DALLAS — A $12 billion liquefied natural gas export plant announced in Corpus Christi, Texas, is the most likely to receive funding as other LNG plants are cancelled, according to Moody's Investors Service.
"We believe that few of the several projects targeting the all-important Final Investment Decision this year will go forward, at least this year," analysts wrote in an April 7 report. "The key hurdles to a project taking FID are securing sufficient commercial and financial backing, as Cheniere Energy's Corpus Christi project has done, making it the likeliest to take FID this year."
The drop in international oil prices relative to U.S. natural gas prices has wiped out the price advantage of U.S. LNG projects, reversing the wide differentials of the past four years that led Asian buyers to demand more contracts linked to the price at Louisiana's Henry Hub for their LNG portfolios, Moody's noted.
"Despite the hype over the past few years about gas-linked contracts, oil-linked contracts still dominate the industry, causing LNG revenues to fall for existing suppliers," they said.
Demand in Asia, which set off a flurry of LNG project development, won't be strong enough to absorb the new capacity coming online by 2020 and that will cause many companies to defer new liquefaction projects for a few years, the Moody's report said.
"LNG is a capital-intensive infrastructure business prone to periodic construction cycles that lead to overcapacity, which we expect will continue for the rest of the decade," they wrote. "The risk of this is mitigated by the business being mainly a contract-based market that can generate significant cash flow, once the liquefaction facility is built."
Liquefaction plants reduce the gas to a liquid form through deep cooling, then pump the fuel onto specially designed tanker ships.
Although Cheniere Energy is lining up private financing for its plant in Corpus Christi and another in the Sabine Pass between Texas and Louisiana, public finance comes into play for surrounding infrastructure. The city is developing roads, bridges, and utilities around the site of the Cheniere plant, while the Texas Department of Transportation has allotted $175 million for a new bridge over the ship channel that will allow taller ships to use the port.
The ability to export natural gas in liquefied form is seen as key to marketing gas produced in the Eagle Ford and Permian Basin production areas of Texas.
