Cheniere Energy sees first-quarter lift from strong global LNG market fundamentals

Houston — Cheniere Energy delivered to Europe what it described as its first carbon neutral LNG shipment, the company said May 4 as it recorded an almost 5% increase in its quarterly profit because of strong global demand and prices and no cargo cancellations.

Global LNG loadings remain robust, up 3.3% year on year through the end of April, with a strong pricing environment incentivizing all marginal supply into the market, as exhibited through significant growth in US exports, S&P Global Platts Analytics data show.

With almost no notable turn-downs observed in recent weeks in US LNG feedgas demand, it's possible that operators of the six major liquefaction facilities in the country have foregone regular springtime maintenance in lieu of strong LNG prices, which may carry over into summer. Just last week, the largest LNG vessel ever to load in the US departed Cheniere's Sabine Pass terminal in Louisiana. That's the same terminal that delivered the carbon neutral cargo to Shell in early April.

"Forward margins today during the Northern Hemisphere spring shoulder season are higher than they have been at any point for this season since we began operating just over five years ago," Anatol Feygin, Cheniere's chief commercial officer, said during an investor conference call to discuss first-quarter earnings results.

The surge in shipments, while a positive sign for existing terminals, has yet to translate into sufficient commercial activity to allow developers to sanction the construction of new liquefaction terminals in the US. Though short- and medium-term contracting has been relatively robust, only a few new long-term contracts tied to US terminals have been signed over the past 18 months.

Cheniere has not yet made a final investment decision on the midscale liquefaction expansion it has proposed to build at its export facility near Corpus Christi, Texas. Cheniere has repeatedly said that it would sanction the expansion only after signing additional commercial agreements and obtaining adequate financing. It also needs to secure an engineering, procurement, and construction contract for the project.

During the investor call, CEO Jack Fusco sounded optimistic about the Stage 3 expansion project, though he repeated past comments that continuing to secure buyers for excess capacity from Cheniere's existing trains is the company's first priority.

"We are 100% focused on making sure that Stage 3 gets commercialized as soon as possible," Fusco said. "But as I talked about on previous calls, I mean, we literally have a virtual train of LNG that we need to sell and secure, which is what our midterm product offering is helping us do. "

He said the proposed expansion could generate as much as 11 million mt/year of capacity, versus previous expectations of up to 10 million mt/year of supply. Cheniere executives were bullish on opportunities to benefit from Asian LNG demand, including in China, and the delays and disruptions experienced by some overseas LNG terminals and projects, such as Total-operated Mozambique LNG.

Current operations

Cheniere currently operates five trains at Sabine Pass and three at Corpus Christi Liquefaction. On the call, Fusco said that barring disruptions from an active hurricane season, Cheniere will be producing LNG from Train 6 at Sabine Pass "before the end of the year."

Substantial completion of Train 6 -- generally a signal for when commercial service begins -- is expected during the first half of 2022.

During the first quarter, Cheniere said it exported a record number of cargoes and effectively managed the winter storm in February that caused widespread power blackouts for almost a week in Texas.

Carbon reduction

The carbon neutral cargo that was supplied to Shell, a Sabine Pass foundation customer, was part of the two companies' long-term sale and purchase agreement. Cheniere said the greenhouse gas emissions that it calculated for the cargo through the entire LNG value chain, from production through to the end-user, were rendered neutral by it purchasing offsets from Shell's portfolio of "nature-based projects."

Neither Cheniere nor Shell would provide details on specific projects tied to the Cheniere cargo, beyond saying that the projects protect, transform or restore land and "enable nature to add oxygen and absorb more CO2 emissions from the atmosphere." In general, some Shell reforestation projects involve planting trees, either in an area where there have never been trees or on a site of previous deforestation.

With strict carbon emissions goals, European utilities are being pressured to shy away from signing new deals for importing US shale gas.

Disclosure of the carbon neutral cargo follows Cheniere's announcement in February that it plans to give its LNG customers emissions data associated with each cargo it produces at its two US export terminals, starting in 2022. During the May 4 investor call, Fusco said that Cheniere was studying carbon capture and storage opportunities.

By the numbers

For the three months ended March 31, Cheniere reported net income attributable to common stockholders of $393 million, or $1.54 a share, compared with profit of $375 million, or $1.43 a share, during the same period a year earlier. Revenue in the January-March quarter rose 14% to $3.09 billion from $2.71 billion during the first quarter of 2020.

During 2020's first quarter, Cheniere recorded $53 million in LNG revenue associated with cargoes for which customers canceled -- revenue that would have been recognized subsequent to that quarter had the cargoes been lifted pursuant to the customer delivery schedules. Customers must pay a fee when they cancel.

Cheniere did not have such revenue during the first quarter of this year, because, owing to the strong market fundamentals, it did not receive any cancellations.