The global liquefied natural gas (LNG) market has expanded 33% in the past five years as oil and natural gas companies — with strong credit ratings — propose new regasification terminals. However, even though the sponsors look good on paper, the current LNG boom could result in the “altogether familiar busts” for a variety of reasons, according to a report issued Friday by Standard & Poor’s (S&P).

Most of the LNG investments will be in high-profile liquefaction plants that are similar to those proposed in the Middle East, Egypt, Trinidad and Tobago and Russia, said analyst Peter Rigby, while other funds, especially in the United States, will be spent on expansion or on building receiving terminals. The 16-page report, “Hot Prospects for Cold Fuel: Project Finance Seeks the LNG Terminal Business,” notes that over the next 30 years, the International Energy Agency is forecasting that the natural gas industry will invest almost $250 billion in the LNG business as part of a $3.1 trillion investment in the global natural gas industry.

Project financiers are “excited about new business prospects,” Rigby said, but “volume and price uncertainty may likely frustrate the project financing of parts of the LNG supply chain.” In particular, he noted that project developers may find it difficult to finance LNG receiving terminals without a third party taking LNG volume and price risk.

“An LNG terminal’s ability to time its ‘re-gas’ into the market is limited by the time between the departing LNG tanker and the next arrival — a matter of weeks or even days.” He said “there may be times when price parity disappears and uncontracted cargoes go to the highest priced market.”

Some terminal projects “appear to be reaching financial closure, possibly even with investment-grade qualities” for several reasons. One reason “may be that certain LNG markets, such as the U.S., may be moving from a peaking to a more intermediate or even baseload market capable of sustaining long-term LNG imports — with or without contracts. With delivered LNG costs in the range of $2.50-$3.25 MMBtu, depending on shipping distances, it seems increasingly likely that LNG can effectively (and quite profitably) compete with pipeline gas in the U.S. and in parts of Europe, given current price trends.”

In places where a utility can put an LNG terminal into its rate base or where a developer can sign a tolling agreement with a creditworthy buyer or seller of LNG, terminals “likely stand the best chance of reaching financial closure. Those that take merchant risk, volume or price, may find long-term investment-grade financing more difficult.”

As far as how much LNG capacity will be based in the United States, the most likely places will first come from expansions at the four existing sites in Lake Charles, LA; Everett, MA; Cove Point, MD; and Elba Island, GA. “Beyond these terminals, expect only a handful of U.S. import projects to start construction along the U.S. Gulf Coast, Baja California (Mexico) and at least one in the Bahamas.”

Although “many developers are trying to develop terminals in the U.S. Northeast…” most new siting “will likely end up the Gulf Coast because of easier siting and local acceptance issues and because of the existing pipeline infrastructure and attendant liquid market.” And regardless of where the new U.S. terminal sites are, Rigby said that many projects could ultimately be delayed “unless regulators and politicians at the state and federal levels seek a solution.”

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