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07 Apr 2015
New York, April 07, 2015 -- Liquefied natural gas (LNG) suppliers are curtailing their capital budgets,
amid low oil prices and a coming glut of new LNG supply from Australia
and the US, Moody's Investors Service says in a new report,
"Lower Oil Prices Cause Suppliers of Liquefied Natural Gas to Nix
Moody's says low LNG prices will result in the cancellation of the
vast majority of the nearly 30 liquefaction projects currently proposed
in the US, 18 in western Canada, and four in eastern Canada.
"The drop in international oil prices relative to US natural gas
prices has wiped out the price advantage US LNG projects, reversing
the wide differentials of the past four years that led Asian buyers to
demand more Henry Hub-linked contracts for their LNG portfolios,"
says Moody's Senior Vice President Mihoko Manabe.
However, projects already under construction will continue as planned,
which will lead to excess liquefaction capacity over the rest of this
decade. Notably, through 2017, Australia will see new
capacity come online from roughly $180 billion in investments,
which will result in a 25% increase in global liquefaction capacity.
Likewise, the US is poised to become a net LNG exporter after the
Sabine Pass Liquefaction LLC (Ba3 stable) project goes into service in
the fourth quarter of 2015.
Moody's expects Cheniere Energy's Corpus Christi project will
be the likeliest project to move forward this year, since it is
among the very few projects in advanced development that have secured
sufficient commercial or financial backing to begin construction.
Lower oil prices will result in the deferral or cancellation of most other
projects, especially this year. While some companies like
Exxon Mobil Corp. (Aaa stable) can afford to be patient and wait
several years until markets are more favorable, most other LNG sponsors
have far less financial wherewithal, and some may be more eager
to capitalize on the billions of dollars of upfront investments they have
made already, sooner rather than later.
Greenfield projects on undeveloped property are much more expensive,
involve more construction risk, and take longer to build than brownfield
projects, which re-purpose existing LNG regasification sites.
Greenfield projects are also frequently challenged by local opposition
and occasionally by untested laws and regulations. Based on the
public estimates of companies building new LNG liquefaction capacity,
the median cost to build a US brownfield project is roughly $800
per ton of capacity, compared with the more advanced Australian
greenfield projects, now estimated at around $3,400
Through the end of the decade, Moody's expects LNG demand
will grow more slowly versus supply. China will be the biggest
variable and most important driver of global LNG in that timeframe.
India will see rapid growth, but not be as big of a player as China.
Other more mature LNG markets in Japan, South Korea and Europe,
which represent the bulk of demand, will have flat growth.
The report is available to Moody's subscribers at URL:
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Senior Vice President
Public Proj & Infrastr Fin
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Associate Managing Director
Public Proj & Infrastr Fin
Moody's: Liquefied natural gas projects nixed amid lower oil prices
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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