The entry of a new set of players in US liquefied natural
gas (LNG) export projects has highlighted the importance
that funding issues can have on sponsor credit, according to a
new Fitch Ratings report released Tuesday.
Traditionally, LNG projects have been dominated by supermajors
and national oil companies (NOCs) -- entities whose generally
very high credit quality and low net debt allowed them to fund
large, multiyear projects with relative ease.
By contrast, a newer set of players has begun to participate
in such projects in North America, including
large independent exploration and production (E&P)
companies, utility/pipeline companies, and master limited
partnerships (MLPs), with different credit profiles. Fitch
believes that over the long run, LNG
facilities could become a particularly attractive source of
growth for larger MLPs.
export facilities typically take four to
five years to permit and build, with costs incurred before cash
is generated. For MLPs which rely on growing distributions to
maintain their unit price, the long-term benefits of a
well-structured project are balanced against these
large financial commitments which may not pay out for an
Some of the financial strategies MLPs may use to balance these
considerations include: avoiding higher cost greenfield
projects, keeping investments at manageable sizes through
phased-in projects and joint ventures (JVs), and minimizing construction cash outflows.
Development of US LNG facilities to accommodate the boom
in domestic shale production is becoming a reality, although
political and market factors could pose a challenge for their
Eight of the nine onshore LNG
export facilities in the lower 48 state are at some stage of
development, with several greenfield projects also proposed. However,
political opposition, long lead times to permit and build, high
construction costs, and rising
interest rates pose risks for these facilities being completed
and/or new facilities started.