Q3 2021 Cheniere Energy Inc Earnings Call
Good day and welcome to the Cheniere Energy, Inc. Third quarter 2021 earnings call and webcast. Today's conference is being recorded at this time I would like to turn the conference over to Randy Bhatia VP of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to <unk> third quarter 2021 earnings Conference call.
Slide presentation and access to the webcast for today's call are available at Cheniere Dot com.
Joining me. This morning are Jack Fusco, <unk>, President and CEO, Anatol, Fagan Executive Vice President and Chief Commercial Officer, and Zach Davis, Senior Vice President and CFO.
Before we begin I would like to remind all listeners that our remarks, including answers to your questions may contain forward looking statements and actual results could differ materially from what is described in these statements.
Two of our presentation contains a discussion of those forward looking statements and associated risks.
In addition, we may include references to certain non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow a reconciliation of these measures to the most comparable GAAP measure can be found in the appendix to the slide presentation.
As part of our discussion of <unk> results. Today's call May also include selected financial information and results for Cheniere Energy partners L. P or <unk>, we do not intend to cover <unk> results separately from those of Cheniere Energy Inc.
The call agenda is shown on slide three Jack will begin with operating and financial highlights Anatol will then provide an update on the LNG market and Zach will review our financial results and guidance. After prepared remarks, we will open the call for Q&A I'll now turn the call over to Jack Fusco, <unk>, President and CEO.
Thank you Randy and good morning, everyone. Thanks for joining us today and thank you for your continued support of Cheniere I am pleased to be here. This morning to review, our third quarter results and our increased financial guidance for 2021 as well as introduce our financial guidance for 2022 were in the midst of an <unk>.
Sighting and pivotal time in the global LNG market as the World continues its transition to a cleaner energy mix.
I'm excited about <unk> prospects and advantage position to compete and win in this market for years to come.
Before we begin I'd like to spend a minute discussing hurricane Ida a deadly category, four hurricane which impacted Louisiana during the third quarter.
While the center of the store made landfall well to the east of our facilities at Sabine pass many of our coworkers neighbors and other members of the Cheniere family were impacted with lost or damaged homes and property. Once again I'm pleased with <unk> response, and I am proud of how quickly and tactfully, we supported those.
And need in the communities, where we live and work in southwest Louisiana. In addition to providing direct financial assistance to disaster relief organizations. We once again partnered with the Astros Foundation to lead a three day supply driving Houston led by Cheniere employee volunteers.
We collected sorted and loaded six semi trucks with emergency supplies for our neighbors in need in southwest, Louisiana, while many employees from Sabine pass traveled to the affected communities to help with the cleanup efforts.
Fortunately the Sabine pass facility was spurred by the storm and we've maintained continuous and stable operations throughout the weather events I'd like to recognize our teams from production operations planning Marine operations gas supply meteorology and many others for their tireless effort through this hurricane season.
Demonstrating safety as a core value at Cheniere.
Now please turn to slide five where I will review some key operational and financial highlights from the third quarter as well as introduce our 2022 guidance ranges.
For the third quarter, we generated consolidated adjusted EBITDA of $1 1 billion.
And for the fourth consecutive quarter, we are raising our full year 2021 EBITDA guidance.
We now forecast 2021 consolidated adjusted EBITDA of four six to five point out 1 billion. This increase in EBITDA guidance is driven primarily by higher net backs on open volumes due to increased global LNG prices as well as increased lifting margins driven by higher domestic.
Oil and gas prices.
While we are currently tracking to the upper end of this upwardly revised range.
Specific timing of a few high value CMI cargos.
Casual to be loaded or delivered at the end of the year, which could slip into the beginning of 2022 drives a slightly wider range.
Distributable cash flow grew to approximately $390 million and we are reconfirming distributable cash flow guidance of one eight to $2 1 billion for 2021 during the quarter, we generated a net loss of approximately $1 billion.
As we have discussed in prior quarters. Our net income is impacted by the realized and unrealized gains and losses due to the derivative accounting treatment required on our natural gas and LNG hedges as well as on our long term integrated production marketing our IPM transactions.
Jack will discuss the impact on our third quarter results in more detail in a few minutes.
Now looking ahead to 2022 I'm pleased today to introduce full year 2022 guidance of five 8% to $6 3 billion of consolidated adjusted EBITDA and three 1% to $3 6 billion of distributable cash flow Reconfirming that our inflection point has arrived.
Our guidance range slightly wider than what we've historically provided is necessary due to the higher LNG margins and considerable volatility in the market today as well as the specific timing of delivery on some DDS cargo schedules at or near the end of 2021 in early 2022.
We expect the LNG market to remain tight and to continue to provide a constructive backdrop for our business well into next year.
The higher net backs are complemented by higher expected volumes next year driven by the substantial completion of Sabine pass train six expected during the first quarter as well as our continued execution and our operational excellence program at both of our sites.
We are truly excited about what next year holds for Cheniere and we look forward to once again delivering results within the guided ranges.
The third quarter was particularly meaningful for our company as it features the announcement of our comprehensive long term all of the above capital allocation strategy, which was enabled by our team's relentless focus on execution and operational excellence.
Which is place cheniere at a decisive.
<unk> flow inflexion point.
Our capital allocation plan centers around three primary principles, which include a strong and sustainable balance sheet funding.
<unk> funding financially disciplined growth and returning significant amounts of capital to our shareholders over time.
To achieve these goals, we are committed to paying down a least $1 billion of debt annually through 2024 or until we achieve investment grade credit metrics declare.
<unk> declared R&R overall quarterly dividend for the third quarter reset our $1 billion share repurchase program for the next three years and laid out a plan to invest in Corpus Christi stage, three next year with internally generated cash flow.
In line with these plants, we have repaid $750 million of debt across the structure in the first three quarters of 2021.
So we are on pace to meet or exceed the $1 billion target this year.
The third quarter was also an extremely productive one for us in terms of operations and execution and we once again achieved milestones across our business on the production side for the third quarter. We set a cargo record. This time with 141 cargoes of LNG export from our two facility.
These.
Our production in marine teams at both Sabine pass and Corpus Christi of continuing to maximize asset availability and LNG production at both facilities, while maintaining our focus on safety.
Last month, we reached a significant milestone at Sabine pass train six when feed gas was introduced for the first time as part of the commissioning process with the project approximately 97% complete and substantial completion expected in the first quarter of next year.
Bechtel continues to progress against an accelerated schedule approximately one year ahead of the guaranteed completion date.
We look forward to a successful commissioning process, we expect to have the first commissioning cargos around the year end and a smooth ramp up of train six to stable operations.
During the third quarter, we reinforced our leadership position on climate and sustainability with the publication of our peer reviewed LNG lifecycle assessment study. This study is a first of its kind in the LNG industry.
The analysis utilized greenhouse gas emission data specific.
Through our supply chain and will therefore enable us to better assess greenhouse gas emissions across our LNG operations.
Proud of the continued progress we have made on this front.
Cross so many different aspects of the company, we will continue to integrate climate and sustainability throughout our business to improve environmental transparency and performance. This is especially important given the global focus on the LNG market presently.
A year ago, we are in a market environment of low prices and pandemic impacted demand.
Today. However, it is clear the absolute critical role natural gas and LNG have to play in a global energy transition and the viability of LNG and natural gas as a key source of reliable energy supply for decades to come.
Now turn to slide six.
We're all highlight Cheniere has significant commercial momentum in.
And the market dynamics supporting our increased financial guidance and confidence in the fed.
Corpus Christi stage three in 2022.
We kicked off the third quarter with the announcement of our newest long term IPM contracts with our Canadian natural gas producer Terminalling just after the quarter ended we announced two long term sba's with ENN in Glencore. The Sba's with ENN in Glencore are approximately 13 year contracts executed with CMI and done on an fob basis.
The signing of these long term contracts extends our percent contracted of the nine train portfolio to over 90% through this decade, and we maintain the flexibility to assign the ENN in glencore deals to a specific project.
Looking ahead, we estimate.
Another 3 million tons or so is needed to fully sanctioned stage III and with our origination team is busy as they are I.
I'm confident we'll get that required commercial support in the coming quarters.
In the short term market, we have witnessed significant volatility and record prices for LNG and natural gas across the globe with storage level and key demand centers below historic levels as we approach the winter season, we expect demand and prices to remain elevated into 2022, which gives us confidence in our guidance for next year.
On the long term side LNG market fundamentals are as constructive for long term contracting and the construction of new liquefaction capacity as I've seen at any point since I joined Cheniere.
Anatol has a lot of good information to share with you in a moment, but we are seeing LNG consumers recognize the importance and the value of securing long term natural gas supply and price visibility.
Of which a contract with Cheniere provides.
And we market to those consumers now as the second largest producer of LNG in the World. This is a major competitive advantage as it demonstrates our ability to execute and fulfill our promises to our customers something they value significantly in today's market.
We are responsible for providing our customers with flexible and reliable energy supply and the size scale and harder and reputation of reliability of this generic platform enables us to be a dependable partner for our customers. In addition to being able to offer flexible solutions that are tailored.
To the unique needs of our customers is a competitive advantage that is virtually impossible to replicate in the near term.
Our commercial momentum coupled with the significant <unk> in the long term LNG market underscores our progress towards <unk>.
Of Corpus Christi stage III, while our confidence in 2022 RFID grows we remain committed to our disciplined capital investment parameters to ensure the risk and return profile is consistent with that of the first nine trains we built.
You've heard me say this before but it's worth repeating we arent in the business we're in the value creation business.
With that our turn the call over to Anatol, who will provide more detail around current market dynamics.
Thanks, Jack and good morning, everyone. Please turn to slide eight.
As Jeff just mentioned, we maintain an increasingly constructive view of the global LNG market for the balance of this year and well into 2022%.
Higher demand for our product driven by the need to replenish gas and LNG storage inventories after the cold winter last year, coupled with higher year on year demand due to improved economic activity around the world resulted in a significant run up in prices through the summer.
Because of this imbalanced market witnessed unprecedented price spikes across all gas and LNG benchmark's global natural gas and LNG prices remain above seasonal norms stoping concerns about sustained tightness in LNG supplies ahead of a potentially colder than normal winter once again.
<unk> settled September at over $15 in <unk> Btu and touched an all time high of $55 <unk> in early October.
<unk> settled October at over $19 Btu and hit a new intra day, all time high of over $56 of them and Btu in October after averaging around $4 <unk> in 2020.
While our long term customers are largely insulated from these dramatic price swings in our CMI business can capitalize on these dislocations in the short term sustained market volatility could be disruptive for our industry as it potentially incentivize us end used customers to utilize cheaper higher polluting fuels in the short term.
The rapid economic recovery in key LNG markets paired with some of the structural factors impacting Europe and Latin America helped the LNG market achieve higher growth levels. This year.
Angie consumption increased 7% in the third quarter amid intense competition for supplies between the Atlantic and Pacific basins.
This tug of war has certainly exposed to supply constraints facing the industry in the week of the pandemic.
Global LNG supplies grew $8 7 million tons year over year in the third quarter, while exports from the U S grew approximately $10 7 million tons during the same period.
The consistent gains in U S exports have been instrumental in providing much needed supplies to the market offsetting the declines from legacy facilities.
In fact 28 million tonnes of new LNG capacity, most most of which is U S. Based has come to the market in the past two years.
Each has more than offset the approximately 19 million ton decline in production from legacy plants in the same time period.
This new supply has played a critical role in alleviating some of the global supply shortage, while helping mitigate some of the underlying volatility.
Let's turn to slide nine.
Having covered the supply side of the equation, let's now look at some of the demand side factors driving the markets sustained imbalance through the third quarter.
As mentioned demand in some key Asian markets has been driven by end user buying in order to refill storage ahead of winter in many cases bidding volume away from Europe.
Weather has also played a meaningful role in volumes during the third quarter with severe droughts in Latin America earlier, this summer and last year in China, having reduced the availability of hydroelectric power generation sources, increasing demand for gas and further exacerbating the seasonal storage deficit.
In Latin America for example, third quarter demand was up over 100% compared to last year, primarily from the traditional hydro markets of Brazil and Argentina.
These factors coupled with efforts to replenish supply levels ahead of winter intensified the intra basin competition with Asia for incremental LNG volumes throughout the third quarter.
In Asia, China's LNG imports increased 13% in the third quarter amid significant growth in the power and city gas sectors as the focus on switching to cleaner burning fuels continues to grow.
China's gas fired power demand increased 23% on the year and its city gas demand grew 18% year over year, resulting in widespread power rationing in October and mid gas and coal supply shortages.
In South Korea nuclear outages in July and August also boosted demand for gas fired power generation by approximately 25%.
Leading to a 58% increase in LNG imports year over year in the third quarter as this impact was incremental to higher demand from replenishing low gas storage inventories.
And Europe storage levels remained at multi year lows around 22 Bcf below the five year average.
The perfect storm or unfortunate combination of lower LNG imports lack of wind in the north sea and low incremental pipeline supplies from Russia, coupled with rising coal and carbon prices have driven gas prices in Europe to record highs.
Despite having been responsible for balancing the market for much of the pandemic Europe relinquished volumes to more price inelastic markets in Asia, and Latin America, with LNG imports lower by 19% year over year in the third quarter as illustrated in the chart on the lower right hand side of the slide.
While U S LNG imports to the region during the third quarter were up 97% versus the third quarter last year, and 76% versus 2019 strong call on U S suppliers to meet regional demand in Asia, and Latin America meant that U S. LNG exports to Asia rose, 215% versus pre pandemic levels too.
19, and those still Latin America climbed 52%.
These regions since very strong price signals to attract higher U S flows in an effort to avoid shortages due to fewer pipe gas alternatives and constraints on coal and hydro power availability.
Please turn to the next slide.
The market significant volatility in the last 18 months has unquestionably placed a strain on energy systems around the world.
<unk> the need for additional investments in new LNG capacity.
As discussed previously we have expected the market to tighten starting this year due to the historically low volume of Fid's taken between 2015 and 2018, despite the substantial growth in global demand forecasted across developed and developing regions, which is driven by the structural shift to natural gas as we've discussed on these calls for.
Several years.
Based on our assessment of the market.
<unk> taken back in 2011 through 2014 contributed to a softer market from 2015 through 2020 as the market digested. The rapid addition of significant new supply.
But the market has now reached a cyclical inflection point and is calling for new capacity to be added.
While much of the current tightness has been exacerbated by a confluence of short term factors impacting supply and demand. We do expect the underlying market to remain tighter as a result of the pandemic, which reset the supply cycle and forced companies simply a stricter capital allocation parameters and deferred many project.
We now estimate that this tight market could extend well through 2025 and potentially tighter seasonal swings over the midterm period, especially for production from legacy plants remains an elastic and the current constraints on the coal supply cycle persists.
Recall that just last year stakeholders in our industry, we're more concerned about security of demand than security of supply.
That perspective is certainly been reset by the current market conditions, which we believe create tailwind for long term contracting of reliable and affordable LNG sources like our Corpus Christi stage III.
Our plan to expand our Corpus Christi facility is part and parcel of our strategy to invest in accretive growth projects to deliver value to our shareholders and provide flexible reliable LNG supply for our customers and we believe the visibility on price certainty that central to the structure of our long term contracts will be increasingly attractive to LNG buyers.
Under current market conditions.
We are beginning to see this manifest in the market with long term contracted activity clearly increasing in the last few months.
As Jack mentioned, we're very excited about our newest long term customers ENN and Glencore and look forward to building on this momentum as we continue to commercialize our growing platform <unk>.
The meaningful engagements, we're having with both existing and prospective customers gives us great confidence that we are marketing solutions valued by the market and we expect to maintain that commercial momentum into next year and reached FID on stage III.
The current market volatility coupled with the environmental and economic attributes of our product lead us to remain quite sanguine about the critical role of LNG and natural gas, having the global energy market, both as a destination fuel as well as a key enabler in the global transition to lower carbon energy sources.
Thank you all for your time I'll now turn the call over to Zack who will review our financial results and guidance.
Thanks, Anatol and good morning, everyone I am pleased to be here today to review, our third quarter financial results and our increased full year 2021, EBIT guidance as well as provide you with some more details regarding our full year 2022 guidance.
Turning to slide 12.
For the third quarter, we generated revenue of approximately 3 billion.
Consolidated adjusted EBITDA of approximately $1 1 billion.
Distributable cash flow of approximately $390 million and a net loss of approximately $1 billion.
Our net income results for the quarter were negatively impacted by the accounting treatment for our realized and unrealized gains and losses from derivative instruments, which includes our long term IPM agreements as we have discussed in prior quarters, our IPM agreements certain gas supply agreements and certain forward sales of LNG qualify.
As derivatives and required mark to market accounting, meaning that from period to period, we will experience gains and losses as movements occur and the underlying forward commodity curves.
This accounting treatment, coupled with the significant volumes long term duration and volatility in price basis for certain contracts and most notably our IPM agreements will result in fluctuations in fair market value from period to period.
While operationally, we seek to eliminate commodity risk by matching our natural gas purchases and LNG sales on the same pricing index or long term LNG SBA is do not currently qualify for mark to market accounting, meaning that the fair market value impact of only one side of the transaction is often recognized on our financial statements.
Until the sale of LNG occurs.
The unfavorable pre tax impact from changes in the fair value and settlement of our commodity and FX derivatives. During third quarter 2021 was approximately $3 5 billion.
$3 1 billion of which was noncash, including approximately $2 5 billion.
Directly related to our IPM deals, which were the primary driver of driver of a recognized net loss for the third quarter.
I want to highlight that the impact of substantially all noncash and tied to the significant volatility we have experienced in the global LNG market, which is otherwise served as a significant tailwind for our businesses.
From both a financial and commercial perspective.
The <unk> are reflected in our increased guidance for 2021, and the 2022 guidance. We are rolling out this morning above our normalized run rate ranges.
For the third quarter, we recognized an income 490, <unk>, a physical LNG, including 480, <unk> from our projects and 10 TB to you from third parties.
Approximately 78% of these LNG volumes recognized in income were sold under long term sba's or from volumes procured under our IPM agreements.
We received no cargo cancellations and had no impact to revenue recognition timing related to cargo cancellations in the third quarter.
As Jack mentioned, we are proud to have announced our long term comprehensive capital allocation plan in September. Thanks.
The success achieved by the Cheniere team over the past five years, we've certainly reached a cash flow inflection point that supports our capital allocation priorities of balance sheet management financially disciplined growth and returning capital to shareholders via dividends and buybacks.
As you May recall, we initially targeted $500 million of debt reduction this year, which we have succeeded by approximately $250 million through the third quarter alone.
In line with our capital allocation plan year to date, we've extended the weighted average maturity of our outstanding debt by over a year lowered our weighted average borrowing rate by over 15 basis points reduced the percentage of our outstanding debt.
That is secured by approximately 10% and lowered our LTM leverage by over a turn.
During the third quarter, we issued $750 million of fully amortizing two 742% public senior secured notes due 2039 at CCH and used the net proceeds to refinance a portion of the borrowings under the CCH as credit facility due 2024.
This transaction the lowest yielding bond ever secured by Cheniere not only extended the maturity of our borrowings, but also better matched our contracted cash flows with the timing of debt repayment.
In September we issued $1 2 billion of 3.25% senior notes due 2032 at <unk>.
This transaction executed on every aspect of our capital allocation strategy.
We used the proceeds to refinance Eqt's five 625% senior notes due 2026 and a portion of the 6.25% senior secured notes due 2022 at SPL were refinanced with the indebtedness migrated to <unk>.
Not only do we achieved the lowest pricing for a 10 year high yield issuance and energy we efficiently migrated that from the projects and further <unk> secured our consolidated balance sheet.
Pro forma for the payment made in October with a portion of the proceeds from the <unk> 2030, twos along with cash on hand is approximately $700 million currently remaining on the 2022 SPL notes.
We expect to redeem approximately $500 million of this amount via a committed long term amortizing fixed rate notes at SPL, we entered into on a private placement basis.
Which are expected to be funded this quarter.
The remaining approximately $200 million is expected to be paid down with cash flow.
In October we amended our existing $1 5 billion cei revolving credit facility with 23 financial institutions, extending the maturity to 2026 and lowering our borrowing rate.
Perhaps most notably the amended facility includes bespoke ESG loan features that provide economic incentives related to defined ESG milestones. Specifically these incentives include potential reductions in interest rate and commitment fees for certain sustainability linked expenditures such as expenses to support our <unk> programs.
And the achievement of specified climate related milestones like establishing the cargo emissions tax in the coming year.
In addition to our progress on managing our maturities during the quarter, we resumed share repurchases under our original share repurchase authorization in the third quarter, we repurchased approximately 77100 shares for approximately $6 million.
Our new three year $1 billion share repurchase program commenced October one.
Turning now to slide 13.
As previously mentioned today, we are again, increasing our guidance range for full year 2021, consolidated adjusted EBITDA and Reconfirming the range for distributable cash flow.
Our revised guidance range for 2021 consolidated adjusted EBITDA is four $6 billion to $5 billion.
So the low end of the range remains unchanged, but we are raising the high end by $100 million.
High end is moving up due mainly to the higher margins, we expect to capture on our CMI volume does the low end is staying the same simply due to the variability around the specific delivery dates on a number of high valued tes cargoes sold by CMI, which are scheduled to be delivered right around year end and early next year.
We will earn the EBITDA associated with these cargoes either way, but it may end up weighted into 2021, our 2022, depending on the specific logistics of those cargo deliveries.
The DCF guidance range for 2021 remains at one eight to $2 1 billion.
While the range is unchanged we are now tracking to the high end is the factors moving up our EBIT forecast are also positively impacting our DCF forecast.
While on the subject of DCF, we have made an important update to our financial reporting and guidance with respect to this metric.
Starting with 2022 guidance, we have adopted a new definition for distributable cash flow that we believe better reflects the consolidated cash flow of each of our wholly owned subsidiaries as well as <unk> <unk>.
Currently without this change our DCF is calculated based on only distributions declared at <unk>, which are impacted by <unk> capital allocation decisions, including debt Paydown and capital spend at Sabine pass.
Rather than have capital allocation decisions made at our subsidiaries impact consolidated DCF, we have revised our calculation to properly reflect the consolidated cash flow of the entire ship Cheniere complex less amounts attributable to noncontrolling interests.
The new definition accounts for 100% of CQ piece distributable cash flow being distributed to Cheniere Energy, Inc. Or said differently assumes a one times coverage ratio at <unk>.
Which will incorporate all cash flow generated in CQ Pea before capital expenditures retained cash flow and distributions.
Please note this change does not affect our run rate DCF guidance as we have always assumed a one times coverage ratio for CQ, Pete and a run rate forecast to reflect this dynamic.
Looking ahead to 2022, we expect to have another outstanding year and are guiding to five eight to $6 3 billion of consolidated adjusted EBITDA and three 1% to $3 6 billion of distributable cash flow.
The market today is well above our long run CMI margin assumption of $2 to $2 52 to 2022 should be a landmark year for Cheniere with all nine trains up and running and our financial forecast well above our run rate guidance.
At <unk>, we are forecasting a significant step up in distributions with guidance ranging from three to $3 25 per unit.
Our upwardly revised 2021 guidance figures for 2022 are largely driven by the continued strength of the LNG market and our ability to capture higher net backs on our open volumes, which will be higher in 2022, thanks to the accelerated schedule for substantial completion at Sabine pass train six and continued production optimization.
At both of our sites.
As we enter 2022, we expect to have approximately 150 <unk> of open our unsold capacity at CMI.
Our EBIT sensitivity to one dollar move in market margins is less than $150 million. While we have assumed some of that 150 <unk> at the current curve. We have also reserved a portion of the open volumes strategically as bridging volume for long term origination transactions similar to the ENN in Glencore SBS.
And that volume is therefore marked at prices that blend the near term curve with the long term market price.
There is a wider guidance range for 2022 than we've provided in previous years due to a number of related factors, though our open capacity for next year is only approximately 7% of our total forecasted P&L production the higher margins in the market means to EBITDA at each TVT of LNG contributes is higher and therefore the impact.
Each cargo is amplified.
In addition, the specific timing of train six substantial completion as well as the trajectory of that train reaching stable operations and the timing of delivery of the CMI cargo scheduled for the very end of this year and early next year I'll help justify starting with a slightly wider guidance range than we have historically provided for initial guidance two months ahead.
Of the year.
That concludes our prepared remarks. Thank you for your time and your interest engineer operator, we are ready to open the line for questions.
Thank you.
I would like to ask a question. Please signal by pressing star one on your telephone keypad.
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Okay.
Our first question comes from Christine Cho with Barclays. Please go ahead.
Good morning, everyone.
I thought maybe we could start with 22 guide.
The range is pretty strong out of the gate.
But you are open capacity would indicate that you guys have put away a decent amount of Carlos in the last several months for next year.
Can you just provide a little more color on what's assumed in the low and high end of the guide other than what you've already told us back about timing of that year end cargos.
<unk> that's open what does that assume for train start is there anything in there for <unk> and are you using the forward curve for to open capacity and your assumptions.
Thank you Christine.
We will have.
Zach answered the question.
Hey, Christine.
Yes, we're pretty excited about 2022 will be our first year with nine trains operational.
And we should have record production of around 43 million tonnes for the year are over 'twenty 200, TVT use. So when you think about 150 TVT you open.
Less than 7% of our total P&L production next year.
And then I would say that that open volume is going to contribute.
Give or take around $1 billion and Thats after accounting for the fact that though the curve next year is around let's say $10 or so.
We reserve a portion of the cargoes of this open capacity for some additional long term origination deals with bridging volumes similar to how we structured the ENN or Glen core deals.
So that's basically how it setup, we assumed train six is coming online at the end of Q1.
And there is some flexibility in there in terms of some of those high priced LNG cargoes, we literally have a couple of cargoes that are close to almost $100 million.
Value to us either being delivered late this year early next.
So with some.
Flexibility on exactly when substantial completion can occur and some of that timing.
That that just forced us to think about a $500 million range when margins are.
Round up 10 Bucks versus last year, when we came into the year. They are around 50.
Even though we had even more capacity open at the time.
Okay, great that is.
That's helpful.
And then.
Can you guys give a little more color on the contract date.
You signed in recent.
Recent months around the short term and medium term deals.
It looks like the long term 10 year plus deal terms have not really changed but I would imagine the chairman showed a one to three year deals has gone up especially after.
The reset in the supply cycle that Anatol discussed what are the market rates for something like that and it's a long term deal.
The terms have not changed.
And customers are realizing that they can't rely on the spot market for their farm needs. What would you say, it's the biggest sticking point of negotiations for long term contracts right now.
That's all my turn alright, Thanks, Jack Good morning, Steve.
<unk>.
So Zack mentioned, we the market for those mid term transactions is the market. So we.
We reserve them as volumes for the origination efforts, we think having the right solutions the flexibility to start volumes without a condition precedent start them before additional capacity comes on is all very important and has been a key differentiator for us. So those volumes are blended into the contra.
Rack, either either commercially or for the way, we account for them either way, but but in the front for the liquid part of the curve. We include those economics in in that long term transaction.
NPV neutral basis to us so.
That's very important to us and <unk>.
<unk> seen with ENN, Glencore and others that maybe you haven't seen explicitly.
A key differentiator and we will earn that curve over the life of the deal.
Okay ill just alright.
Alright, I was just going to add that it was literally a year ago, we were around 85% contracted as a company and Jack said the goal is in the next few years to be 90% contracted or 90 and were now 90% contracted on the nine train.
Graham through the early 2000 <unk> with all the work that's been done and with all the deals that we signed midterm deals long term deals.
It's on the commercial team have signed this year, that's over $6 billion of fixed fees.
To give you a sense of how much derisking has occurred.
Okay great.
Christina.
Great. Thanks.
So there are some DDS deals there's IPM there is fob.
All of the above because we participated on the whole value chain.
Alright.
Okay.
Thank you. Our next question comes from Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
Thanks for all the color on the LNG market here, just wanted to pick up with that a bit more particularly as it relates to the medium term.
As you laid out there is really few other plants that are under construction in the near term.
All those facing delays such as Mozambique, and LNG, Canada also European Union carbon prices have doubled year to date. Just wondering if you think this sets us up for kind of a stronger for longer LNG pricing into that kind of more of a medium term timeframe, there and how <unk> CMI could benefit from that.
Yes.
Okay.
Like we said this was supposed to be to us a transition year that was difficult to call and everything that that we've talked about.
<unk> created a much more rapid transition and as you said that the volumes that are coming into the market 22 through 25 delays on upstream.
These delays on liquefaction up by these some.
Some of both actually being canceled as <unk> seen in recent history.
It gets us well through the mid Twenty's and on the demand side. We just see continued commitments to natural gas I mean, you see these numbers out of China, which.
Through the through three quarters, leading is the leading marketed surpassed Japan, it's about 2 million tons higher now on the year, most likely will be the largest market and we don't see that market slowing down and its commitment to natural gas is unwavering as as India's as as Vietnam as his Taiwan's so.
We're quite sanguine about about the midterm as well as the long term, we think if we do our job correctly and have the right environmental bona fides in the right economic value proposition.
It is decades and decades and decades of runway and Jeremy I have to say from an operational excellence perspective, I am so proud of of the two sites, both Sabine pass and Corpus Christi.
They have performed.
Above my above my expectations and that team continues to impress me.
So.
It's more than just market prices.
Have to make the product and deliver the product.
Got it that makes sense. That's helpful. There and then maybe just pivoting towards CCL stage three here.
Just wondering if you could refresh us with the recent.
Term deals that you've signed up here as far as.
Where I guess contracting stands relative to <unk>.
Moving forward and just kind of updated thoughts on how you think that could progress over the course of this year.
Sure. So we mentioned in the prepared remarks that we think it's around 3 million tons, but in terms of.
How these new contracts that we've signed helped US build stage three I think you have to just realize at this point the company's commercial and financing strategy is no longer just an isolated or separate project finance basis.
Because at this point were at 45 million ton operating company in the next few months.
So it's all one portfolio.
Everything helps us firm up not just the existing nine trains, but this next 10 plus million tons in stage III.
And keep in mind at this point with the work that and it's on the team have done we have seven at least publicly announced long term contracts are over 7 million tons and Thats CPC ENN glencore and the three IPM deals with Apache EOG and Terminalling.
So.
We're getting close but at this point some of those contracts maybe a couple will end up at Sabine.
First will be.
Perfectly able to underpin the financing and the economics thresholds that we required stage three next year.
Got it that's helpful I'll leave it there thanks.
Next we will go to Spiro <unk> with credit Suisse. Please go ahead.
Thanks, operator, good morning team.
Want to start off with the MLP actually if we could just revisit your thinking.
The valuation spread is really kind of move closer in favor of maybe combining the entities and I know that was discussed maybe a year or two ago and it seems like we're gravitating closer to that level. So I just wanted to get your latest views on whether or not we're getting close I know cash flow accretion was a big point that you wanted to sort of make there.
And what your appetite is on that front to simplify the structure.
Hey, this is Zack again and I'll just say.
We've been very consistent in our openness and simplifying the structure over the years.
At the same time, we're pretty happy being patient and waiting for the right ratio of the stocks.
But at this point, we don't see any need to do anything to an extent.
Okay.
Two week two months ago, we came out with capital allocation and said, we had about $10 billion of available cash.
Just with the curves and the momentum we have.
That's maybe $2 billion higher.
So there is nothing holding us back from achieving all of our goals regardless of the structure and are definitely not interested in using any leverage to solve any of the accretion dilution issues with such an exchange or an idea our simplification of that sort.
What we're mainly focused on for the LNG shareholders is at least the $11 of run rate cash flow for nine trains growing to $16 on a sustainable basis, and if there's a way to simplify the structure and maintain that.
Yes, we'd be open to it but at this point, we're pretty content with how things are going.
Yes, it makes a lot of sense. Thanks for the update there Zack.
Second question few weeks ago, you all got approval from the FERC to expand some of the nameplate capacity at Sabine and Corpus and I just wanted to dig in there a little bit and find out exactly what that relates to I think some of my maths suggested that gets you sort of beyond the optimized 5 million tonne per annum run rate for each of those trains, but I realized there might.
Some nuance there so just wanted to get some color there and understand if there's anything incremental in that that approval.
Yes that approval was in the making for a while.
And went through all of the necessary regulatory processes.
I will tell you I am more and more pleased with our debottlenecking and optimization that we.
Program that we've been able to do at the two sites.
If you're asking if I think there's more room to go I do.
<unk>.
<unk>.
Will we.
We will be sure to under promise over deliver on that aspect of it.
Perfect. So all I had thanks for the time guys.
Our next question comes from Brian Reynolds with UBS. Please go ahead.
Hi, good morning, everyone.
Just given the 'twenty two guidance range.
Comments from the previous capital allocation announcement of $1 billion to $2 billion in additional cash available on Asia said that could be one to 2 billion.
Higher on Spiro's response, just wondering how we should think about capital allocation as we head into 2022.
And if any of that excess cash will be deployed in 'twenty, two or if that will be more of a 'twenty three 'twenty four of them. Thanks.
Sure so.
When we speak to around $2 billion more of available cash through 'twenty four.
Really come over the span of the entire period of time, because just in this 22% to 24 timeframe, let's say margins have moved up over $3. So just take that into account with us.
Any that's 90% contracted that's how you almost get there in terms of overall cash what youll see us do with this momentum now is to an extent, we'll probably pay down more than $1 billion of debt just this year.
Our first year of capital allocation, but then you can see.
Meaningful and increases next year, and not just debt paydown, but allocations to the buyback program and obviously some flexibility to not only F stage.
Stage three at some point in the middle of next year or later, but even do some LNG piece to start locking in prices.
And some of the schedule earlier in the year, so there's a ton of flexibility there.
The main tailwind from this extra cash flow.
Ics.
We came out saying that we hope to get to by 2024, it's looking like we will be able to pay down that $4 billion of debt by 2023.
And with that obviously, we can ramp down the amount of debt paydown will be doing post getting to IAG and that means we can ramp up some of those capital returns while still funding stage III.
So you could see us be more aggressive on the buyback eventually and then obviously reconsider.
What the right payout ratio is for the dividend overtime.
Great I appreciate the color.
The pivot back just to the 150 <unk> of open capacity just wanted to clarify does that include all of train six capacity at this time, assuming late <unk> start date, and then also you talked about the Debottlenecking initiatives I think one or two on CPA on the capital allocation day is that also included the guidance or is that kind of.
Settled through the three years just continued optimization.
Yes, when we give guidance.
Today for next year that is literally the budget that we just went through in the forecasted plan. So theres no debottlenecking work that needs to get done to achieve our plan for next year, which is over 2200.
<unk> and thats, not including any commissioning cargoes. So the production related to train six that should.
Europe later this year and obviously in Q1 next year.
Just to give you some perspective on that commissioning because it's.
Turning on at a pretty good time with where market prices are.
We could have over 10 commissioning cargoes over the winter.
And that alone could be over half a billion dollars.
Of extra cash not baked into any.
Our forecasts for our EBIT our DCF.
And to put in perspective, what that number means.
To finish train six and the third birth at Sabine.
Around $300 million. So we actually are more than covered for the rest of our capex.
For the nine train program.
Great I'll leave it there and have a great day everyone.
Thank you. Our next question comes from Michael <unk> with Goldman Sachs. Please go ahead.
Hey, guys. Thank you for taking my questions. Congrats on congrats on a strong year.
Yeah.
I wanted to think longer term.
And I think the first thing is when you're talking to customers and many of your customers are the utility customers in Asia.
One very diverse power generation fleets.
We've seen a ramp in gas east this year, probably early next year, although pricing can move things around.
What are folks, saying to you when you talk to them about whether there is a potential coal power plant retirement cycle ahead.
Not in the next year or two given whats happened, but thinking 510 15 years down the road in Asia, and how material that could be if I kind of want to think and compare it to the U S and European ones.
Yes. Thank you Michael So I'll start and then I'll turn it over to Anatol.
As you know just in China alone there is over 1000 Gigawatts of coal fired generation currently in operation.
I always relate that back to back to Calpine.
When I ran that company it was around 25000 or 25 gigawatts.
And China has got over 1000 Gigawatts of coal. So just a dramatic number that is multiples of cheniere as if they.
If they really need a reliable supply of.
Natural gas like we believe they do I actually think the demand for Nat gas and for LNG.
Has been constrained because of the lack of available avail.
Availability of the product had we had more product.
<unk> just been in double digits.
Significantly higher so I worry at these high prices there.
There is a lot of substitution going on and that tends to be a lot more coal and oil being used for power generation.
We need to get back in balance.
Longer term and then and then I think folks will actually appreciate that that Nat gas is here to stay and part of the solution for for a cleaner energy mix around the world.
Yes, Michael just to add a little bit to Jack's comments.
China is committed to peak coal it is still adding coal capacity, but it is retiring older plants and that will we expect only accelerate the numbers youre seeing now are really the.
Just the start of a power conversion to natural gas, it's still only 4%.
Of total power.
Capacity in China is natural gas, but we are seeing especially in the coastal provinces more and more commitment to that was thousands of gigawatts being added and it's not just coal its commitments to two phase out nuclear.
In Taiwan and.
In Korea going forward. It is probably peak nuclear in in Japan in the coming years, So we're seeing natural gas.
Still an unwavering commitment to natural gas Jack mentioned, the high prices and the volatility.
That could cause a recalibration of those commitments, we haven't seen that yet and as long as again, we do our job of providing stable affordable and reliable supplies with almost perfect reliability to our customers. Their economics are of course, well within these prompt prompt prices so thats.
That is clearly helpful in the equation over the longer term.
So if I wanted to think about a really long term outlook for cheniere.
Can you remind us how much real estate or how many incremental tons you could potentially add after stage III, meaning how much real estate at Corp is still available.
And are you even thinking about stage for at this point.
Yes, and yes. So we just finished our acquisition of the old Sherwin alumina facility, that's contiguous to Corpus Christi.
It's a little over 500 acres and it contains a birth.
We believe we could probably add another four large trains which would be about 20 million tons of additional liquefaction. After stage three and then as you know Michael we're just completing.
We will complete next year birth, three at Sabine pass.
Again.
<unk>.
I guess Sabine, it's a long term lease of 99 year land lease.
But it's another 500 acres in and plenty of room to grow at Sabine, especially with the third birth being completed.
Eliminates one of the bottlenecks for us.
Got it. Thank you guys much appreciate it.
Our next question comes from Craig Shere with Tuohy Brothers. Please go ahead.
Good morning, Thanks for fitting me in.
It seems like there's really a lot of unrestricted cash at the MLP I believe.
Operating cash flow less distributions and even capex was positive in <unk> and <unk>.
<unk> point commissioning cargoes alone should be more than the cost of all remaining SPL six capex.
Any thoughts about applying excess MLP liquidity towards a further <unk>.
Train upsizing <unk> carbon sequestration.
Wood wood.
<unk>.
A say being train seven makes sense at all before.
You reconcile.
Simplification and cost of capital issues.
Yes, So Craig first this is Jack first in our guidance, we fund all of the capital projects that we need at at Sabine and in that funding is a continued effort to do the necessary engineering and design work for Ccs.
For Sabine pass.
Additionally.
As Zach said, we don't feel constrained with the MLP structure to not continue to expand and grow that.
That facility.
So.
And you should expect.
As to continue to want to leverage all of the infrastructure that we have there which could include building a train seven.
And Craig I'll just add.
Do you see about $1 7 billion of cash on the balance sheet at <unk> about $500 million of that was just the bond proceeds from the <unk> bond we did in September that actually paid off.
The previous debt on October one.
So there was an incremental 500 on the books, an incremental 500 of debt that went away October one.
And on top of that with this excess cash.
Already going to pay over a $400 million down of the SPL bonds, that's coming due in 'twenty two through our capital allocation. So we're taking advantage of it there.
Increasing into over $3 on the GPU, making that commitment today for next year. So the money is putting is being put to use for sure and again, we baked in quite a bit of <unk>.
Development capital to ensure that we're progressing sabine maintaining sabine and setting ourselves up for some opportunities for expansion or for <unk> U S.
Thanks and for my last question, just a little confused about 'twenty two hedges.
And that they could arguably be thought to be weighted more towards first quarter, given proximity and desired.
To help with some very high pricing.
Or it could be more weighted towards the remainder of the year given uncertainties around actual six timing.
Could you kind of walk us through how that kind of ratably now moves through the year in terms of hedging.
You probably know the answer that we're not going to walk you through that in much detail and I think we actually gave quite a bit of detail here today that we have 150 <unk>.
And then you can bake that into and the fact that we are already 90% or so contracted going into this year.
With all of our long term contracts.
But to get to this almost 95% that is a little bit of hedging. That's just forward sales that we normally do.
And there is a bridging volumes for some of the long term deals.
That are in place as well.
Like ENN.
So it's a little a mixture of everything.
We'll say more of the opening capacity over time as in the last three quarters of the year versus the first quarter and Thats, just because we'll be ramping up train six during that period of time.
Great. Thank you.
Our next question comes from Ben Nolan with Stifel. Please go ahead.
Hey, thanks.
I wanted to go back to Corpus Christi, a little bit it sounds like.
Things are very very close to stage three going and Jack I. Appreciate the color that you gave for more large.