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Cheniere confident on new LNG supply deals despite soft prices, trade tensions

Cheniere Energy Inc. executives said trade tensions and concerns about a short-term oversupply of LNG will not hurt their expansion plans or their efforts to land long-term deals with world buyers.

"I don't see any problems with our business paradigm," Cheniere President and CEO Jack Fusco said Aug. 8 during a second-quarter earnings call.

Cheniere is in the middle of a major ramp-up and has already brought two new natural gas liquefaction units online in 2019 at its export terminals in Louisiana and Texas. Executives said they expect to reach substantial completion in the coming weeks on another facility, train 2 at the company's Corpus Christi LNG plant. The build-out has required massive capital spending, but the market reacted favorably to Cheniere projects coming online and starting to provide revenue.

Cheniere's shares traded up nearly 3% to $62.72 in afternoon trading. That was after Cheniere reported second-quarter earnings Aug. 8 that fell short of market expectations and a net loss of $114.0 million, compared with a loss of $18.0 million a year earlier.

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Executives attributed the second-quarter results primarily to softness in short-term LNG market spot pricing along with higher expenses stemming from the company working to bring the new production units online and conducting scheduled maintenance on trains 1 and 2 of its flagship export terminal, Sabine Pass LNG in Louisiana. Similar maintenance on trains 3 and 4 began this month.

"We're starting to see light at the end of the short-term market tunnel with some attractive winter spreads in the market, though our results and our outlook for the rest of the year have been impacted by the lower pricing environment," Fusco said.

Cheniere reaffirmed its EBITDA guidance range of $2.9 billion to $3.2 billion, but executives said the company was tracking toward the lower end.

Cheniere reported second-quarter adjusted EBITDA of $615.0 million, up from $531.0 million a year earlier. The S&P Global Market Intelligence consensus adjusted EBITDA estimate was $652.6 million.

Subsidiary Cheniere Energy Partners LP posted second-quarter adjusted EBITDA of $591.0 million, up from $562.0 million a year earlier. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA was $606.5 million.

Global LNG prices have suffered, with weaker-than-usual winter demand and new export capacity coming online and creating a supply glut.

U.S. LNG cargoes to China, which is the primary driver of world gas demand growth, have plummeted due to the escalating trade war between Beijing and Washington. China raised a tariff on U.S. LNG to 25% in June.

"They're going to consume a lot of additional LNG molecules," Fusco said. "Whether it comes from America or not is something to be seen. And we feel very good about our position there, but we're not waiting for China or for the trade situation to get rectified before we move forward. There's a lot of demand for the product. As more and more of it moves to China, it leaves a lot of customers that are anxious and open, and we're going to try to get our fair share of that pie."

Cheniere executives said they remained confident in the company's ability to secure new contracts. They said there remain plenty of buyers such as international utilities that want to secure long-term LNG supplies on a delivered basis in a market that could tighten in the early 2020s. Fusco said Cheniere is also pursuing more deals like the one the company announced with Apache Corp. in June, which marked a new kind of gas supply agreement for the U.S. LNG sector.

Cheniere planned to use the Apache agreement to help secure financing for the company's Stage 3 expansion at Corpus Christi LNG in Texas, a project the company expected to commercially sanction in 2020. The project would involve building up to seven midscale liquefaction trains. Under the Apache deal, Cheniere would get an undisclosed fee and market Permian Basin gas to world buyers while Apache would get a netback based on an index of global LNG prices. It is a model that exposes the upstream developer to global price risk that has been largely borne at the LNG buyer level.

"There are a number of attractive counterparties that meet our criteria for this kind of engagement," Cheniere Executive Vice President and Chief Commercial Officer Anatol Feygin said. "Given the upstream portfolios and the players in that market, that number is not infinite. We need to check a number of boxes that a lot of producers have a difficult time checking these days."