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Moody’s: U.S. Leads Canada in LNG Race
Three of the many proposed Lower 48 liquefied natural gas (LNG) export projects appear likely to receive U.S. Department of Energy (DOE) blessing, and three Canadian projects that have government approvals will be held back by supply contracting and pipeline development, Moody’s Investors Service said in a note last week.
The Freeport LNG, Dominion Cove Point LNG and Cameron LNG projects, in Texas, Maryland and Louisiana, respectively, look as if they’ll receive DOE authorization to send U.S. gas to countries that are not parties to U.S. free trade agreements (FTA), Moody’s said. These three would follow Cheniere Energy’s Sabine Pass project, which is the first and so far only project to receive such authorization.
“In Canada, three projects have the requisite government approvals, but unlike their U.S. counterparts…they have yet to secure the commercial agreements and build the pipeline infrastructure needed to move a project ahead,” Moody’s said. “We therefore expect Canadian exports will follow a few years after U.S. exports, with projects coming online after our 2020 time horizon.”
Kitimat LNG, LNG Canada and Pacific Northwest LNG, all in British Columbia, are the Canadian projects most likely to advance, Moody’s said.
In the United States, no more than four LNG export projects will be built through 2020, according to Moody’s. Pack leaders are advantaged by being near the top of DOE’s non-FTA approval list; having a brownfield location, an investment-grade balance sheet and conservative financial policy, and experienced partners with long-term stakes in the LNG business, Moody’s said.
“The North American LNG exports are in their nascency, and many of the projects have been initiated by companies with no track record in the business,” Moody’s said. “It therefore improves a project’s odds when equity sponsors include experienced players in the LNG business, such as a major integrated oil or national oil company as well as large Asian and European buyers. We do not expect the volume of exports from North America will have a significant impact on the global LNG trade during this decade. Assuming that the DOE approves three other projects at the end of this year and five years to construct the facilities, they will not be operating for a full year until 2019.”
Even though it will take some time for North American LNG to come online, export margins, at least for a while, would not be threatened by the development of shale gas supplies in markets targeted as export cargo destinations, Moody’s said.
“At least over this decade, we believe that shale gas outside North America poses little threat to the LNG market,” the ratings agency said. “Shale resources in areas like China and Poland, while potentially substantial, so far have been shown to be uneconomic for commercial production due to complex geology, lack of local technical expertise, drilling services, scarce water supplies, and insufficient pipeline infrastructure.”
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