Buyers in Japan and Korea, the world's largest LNG consumers, are expected to benefit most from potential US exports of LNG, according to a new report released Wednesday.
In the report from Moody's Investors Service titled "The Prospect of US LNG Exports Influences Pricing and Gas Markets Worldwide", analysts expect Asian buyers to reap benefits from newfound supply.
"Buyers in Japan and Korea will have widening supply options, in addition to new supplies from Australia," said Mihoko Manabe, vice president and senior credit officer for Moody's. "They will benefit from the increased quantity and diversity of their gas supply, as well as a stronger negotiating position when signing up to new contracts."
Examples of the buyers likely to benefit include Tokyo Electric Power (Tepco) and Korea Gas.
Sectors that will face greater competition from the US LNG exports include the Australian LNG producers, who will need to compete harder for future projects to supply their targeted Asian buyers. These include Woodside Petroleum and BHP Billiton, according to the report.
In addition, European gas wholesalers face ongoing pressure from increased supply in the short-term gas market, which reduces spot prices and squeezes margins.
Moody's said it does not expect US LNG exports to be a ratings-changer for most of the players involved. With the highly visible exception of Sabine Pass Liquefaction, LNG will remain the domain of big, highly rated companies, and expensive LNG export facilities take several years to build.
Sales will continue to be made under decades-long agreements, allowing players to adjust to shifts in market conditions gradually.
In the US, 20 applications to export LNG await US Department of Energy (DOE) approval. Moody's expects at most four of these projects to be built.
Mostly likely to move forward are those positioned near the top of the DOE's list for approval, as well as projects in brownfield locations, which have a cost advantage, because they already come with some necessary infrastructure. For the most part, those that move forward will be backed by companies with investment-grade balance sheets and substantial experience in the LNG business.
Moody's expects US LNG exports to be minor during this decade, as the Sabine Pass LNG export project is expected to begin operations in 2015, with others to be completed in 2018-19.
Most Canadian exports will not start until after 2020, says Moody's. In Canada, three projects have requisite government approvals, but have yet to secure the commercial agreements and pipeline infrastructure needed to move forward.
The new exports will mainly target Asia, and compete directly against rising production from Australia, which has projects under construction that will be adding enough export capacity between 2014 and 2017, overtaking Qatar as the largest LNG producer.
On the demand side, Moody's expects Japan to remain by far the largest importer of LNG, accounting for roughly a third of the global LNG market. South Korea will hold steady as the second-largest importer, while China will ramp up its imports almost to the level of Korea's by 2020.