Amid lower oil prices, Moody’s predicts failure of many gas export projects

Marie Cusick

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Marie Cusick was the Harrisburg reporter for StateImpact Pennsylvania.

April 9, 2015 | 2:54 PM

Pipes carry liquified natural gas to and from a holding tank, seen in background, at Dominion Energy's Cove Point LNG Terminal in Lusby, Md. Moody's expects projects already under construction--like this one-- will continue as planned.

AP Photo/Cliff Owen

Pipes carry liquefied natural gas at Dominion Energy's Cove Point LNG Terminal in Lusby, Md. Moody's expects projects already under construction--like this one-- will continue as planned.

Lower global oil prices, coupled with new gas supplies in Australia will cause the cancellation of most liquefied natural gas (LNG) export projects planned for the U.S. and Canada, according to a new report from Moody’s Investors Services.

Moody’s expects several projects already under construction will go forward as planned and be successful. That list includes Dominion Resources Cove Point project in Maryland, which is the closest export terminal to Pennsylvania’s Marcellus Shale. Another early mover is Cheniere Energy, which expects its Sabine Pass, Louisiana LNG terminal to start making shipments by the end of this year.

“The winners in the U.S. LNG industry are the projects that are already in construction,” the report’s authors write. “They face medium-term financing and execution risks, but longer term these facilities will be a significant new revenue source for their sponsors.”

Over the next two years, projects in Australia will increase global LNG capacity by 25 percent, according to Moody’s. Although natural gas from the United States remains inexpensive, the drop in global oil prices has wiped out the price advantage for its LNG projects, since many long-term contracts with foreign buyers are still linked to oil prices.

Moody’s expects Asia will drive much of the LNG demand for the next decade, but it still won’t be enough to match the new capacity planned to come online by 2020, which will cause many companies to defer new projects.