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LNG exports will keep floor under US natural gas prices: Moody's

Highlights

LNG export capacity could climb above 7 Bcf/d by early 2020

US gas production is expected to keep outpacing domestic demand

Growing exports of US LNG will help prop up domestic natural gas prices despite surging production that has created a years-long glut, according to a report from Moody's.

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Analysts at the credit rating agency said global demand for US LNG will not be enough to force US gas prices beyond the agency's projected range of $2.50/MMBtu to $3.50/MMBtu for the foreseeable future. But the LNG demand will be sufficient to prevent gas prices from dropping below that as gas production continues to increase, Moody's said.

"Even with a rapidly growing US export market, we see ample supply available for export without pushing prices above the range-bound territory where prices appear mired today," Moody's said. "On the contrary, we believe the growing US export market will help maintain a floor under natural gas prices, without which prices could tumble, threatening production aggregates."

The US LNG export capacity could climb above 7 Bcf/d by early 2020. LNG exports through 2019 are projected to increase 75% from last year, reflecting continued production increases at Cheniere Energy's Sabine Pass terminal in Louisiana and the partial startup of additional terminals, Moody's said.

In May, the Sempra Energy-led Cameron terminal in Louisiana became the fourth major natural gas export facility in the mainland US to produce LNG. Two other terminals are expected to reach the same milestone in 2019: Kinder Morgan's Elba liquefaction project in Georgia and the Freeport LNG Development project in Texas.

But as construction and commissioning activities continue on the new terminals, US LNG shipments primarily depart from three export plants: Cheniere's Sabine Pass LNG terminal, its Corpus Christi LNG terminal in Texas, and Dominion Energy's Cove Point terminal in Maryland.

Total average gas deliveries to those three facilities reached an all-time high in May of about 4.47 Bcf/d, pipeline flow data from S&P Global Market Intelligence showed. That total amounted to roughly 5% of US dry natural gas production during the month, Moody's said. The share of US gas production headed to world markets could double in 2020 as the new export facilities come online.

US gas production is expected to keep outpacing domestic demand. The US Energy Information Administration has projected production growth at a 1.2% annual rate through 2040 to about 115 Bcf/d, Moody's said. LNG exports will serve as a critical outlet for US gas because demand in other areas, such as power generation and pipeline exports to Mexico and Canada, will not be enough to balance out the oversupply, Moody's said.

The growth in US LNG export capacity could saturate the global LNG market and result in near-term price discounting, but global gas demand is projected to grow up to 1.7% annually and LNG markets could see another supply shortfall by the mid-2020s, Moody's said. That shortfall could make way for a second wave of supply from the US, and export hopefuls are competing to commercially sanction export projects in time to provide it.

For now, almost 10 Bcf/d of liquefaction capacity is under construction in the US across six projects that are scheduled to go into service between 2020 and 2025, according to the report.

Not all of the proposed LNG export projects will advance to construction, but Moody's said it would be realistic to assume that total US LNG export capacity will climb to between 13 Bcf/d and 15 Bcf/d by 2024, which could make the US the world's largest exporter of LNG.

-- Corey Paul, S&P Global Market Intelligence, newsdesk@spglobal.com

-- Edited by Gail Roberts, newsdesk@spglobal.com