Fitch: MLPs likely to invest in US LNG export projects

Master limited partnerships (MLPs) are among a new set of players likely to invest in emerging US LNG export projects, Fitch Ratings said in recent report.

Traditionally, the majors and national oil companies have dominated such projects given their high credit quality, which enabled them to finance large, multiyear projects with relative ease.

In the report, entitled “Funding US LNG Export Facilities,” Fitch analysts said bigger MLPs, which offer a different credit profile, could find LNG export projects particularly attractive as long-term investments.

LNG export terminals typically take 4-5 years to permit and build. For MLPs, which rely on growing distributions to maintain their unit price, the long-term benefits of a well-structured project are balanced against large financial commitments that may not pay out for an extended period, Fitch said.

“Some of the financial strategies MLPs may use to balance these considerations include: avoiding higher cost greenfield projects, keeping investments at manageable sizes through phased-in projects and joint ventures, and minimizing construction cash outflows,” Fitch said.

Development of US LNG terminals to accommodate shale production is becoming a reality, analysts said, noting political and market factors could pose risks. Eight of the nine onshore LNG import facilities in the Lower 48 are at some stage of development, with several greenfield projects also proposed.

Looking at a range of natural gas production scenarios from the Energy Information Administration’s Annual Energy Outlook (2013 reference case and high-low growth), LNG export volumes could reach 14-19% of US production in 2020. This assumes that 12 bcfd of export capacity comes online by 2020.

“Export capacity overbuild exists given the amount of LNG activity globally, which could affect investment decisions for export facilities that are still in the early stages,” Fitch said.

Contact Paula Dittrick at paulad@ogjonline.com.

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