Regional LNG: S&P says LNG terminals may have difficulty attracting financing: Report
Monday, September 27 2004 - 01:42 AM WIB
Of the hundreds of billions of dollars expected to be invested in the LNG business over the next 30 years, much will go into the high-profile multibillion-dollar liquefaction plants like those that have been springing up in the Middle East, Egypt, Trinidad & Tobago, and Russia, the report said.
Another part of the investment capital will go toward building LNG receiving terminals around the world. "But even though LNG projects and their major oil company sponsors typically enjoy strong credit ratings, LNG terminals may not be so fortunate," said Standard & Poor's credit analyst Peter Rigby. "The LNG receiving terminal boom could result in the altogether familiar busts."
The report said that while some of the larger LNG terminals have been able to attract capital because of long-term gas sales agreements with financially strong buyers, S&P said "fewer potential buyers in the future will want to commit to multibillion-dollar, 20- to 25-year" purchase contracts.
"They will prefer shorter contracts and the flexibility to take smaller volumes of LNG and deferrals without penalty so that they can match LNG supplies to their own dynamic business needs. Others will only want to pay a market price, which in the US means a price tied to the extremely volatile Henry Hub natural gas price, rather than an LNG price indexed to oil."
In cases in which a utility can put an LNG terminal into its rate base or where a developer can sign a tolling contract with a creditworthy counterparty--a buyer or seller of LNG--LNG terminals will likely stand the best chance of reaching financial closure, according to the report.
Those that take merchant risk, volume or price, may find long-term financing more difficult, the report said. (*)