Favorable margins for US liquefied natural gas (LNG) exports
may not be sustainable and could set up long-term risks for
infrastructure projects, according to a new report
from credit-watch firm Fitch Ratings.
Fitch said it regards the measured conversion of some US LNG
terminals to allow the export of liquid natural
gas as positive.
However, the combination of shale gas reserves and weak
economy has pushed prices to a level approaching the marginal
cost of production, according to the firm.
Fitch expects the recent low prices for natural
gas to continue, since supply should remain high.
The US Energy Information Administration projects shale gas
production to increase from 5.0 trillion cubic feet in 2010
to 13.6 trillion cubic feet in 2035.
Fitch said it also expects the Department of Energy to
continue to grant licenses to construct or reconfigure LNG
terminal facilities to increase the volume of
However, several risks have been identified in this scenario
that could disrupt this expansion and the securities funding
Most pricing projections for liquid natural gas
assume that fracking will continue to be used. But the
immediate future is uncertain as the short- and long-term
potential environmental impacts are examined.
Fitch also said it sees the potential for exploitation of
shale gas reserves in many other countries.
Some have significant advantages over US distributors.
The largest buyers of liquid natural gas are South Korea and
Japan, where vast shale gas deposits exist in nearby China.
The US Geological Survey estimates those deposits at 32
billion metric tons, of which 4.4 billion metric tons are
technically exploitable and economically feasible.
Should discoveries of nonconventional natural gas flourish
there, the combination of low labor costs and small shipping
cost due to the proximity of these countries could lessen the
traffic at US marine terminals constructed to export natural
Some of these market risks can be spread to different
portions of the industry by contracts.
For example, on Jan. 26, Cheniere announced it had reached a
sale and purchase agreement with BG Gulf Coast stipulating
that, in the event the facility is idled, BG will continue to
pay an amount likely to satisfy debt charges and other
Terminals lacking similar sales contracts that are exposed
to merchant market price risk are unlikely to attract viable
Additional information is available at Fitchs website
by clicking here.