Hormuz-bypassing new gas terminal credit-positive for UAE – Moody’s

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A view of the Fujairah LNG terminal. Photo - Bloomberg

Moody’s Investors Service welcomed a recent decision by state-owned entities in the UAE to build a new liquefied natural gas import terminal that bypasses the strategic Strait of Hormuz and termed it as ‘credit-positive’.

Mubadala Development Company and the International Petroleum Investment Company, both owned by the Abu Dhabi government, announced last week said they would form a joint project called Emirates LNG to develop an import facility on the country’s east coast in Fujairah.

“The new terminal has positive economic and strategic implications for the United Arab Emirates,” Moody’s said in an emailed statement, adding that the country has been a net importer of natural gas since 2008 even though it has the seventh-largest reserves in the world and produces 51 billion cubic meters of the hydrocarbon annually.

The UAE imports gas from Qatar through the Dolphin Gas pipeline – a project in which Mubadala has a 51% stake.

Moody’s noted that the 17 billion cubic metres of gas imported annually from Qatar helps meet soaring local demand which is growing at an average of 7.6% over the past five years. Qatar faces significant opportunity cost in exporting natural gas to the UAE at a price lower than that of LNG making a diversification of the UAE’s gas imports a prudent move, the statement added.

Demand for both gas and electricity in the UAE is on the rise along with the country’s growing population and expansion of energy-intensive industries such as petrochemicals and aluminium smelting.

Moody’s note said the new LNG import terminal will add 12 billion cubic metres per year to the UAE’s import capacity after  becoming operational in 2014. “Its position on the country’s east coast beyond the Strait of Hormuz was also a tactical advantage,” the ratings agency said.

“If traffic was disrupted, the UAE would be able to avoid the repercussions of power cuts on the non-oil economy and credit metrics would be less affected,” Moody’s added.

Moody’s currently rates the UAE Aa2 with a stable outlook.

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