Debt and Optionality in US LNG Export Projects

U.S. liquefied natural gas (LNG) export projects have substantially more spot trading of LNG than traditional projects. While this reduces the debt capacity of the projects, it allows project developers to better exploit many types of real options. Exploiting those options greatly increases the positive skewness of project cash flows. While the modal operating profits for a representative U.S. LNG export project are unlikely to cover fixed costs, interest and taxes at usual leverage ratios, the mean real equity return is likely to be positive. Some quarters could return extremely high profits. Understanding determinants of spot trading of LNG matters because increased spot trading will better integrate global natural gas markets.