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Cheniere says LNG expansion plans on target amid global supply and demand uncertainties

Highlights

Q3 loss blamed partly on increased maintenance expenses

2020 seen as promising due to improved pricing outlook

London — Cheniere Energy is pursuing additional commercial deals with Permian natural gas producers amid its expectation that it will make a positive final investment decision during the first half of next year on a proposed midscale liquefaction expansion in Texas, CEO Jack Fusco said Friday.

The comments during a conference call with analysts came as the biggest US exporter of LNG posted a third-quarter net loss versus a year-ago profit, citing in part increased costs due to maintenance and decreased pricing on LNG sold by its marketing affiliate.

With additional capacity coming online ahead of schedule and all five of its trains at its Sabine Pass terminal in Louisiana undergoing scheduled turnarounds this year, the company has been weighed down financially by additional expenses. It expects 2020 to be largely clear in terms of major maintenance and no new trains are scheduled to come online next year.

At the same time, Cheniere is looking to capitalize on improving prices and global demand for LNG, even as tailwinds from strong nuclear generation in parts of Europe and Asia and the protracted trade war between the US and China continue.

"We are extremely competitive worldwide," Fusco said.

There remains some uncertainty about the size of the global LNG supply stack in the mid-2020s, due to the number of US second wave projects under development that have not made decisions about whether to build.

Several projects have disclosed potential delays in startup, including ExxonMobil- and Qatar Petroleum-backed Golden Pass LNG in Texas and Shell- and Energy Transfer-backed Lake Charles LNG in Louisiana. Other developers have struggled on the permitting and commercial fronts. Pembina, in its earnings report Friday, said the timing and ultimate approval of its Jordan Cove terminal in Oregon are uncertain, with those considerations being critical components to the project's ability to move forward.

For its part, Cheniere is looking to grow in a crowded field and amid persistent concerns in some quarters of the market about a glut in global supply.

"Number one, I think we are much closer to the end of this supply wave," Chief Commercial Officer Anatol Feygin said on the conference call.

He said he expects emerging markets and parts of Europe to grow, and that would mean more natural gas consumption. Feygin also suggested Cheniere continues to take a long view of the market.

"The LNG world does not run off the spot spread, neither physically nor financially," he said.

In the short term, Feygin said he sees another nine months of "steep contango" in terms of LNG pricing. In a contango market, forward prices are higher than prompt prices, giving end-users an incentive to buy now rather than wait until later.

GROWTH PLANS

For the three months ended September 30, Cheniere reported a net loss attributable to common stockholders of $318 million, or $1.25 a share, compared with a profit of $65 million, or 26 cents a share, in the same period a year earlier. Besides extra maintenance expenses, Cheniere was weighed down by changes in fair value of commodity and foreign exchange derivatives and increased expense related to an impairment of its equity method investment in Midship Holdings. Revenue increased 19% to $2.17 billion in the quarter.

Cheniere operates five trains at Sabine Pass and is building a sixth. It operates two trains at its export facility near Corpus Christi, Texas. On Friday, it moved up expected substantial completion of its third train at Corpus Christi to the first half of 2021 from its previous target of the second half of 2021.

Meanwhile, Cheniere said it is gaining steam on its efforts to commercialize its proposed midscale liquefaction expansion at the site of the Texas facility. The project would include up to 9.5 million mt/year of capacity. On Friday, executives suggested that FID could cover five trains, versus the maximum seven in its proposal.

PRODUCER DEALS

To market supply tied to the expansion, amid competition with other US LNG export developers, Cheniere has signed agreements with EOG Resources and Apache that will allow the upstream producers to access a global price by selling their produced gas to world markets. On the conference call, Fusco said Cheniere continues to pursue additional similar transactions, primarily in the Permian -- because of the shale play's proximity to Corpus Christi -- with large, investment-grade producers.

Apparently not on the company's worry list is the 25% tariff on Chinese imports of US LNG that continues in retaliation for US tariffs on imports of Chinese goods.

Fusco said that while the "trade tensions have gone on a little longer than any of us anticipated," the company continues to engage with potential Chinese customers for "when things get better."

-- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Jasmin Melvin, newsdesk@spglobal.com