Fitch Ratings: Short-Term LNG Pricing Pressure in APAC, but Longer-Term Deficit Gap Remains

(The following statement was released by the rating agency) Link to Fitch Ratings' Report(s): https://www.fitchratings.com/site/re/10101501 Fitch Ratings-Sydney/Singapore-December 01: Fitch Ratings expects liquefied natural gas (LNG) spot prices to remain under pressure over 2019-2020, despite the start of winter in the northern hemisphere. However, there should be some price recovery over the medium term, with a potential supply gap opening in 2022-2025. Winter typically drives seasonally higher demand, but this has been thwarted by more than 40 million tonnes of new capacity coming online over 2019, predominantly in the US, where exports increased by 58% yoy in 1H19, and Australia; this has led to an increasingly well-supplied spot market. However, over the long-term, LNG demand should be supported across the Asia-Pacific region by rising energy usage and a government-supported switch to natural gas from coal to curb air pollution. With few LNG projects scheduled to come online over the next two years, we expect suppliers to target the potential supply gap and race to secure the necessary funding and offtake contracts to support final investment decisions (FID) over the next year or two. Anadarko Petroleum (NYSE:APC) Corporation (BBB+/Stable) reached its FID on its Mozambique Offshore Area 1 project earlier this year, while Woodside Petroleum Ltd (BBB+/Stable) is targeting a FID on its Scarborough project in 2020. We expect the ratings of LNG producers to remain stable despite low spot prices, as the spot market only accounts for around 25% of global LNG sales, with LNG predominantly sold on long-term oil-linked contracts. This provides some protection against lower prices. Nonetheless, with the spot market expanding strongly, continued low prices may pressure long-term offtake contract renewals and could make securing the necessary contracts to reach a positive FID on new projects more difficult. Continued US-China trade tensions may also slow further investment in new US LNG facilities, with China being the main source of demand growth. However, we do not expect any new projects to deliver their first cargos until around 2023, as LNG projects typically take around four to five years from FID to first cargo delivery. The full report, APAC LNG Watch 2019, is available at www.fitchratings.com Contact: James Hollamby Associate Director +61 2 8256 0347 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Muralidharan Ramakrishnan Senior Director +65 6796 7236 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com; Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: alanis.ko@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com. 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