The ratings of US liquefied natural gas (LNG) projects, which are all fully operational and/or have secured permits, are not affected by the Biden administration’s recently announced pause in new LNG export project permitting, Fitch Ratings says. However, a longer-term halt to permitting or tightening of permitting guidance that results in fewer project permit approvals could restrict future LNG export capacity.
Most US projects do not obtain funding to begin construction until they secure Department of Energy’s (DOE) approval. More restrictive guidance could lead to fewer final investment decisions if projects are unable to secure permits or extensions for projects that have not yet started construction. Importers may hold back from making additional long-term commitments to US projects if they are not confident sufficient LNG capacity will be sustained.
The market’s perceived limitation of new export capacity may put upward pressure on LNG contract prices, benefitting projects seeking to contract available existing or expanded capacity. Conversely, higher US prices or reduced future capacity could advantage other producers/export markets such as Qatar, Australia and Russia. Facilities rely on long-term contracts (often 20 years) that feature commodity price pass-through to offtakers as well as a capacity fee. Concerns about future capacity or potentially higher US prices may cause offtakers to seek alternatives, although Fitch is aware of a project recently entering into a LNG purchase contract despite uncertainty introduced by the permit moratorium.
No timeline is given for the duration of the pause, but it is likely that no new permits will be issued in 2024. Projects seeking final investment decision that were expecting new permits this year will be delayed and may not secure investment given the uncertainty around the duration of the pause or the outcome of the DOE permitting review. In addition, permit extensions for projects nearing their export deadline may not be granted during the suspension, and projects may delay expansion plans.
The administration has halted approvals for new projects that would ship LNG to countries with which the US does not have a free trade agreement, which comprise most of the market. The freeze does not affect operating projects or projects currently under construction, but those that require an extension of the export deadline due to unanticipated construction delays (such as new trains at Cameron and Freeport) may not receive an extension during the pause. In addition, projects outside the US that source their feedgas from the US could be halted.
During the pause, the Department of Energy will assess the impact of LNG exports on the environment and energy costs and security, and review and update the economic and environmental analyses used in the guidance for LNG project authorizations.
Source: Fitch Ratings