Cheniere eyes contracting lift at US terminals from global LNG market volatility

Houston — Cheniere Energy expects strong LNG market conditions to boost growth this year, driven by Chinese demand, improved price signals and sharply fewer cargo cancellations, company executives said Feb. 24.

The outlook came even as the biggest US exporter of LNG reported a loss for the final three months of 2020. Its latest results were weighed down by accounting for the impact of market volatility on two of its commercial agreements.

Global disruptions caused by the combination of bad weather, the coronavirus pandemic and maintenance outages may present an opportunity for Cheniere going forward, as it seeks additional supply contracts to support an expansion at its Texas facility. It also hopes that plans to provide customers with data about carbon emissions tied to its cargoes will enhance its market outreach.

RELATED: Cheniere to tag LNG cargoes with emissions data to aid buyers' environmental goals

"Recent volatility in the LNG market and the rapid tightening of the market towards the end of last year and early this year helps to reinforce the value to customers of a flexible, visible, long-term supply agreement with Cheniere," CEO Jack Fusco said during a conference call with investors.

Cheniere has sold over 95% of its total expected production this year, it is nearing substantial completion of its eighth liquefaction train, and it recently signed mid-term marketing deals with multiple buyers in the five- to approximately 11-year range that cover over 4 million mt of LNG.

As for one of its biggest buyer targets – China -- Cheniere is hoping that under the Biden administration Washington and Beijing are able to overcome past friction over trade, helping the LNG exporter meet its raised financial outlook.

"We've sold quite a few cargoes here recently on the spot market to China, and we're hopeful that the relationship between the two countries can continue to improve," Fusco said. "And hopefully, we'll be back at the table for more long-term contracting opportunities. "

For the three months ended Dec. 31, Cheniere reported a net loss of $194 million, or 77 cents a share, compared with profit of $939 million, or $3.34 a share, in the fourth quarter of 2019. Revenue in the October-December quarter fell 7% to $2.79 billion from $3.01 billion in the same period a year earlier.

The latest loss was primarily the result of accounting for the impact from fluctuations in global gas price curves on supply deals Cheniere has with US producers Apache and EOG Resources. The deals call for Cheniere to market to its global buyers LNG that it generates at its terminals with gas drilled by the two shale producers. Based on fluctuations in the gas curves, the timing of when Cheniere books for accounting purposes the amount it owes the producer for its gas and when it books the amount it earns from the buyer of the LNG will result in losses or gains for Cheniere.

JKM roller-coaster

The volatility underlying those market trends – which saw the Platts JKM, the benchmark price for spot-delivered LNG in Northeast Asia shoot up to a record $32.50/MMBtu on Jan. 13 before falling back to around $6/MMBtu on Feb. 24 – could benefit full-service LNG exporters like Cheniere on the commercial front. The stability of long-term contracts can mitigate the risks of exposure to short-term price volatility.

Widespread cancellations of US LNG cargoes at the height of the pandemic last summer have largely abated in recent months, amid the stronger market dynamics. Cheniere appears to have received three or four cancellations for the current quarter, based on revenue it booked in the fourth quarter of 2020 from fees it collects in advance from offtakers when it is notified of cancellations of cargoes scheduled to be lifted in the future.

"If anything, the market is continuing on the trajectory of improving, having digested this massive supply wave and the COVID issues," Chief Commercial Officer Anatol Feygin said during the investor call. "And it's really staggering to me that the LNG market, against that backdrop, managed to grow. Not a blockbuster growth year, but still a growth year."