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Cheniere offering more competitively priced LNG for some US marketing volumes

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Cheniere offering more competitively priced LNG for some US marketing volumes

Highlights

Cheaper liquefaction fee rivals developer rates

China supply deal a bright spot amid Q3 loss

Houston — Cheniere Energy is comfortable selling a greater amount of marketing volumes produced at its US LNG export terminals on terms that include a liquefaction fee of $2/MMBtu to $2.50/MMBtu, executives said Nov. 6.

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Offering some of its supplies, on a spot and contracted basis, at a significantly cheaper rate than what it charged under long-term deals used to support construction of Sabine Pass Liquefaction in Louisiana and Corpus Christi Liquefaction in Texas makes its LNG more competitive. It also is offering shorter-term contracts for some of its supplies, including a recent preliminary deal with a Chinese customer.

And because of the scale and flexibility of Cheniere's existing operations, that could pose an additional challenge for North American developers that continue to struggle to secure sufficient commercial support to be able to sanction new facilities.

"We see a growing market for LNG, and we think that it is supplied in large part by US projects, our project," Chief Commercial Officer Anatol Feygin said during a conference call with analysts to discuss third-quarter financial results. "They are cost competitive in that $2 to $2.50 range on a delivered basis. That's how we evaluate both ourselves and our global competition."

He added, "We're very comfortable with this $2-$2.50 range."

The first five Sabine Pass trains were sanctioned under long-term contracts with an average liquefaction fee of $2.78/MMBtu, according to S&P Global Platts Analytics data based on available contract information. Long-term supply from Corpus Christi's three trains was sold with a liquefaction fee of $3.50/MMBtu, the data show.

The contracting challenges that many US exporters and developers have had are compounded by pressure from counterparties, especially in Europe, that have strict carbon emissions reduction goals and are shying away from signing new deals for importing US shale gas.

France's Engie recently halted talks with NextDecade about a supply deal tied to the developer's proposed Rio Grande LNG facility in Texas, according to Engie. Prior to that, NextDecade had already delayed a financial investment decision until 2021. In its quarterly report to the Securities and Exchange Commission on Nov. 6, Tellurian, which has also struggled to build commercial support for its Driftwood LNG project in Louisiana, did not provide an FID target update.

"The focus on decarbonization is here, and it's here to stay," Cheniere CEO Jack Fusco said on the conference call, while addressing discussions with existing and potential European customers. "It hasn't come up with us yet, but we are anticipating it. We're moving forward with quantifying what we can do to make our product much more desirable in the event that we need to."

In releasing financial results for the July-September quarter that were negatively affected by the timing of cargo cancellations spurred by demand shocks from the coronavirus pandemic, Cheniere said it was primarily focused on selling excess capacity that it has created through optimization at its two terminals.

When and whether it makes a positive FID on its proposed mid-scale liquefaction expansion at its Texas facility depends upon not only firming up sufficient commercial support for the project, but also for the "virtual additional train worth of production" that Cheniere can reap from existing units, Fusco said.

"From a high level, it means we are less contracted on a run-rate basis than we were before and based on our disciplined approach to capital investment decisions, we have incremental volume to sell prior to sanctioning any new infrastructure," Fusco said. "Make no mistake, Corpus Christi Stage 3 is shovel-ready and one of the most cost competitive LNG projects worldwide, but we are committed to capital discipline and will only sanction that project when it meets or exceeds our financial capital investment parameters."

Demand outlook

For the July-September quarter, Cheniere reported a net loss attributable to common stockholders of $463 million, or $1.84 a share, compared with a loss of $318 million, or $1.25 a share, for the same period in 2019. Third-quarter revenue fell more than 32% to $1.46 billion from $2.17 billion in the year-ago period.

The wider loss for the latest quarter was blamed in part on the timing of when Cheniere recognizes revenue generated from fees that counterparties are required to pay the LNG exporter when they cancel cargoes. Due to the large number of advance cancellations reported during the summer, as global demand plunged because of virus-driven lockdowns, Cheniere recognized those fees in the second quarter. When those cargoes weren't delivered in the third quarter, its revenue in the latest quarter fell year-over-year.

With demand surging in recent weeks thanks to higher end-user prices in Asia, Cheniere sees positive momentum building heading into 2021.

China's Foran Energy recently signed a preliminary agreement that would likely involve it buying 26 shipments of LNG from Cheniere's marketing unit over a five-year period beginning in 2021.

"I firmly believe Cheniere has the best Chinese origination office in Beijing of any of the LNG providers," Fusco said. "Our relationship there just continues to grow stronger and stronger. We've sent a significant amount of spot cargoes to China here recently."