 2012 that its projections showed natural gas prices rising over the long term even without LNG exports.
