Cheniere raises 2022 profit guidance as LNG demand surges

Cheniere Energy Inc. blew past Wall Street expectations for the first quarter and hiked its full-year earnings guidance, citing increased LNG production from its facilities and strong demand for the fuel.

Cheniere executives said they now expect 2022 adjusted EBITDA to be as high as $8.7 billion, up the company's February forecast of $7.0 billion to $7.5 billion. The company, the largest U.S. LNG exporter, cited higher margins and increased LNG volumes available in part because of the early startup of a new natural gas liquefaction train at its Sabine Pass export terminal in Louisiana.

Demand for U.S. LNG has surged in 2022 as Europe faces pressure to reduce its dependency on Russian supplies in the wake of the invasion of Ukraine. "I have challenged our operations teams to do everything possible to safely and responsibly produce as much LNG as possible," Cheniere President and CEO Jack Fusco told investors during a May 4 earnings call.

Executives reiterated the company was able to boost volumes through improvements to its maintenance and production processes, and said this would result in about eight extra cargoes, or roughly 30 trillion Btu of gas, for the rest of 2022.

Cheniere plans to OK Texas expansion this summer

Cheniere reported participating in a U.S.-EU task force on energy security and exporting a record 160 LNG cargoes during the first quarter, with about 75% of them going to Europe.

"The relevance and criticality of energy security and the role of LNG and natural gas as a reliable, flexible and cleaner burning fuel has never been more evident to customers and governments the world over," Fusco said.

At the same time, U.S. LNG facilities are limited in how much they can stretch production, which is part of the reason why U.S. and EU policymakers have emphasized the importance of constructing new U.S. LNG capacity. U.S. export terminals, including Cheniere's, have been running close to or at maximum capacity for months with persistently high prices abroad, and new export infrastructure typically takes years to build.

Cheniere expects to commercially sanction its next growth project "this summer" — a midscale expansion of its Corpus Christi LNG terminal in Texas by up to 10 million tonnes per year, executives said. The company has continued to announce commercial momentum for this stage 3 project as it works to secure financing.

Cheniere on May 4 announced a 15-year agreement with Canadian natural gas producer ARC Resources Ltd., which is tied to the Corpus Christi expansion. Under the deal, ARC Resources will sell about 140,000 MMBtu per day of gas to Cheniere, which the exporter will use to produce about 850,000 tonnes of LNG per year. ARC will get a netback, while fixed LNG shipping costs and a fixed liquefaction fee for Cheniere will be deducted.

As it stands, Cheniere should "have more than enough cash flow" to fund half of the stage 3 project's $7 billion cost, analysts at CreditSights said in a May 4 note to clients.

'Additional growth potential'

Cheniere plans to consider further LNG capacity growth after it reaches a final investment decision on the Corpus Christi project. Each of the company's facilities has additional real estate that could be used for expansions, Fusco said.

"I have got to keep my team focused on making sure we execute what is in front of us and [that] we get stage 3 across the finish line," Fusco said. "Then we will look at additional growth potential."

Cheniere would continue to rely on long-term contracts with buyers to underpin financing for new projects, Fusco said.

Cheniere on May 4 posted a first-quarter adjusted EBITDA of about $3.15 billion, up from about $1.45 billion in the prior-year period. The S&P Capital IQ consensus estimate of adjusted EBITDA for the first quarter was about $1.91 billion.

Cheniere also reported a net loss of about $865 million in the first quarter, mainly attributable to unrealized noncash derivative losses related to supply contracts with upstream producers. The company uses derivatives to hedge its exposure to commodity markets in which it has contracts to purchase or sell physical LNG. If prices rise or fall, Cheniere must account for the mark-to-market gain or loss between the derivative and physical positions.

In a separate release, Cheniere Energy Partners LP reported a first-quarter adjusted EBITDA of about $1.03 billion, up from $779 million a year ago. The S&P Capital IQ consensus EBITDA estimate for the first quarter was about $955 million.

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