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S&P ratings downgraded six U.S. shale gas companies that might find it difficult to refinance billions in debt on the back of chronically low gas prices and overinvestment, S&P Global Platts reports.
The companies include EQT, Range Resources, Antero Resources, Ascent Resources Utica Holdings, CNX Resources, and Gulfport Energy.
In addition to the rating downgrades, S&P Ratings also revised the outlook for these six gas producers along with another three—Comstock Resources, Southwestern Energy, and Chesapeake Energy—to negative.
A mild winter in parts of the United States has combined with an already heavy oversupply to pressure prices below $2 per million British thermal units, and the pain could continue as LNG prices stay low, too, again on oversupply, this time an international one.
Some, however, are optimistic. Two industry executives this week argues that the low gas prices in the United States could actually be beneficial for more LNG exports.
"There's massive demand for LNG. It's growing extremely well and we think that will continue for a long time. From our perspective a lot of people in the market continue to underestimate what that growth is going to be, so there's huge opportunities to innovate," said the co-CEO of Venture Global, Mike Sabel, at the Baker Hughes AM2020 event, as quoted by S&P Global Platts.
"The spot prices for LNG are very low right now, probably $4/MMBtu or less into Asia. That's not sustainable and doesn't help the development of LNG projects, but we think the short-term indications in the LNG market are not indicative of the long-term requirements," said another industry, executive, Next Decade’s chief executive Matt Schatzmann, at the same event.
Yet analysts are warning that U.S. LNG producers could be more vulnerable to the existing gas glut than others. Natural Gas Intel, for one, reported U.S. LNG plants might be forced to shut down if the price trend continues as it would make their product harder to sell in its top markets: Europe and Asia, mainly China. In Europe, there is already a significant oversupply and limited storage space. China, for its part, is still enforcing 25-percent tariffs on U.S. LNG imports.
This context makes getting access to new funding difficult as noted by S&P in the downgrades.
"We are particularly concerned about some of the issuers' ability to access the capital markets given investor aversion to the space and their current bond trading yields," the ratings agency said.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.