Moody’s: Freeport LNG exports will boost gas producers and pipelines

Moody’s has weighed in on last week’s approval of Freeport LNG’s request to export liquefied natural gas, saying it offers a clear benefit for natural gas-leveraged North American exploration and production and midstream companies.

That benefit won’t be immediate, the commentary from Moody’s Investors Service said, predicting that the Freeport LNG export terminal will come online in 2017.

The U.S. Department of Energy granted approval to the project Friday, allowing it to export liquefied natural gas to countries with which the United States does not have a free-trade agreement. It is only the second liquefaction project granted an export permit; Houston-based Cheniere Energy’s Sabine Pass terminal won approval in 2012.

Freeport LNG still has to win approval from the Federal Energy Regulatory Commission to convert its Quintana Island natural gas import terminal, located southwest of Houston, into a facility capable of liquefying natural gas and shipping it overseas.

Federal approvals: U.S. LNG export potential gaining momentum

Another 19 applications are awaiting approval by the Energy Department. Moody’s said it expects four LNG export terminals to be built.

Moody’s said midstream companies with pipeline infrastructure along the Gulf Coast will see increased demand for capacity to ship to Freeport, Sabine and potentially to Cameron, La., site of a proposed project awaiting Energy Department approval.

The investor’s service noted that Tennessee Gas Pipeline Co., a unit of Kinder Morgan Energy Partners, said last week it had signed a binding 20-year agreement to transport natural gas to the Cameron plant.

The chemical industry, which uses natural gas as both a fuel and a feedstock, has lobbied against natural gas exports, concerned the increased demand would raise prices. Moody’s suggested that is unlikely to be a concern.

“Since we expect that the level of LNG exports will be manageable, and supply response will be sufficient to keep gas prices moderate, the chemical sector’s imput-cost dynamic should not change much,” analysts wrote.

Power needs: Natural gas demand will push price to $5, analyst says

Moody’s said it assumes Henry Hub natural gas prices will average $4 per million British thermal units over the medium term. Prices could rise “modestly” as natural gas exports increase, the company said, but it predicted higher prices would spur increased production, bringing prices back down.

Higher gas prices would cause a rise in prices for ethane, modestly dropping margins for ethylene producers including Westlake Chemical, Chevron Phillips Chemical, LyondellBasell Industries, Dow Chemical, Ineos Group Holdings and to a lesser degree, NOVA Chemicals, Moody’s said.

But it also noted that Dow, which has led the charge against natural gas exports, will gain an immediate benefit from the Freeport permit.

Dow Chemical has a 15 percent ownership stake in the Freeport terminal, dating back to the terminal’s days as an import terminal. Dow will sell its stake in the terminal and cancel its take-or-pay contract, “a near-term positive, if small for a company of its size,” Moody’s said.