Look for financing to slow down for U.S. natural gas exports this year.
This burgeoning industry is running out of customers and investors to fund new multibillion-dollar projects, according to panelists who spoke Tuesday at a New York University symposium on U.S. gas exports. Oil and gas producers are flooding the market, sinking prices and giving pause for what had been one of the most active sectors in finance.
The U.S. shale-gas boom has pushed producers to look abroad to boost their returns. Prices in overseas markets, especially Asia, have been four times as high as the U.S. benchmark. That convinced producers to seek federal permission to export as much as 35 billion cubic feet a day, half of all U.S. production, according to the Department of Energy.
It has fully approved five projects. Three are under construction with Cheniere Energy Partners LP’s Sabine Pass terminal on pace to send out the first shipments later this year. But 28 others still wait in line, said Robert Fee, a senior advisor and fossil-fuel expert at the department. Their path to construction depends as much on international competition as it does on domestic policy.
“It’s almost for sure that not all of these projects are going to be built,” Mr. Fee said.
These terminals work by chilling gas into a liquid, to minus-256-degrees Fahrenheit, so it fits in ships that deliver all over the world. It is called liquefied natural gas, or LNG, and the global market is currently at about 33 bcf a day, said Anthony Yuen, analyst at Citigroup Inc. It might grow by more than a third in the next five years, he added.
Projects in Australia, Africa and the Middle East have grown up to supply growing demand in Europe and Asia. And when a mild summer cut the global demand for gas, followed by the collapse in oil prices, liquefied natural gas plummeted, too, falling about 50% to lower than $10/mmBtu.
It costs several billion dollars to build every terminal, requiring more fundraising than anything that came before it in the world of financing, said Jean-Pierre Boudrias, a vice president and head of project finance at Goldman Sachs Group. New projects require a lot of belief that prices will rise, short to come by right now.
Big international buyers don’t feel pressure to sign more long-term contracts. The national utility companies that wanted them have already signed, Mr. Boudrias said. Without more committed buyers, financiers won’t step in. They don’t want to take the risk that prices can rise enough to support a profitable spot market.
“There’s going to be a lot of LNG floating out there,” Mr. Boudrias said at a panel moderated by WSJ.
Global majors, with integrated production and sales businesses, may be bullish enough to keep funding their own projects that have about a 10-year development cycle, the panelists said. But U.S. projects currently on the drawing board are likely to slow until the commodity market shows more promise, they added.
Of course, energy markets can swing quickly, and buyers may return soon.
“Their [contracts] might come in 2016,” said Eric Silverman, who co-chairs the project finance group at Milbank, Tweed, Hadley & McCloy LLP.