Fitch: Freeport approval moves US closer to LNG exports

Fitch Ratings

The recent final approvals and construction groundbreakings for several liquid natural gas (LNG) export facilities along the US Gulf Coast will make US LNG exports a reality in the near term, Fitch Ratings says. This week, the US Department of Energy (DOE) approved Freeport LNG's Expansion and liquefaction facility. Freeport and Cameron LNG (expected rating of A- with a Stable Rating Outlook) have broken ground on export facilities and Sabine Pass is in advanced construction, moving the US closer to becoming a major exporter of LNG.

The DOE recently stopped reviewing non-Free Trade Agreement (FTA) export applications. Instead, it will only act on applications after the review required by the National Environmental Policy Act has been completed and suspend its practice of issuing conditional decisions prior to final authorization decisions. While Fitch believes believe this may quicken the pace of approvals, the actual timing and overall number of approvals remain unknown.

With Freeport LNG, Cameron LNG, and Dominion's Cove Point LNG (BBB+/Stable Outlook) projects under way and Cheniere set to finish construction on Sabine Pass and start exporting gas late next year, the US is moving closer to becoming a larger scale energy exporter. Whether or not this will have a meaningful impact on gas price remains unclear as the approved levels of export activity remain a small percentage of total US gas production. The emergence of US LNG exports is contributing to the energy diversification strategy in countries like Japan that have been reliant on nuclear energy. However, the additional LNG capacity from the US is not expected to dramatically affect global pricing, as the projected US volumes are insufficient to materially alter the balance of global supply and demand.

With final approvals received and construction under way at Cameron and Freeport, there are currently three LNG export projects under construction in the US, representing roughly 3.7 billion cubic feet per day (Bcf/d) of liquefaction capacity. Upward of 28 Bcf/d of capacity remains in the queue for DOE or Federal Energy Regulatory Commission approval before being able to commence construction. In Fitch’s view, these approvals are critical to the success of those facilities as non-FTA countries are the majority of the potential LNG market.

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