Cheniere says financial performance gives lift to US LNG growth opportunities

Cheniere Energy released a long-term capital allocation plan Sept. 7 that it believes will help it develop new liquefaction growth opportunities at its Louisiana and Texas export facilities, as well as sanction next year an already permitted midscale expansion project.

As global demand has surged since coronavirus pandemic lockdowns have eased, the biggest LNG exporter in the US, which will have 45 million mt/year of capacity in operation early next year, has benefited from its scale and full-service options at its facilities at Sabine Pass Liquefaction and Corpus Christi Liquefaction.

In addition to driving strong netbacks on deliveries to Asia, that lift in consumption has also translated into new commercial contracting for Cheniere, albeit at a slower pace than when the US LNG pioneer was first building support for its flagship terminal a decade ago. The fundamentals and the deals activity make the company confident it should soon be able to return to project growth mode.

"The LNG market has remained extremely resilient, and margins have continued to improve," CEO Jack Fusco said during an investor conference call to discuss the capital plan.

Cash flow forecast

In a statement, Cheniere said that with financial results for 2021 expected at the high end of guidance ranges, and the substantial completion of Sabine Pass Train 6 now expected in the first quarter of 2022, the company forecasts it will generate approximately $10 billion of cumulative distributable cash flow through 2024. Sabine Pass Train 6 could be producing LNG before the end of this year, based on guidance Cheniere gave in May and has not backed away from. The Sept. 7 statement referred only to substantial completion guidance.

The financial framework should allow Cheniere to leverage its existing LNG infrastructure platform to advance its 10 million mt/year Corpus Christi Stage 3 project, the company said. It said it expects a final investment decision on the project in 2022, once remaining investment and commercial parameters are met.

'Resiliency and sustainability'

The financial flexibility also will help Cheniere develop further liquefaction growth opportunities at both Sabine Pass and Corpus Christi and develop environmental solutions opportunities along the LNG value chain "to further enhance the resiliency and sustainability of Cheniere's assets," the statement said. Cheniere has exported more than 1,700 cargoes since Sabine Pass shipped its first in 2016.

In July, Cheniere reached a 15-year supply deal with Canadian oil and gas producer Tourmaline that is tied to the proposed Stage 3 expansion.

Under the deal, Tourmaline will sell 140,000 MMBtu/d of natural gas to Cheniere, beginning in 2023. The LNG associated with this gas supply, approximately 850,000 mt/year, will be marketed by Cheniere.

The deal was similar to agreements tied to the Corpus Christi Stage 3 expansion that Cheniere previously reached with US gas producers Apache and EOG Resources. Together, the three agreements combined total 2.55 million mt/year.

Gas agreements model

The model of the gas agreements allows the upstream producers to access a global price by selling their gas to world markets through Cheniere 's LNG export terminal. It exposes the exploration and production companies to greater price risk, though robust prices in Asia in recent months make the economics attractive. In return for marketing the gas to world buyers, Cheniere gets an undisclosed fee that covers liquefaction and other costs.

During Cheniere's second-quarter earnings conference call in August, Chief Financial Officer Zach Davis said supply agreements totaling another approximately 4 million mt/year would help Cheniere reach a threshold for underpinning the project.