LNG

Moody's Investors Service, the US credit ratings agency, said that increasing global demand for natural gas is a growth opportunity for US LNG producers, though delivery depends more on the timely construction of natural gas pipeline infrastructure to support new US LNG supplies.

Moody’s said in a research note than Europe's energy crisis, led by the cut-off of Russian supplies to Germany, should keep the LNG market tight until 2025-2026, supporting cash flow generation for US LNG producers.

The report also noted the potential recovery in Chinese domestic demand in 2023 that will bring more competition to the market.

“European demand might accelerate LNG capacity expansion in the US, but that would require long-term offtake commitments from European buyers, even as they are working to reconcile new energy security needs,” said Moody’s.

Most of the announced US LNG growth projects through 2025-2026 have long-term commitments from Asian buyers, the original source of the US LNG boom since the mid-2010s, and international commodity traders stepped up their LNG purchases in 2022.

However, LNG producers require long-term offtake commitments to underpin financing of new LNG infrastructure projects.

Capital allocation

The report stated that LNG projects should in turn spur further capital allocation for constructing new pipeline capacity to connect the largest US gas producing regions and new export infrastructure.

These new pipeline projects will need to win permitting approvals from the US Federal Energy Regulatory Commission.

“Today's peak nameplate capacity of nearly 14 billion cubic feet per day reflects only about one-quarter of the capacity of all announced LNG projects, including several with partial or full FERC approval and 10 bcf per day under construction,” the report added.

The LNG projects include the Corpus Christi plant expansion in Texas and the Port Arthur project as well as others on the Mississippi River and the Brownsville Ship Channel.

Moody’s noted that the Marcellus and Utica shale basins together contributed roughly one-third of US dry gas production, though limited pipeline takeaway capacity has constrained growth for those regions.

In the fourth quarter of 2022, US dry natural gas production stood at 100 bcf, exceeding year-earlier production by 3 percent.

Moody’s said that this was largely due to increased drilling and pipeline expansions in the Haynesville Shale and rising volumes of associated natural gas delivered by oil producers in the Permian Basin.

Several large US LNG projects now under construction will add significant new capacity by the mid-2020s.

Several of the US pipeline giants have already announced projects that will supply gas to LNG infrastructure. They include Williams Company’s Louisiana Energy Gateway, Energy Transfer’s Gulf Run and Kinder Morgan’s Permian Highway Pipeline expansion.

The US government’s long-term energy forecast through to 2050 has the nation showing rapid growth in net exports over the next 10 years, as it continues to expand its liquefied natural gas infrastructure and produce natural gas at high volumes, though there is an undertone of desperation for oil and gas worldwide and calls for more exploration and production.