Q1 2022 Cheniere Energy Inc Earnings Call
[music].
Good day and welcome to the Cheniere Energy, Inc. Q1, 2022 earnings call and webcast today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Randy That's yeah. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to <unk> first quarter 2022 earnings Conference call.
The 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 Executive 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.
Slide 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 LP or <unk> we.
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 will now turn the call over to Jack Fusco, Frontier's, President and CEO .
Thank you Randy good morning, everyone. Thanks for joining us today and thank you all for your continued support of Cheniere.
I am pleased to be here. This morning to review, our first quarter 2022 achievements and discuss our further improved 2022 outlook.
Before we begin I'd like to spend a moment discussing the tragic situation that continues to unfold in Ukraine. Since we last spoke in February .
Our thoughts and prayers are with the people of Ukraine and broader Europe as they navigate.
These volatile and uncertain times.
At <unk>, we built strong relationships with and support the communities in which we live and work and that includes those.
So we supply LNG.
Since the beginning of the year over.
Over 75% of cargoes produced by Cheniere have landed in Europe .
That amounts to over 150 cargos of LNG and we are just beginning.
As Europe looks to reduce dependency on Russian energy supplies and the administration looks to support our allies.
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.
We have been active participants in the U S. EU task force on energy security and we believe that increased cooperation around the world is essential to ensure our allies and partners along with our customers have access to energy in the months and years ahead.
For these reasons I have challenged our operations teams to do everything possible to safely and responsibly produce as much LNG as possible through our continued operational excellence programs.
Which we will address in more detail this morning.
Now please turn to slide five.
Where I will review some key operational and financial highlights for the first quarter as well as introduce our upwardly revised guidance ranges.
For the first quarter, we generated consolidated adjusted EBITDA of $3 2 billion and distributable cash flow of $2 5 billion.
Both of which.
Benefited from the early completion, an accelerated ramp up of Sabine pass train six and were further supported by sustained higher market margins throughout the quarter.
Looking ahead to the remainder of 2022 I'm pleased to announce that we are once again significantly raising our full year 2022, EBITDA and distributable cash flow guidance.
We now forecast 2022 consolidated adjusted EBITDA of $8 two to $8 7 billion.
And distributable cash flow of five 5% to $6 billion.
Both increases are driven by sustained higher margins on open volumes due to higher than forecasted global LNG prices across the year.
Increased expected volumes from both maintenance optimization, and an accelerated ramp up of Sabine pass train six as.
As well as an increase in lifting margins driven by higher domestic natural gas prices.
Zach will address guidance in more detail in a few minutes.
Specifically on our operational excellence program, our efforts there to unlock low or no cost incremental volume through maintenance optimization or debottlenecking efforts continue to be very successful over the last few weeks, our operations and maintenance planning teams have further optimized our planned maintenance activity.
For 2022, resulting in an increase in forecast production of approximately 30 <unk> are eight cargoes of LNG all of which is expected to be sold by CMI.
We are pleased to be able to support our customers and leverage our LNG platform and our operations and maintenance expertise to unlock incremental volumes of LNG for a market that's still.
Clear they need today and we appreciate the recognition by the administration and our regulators that U S. LNG is essential now and in the years to come and with the support from the Doe and FERC in their recent orders authorizing additional export volumes from our projects, we will continue to pursue further.
<unk> and debottlenecking opportunities to increase our volumes to meet the rising worldwide demand for LNG.
During the quarter, our teams continued to achieve milestones in terms of development execution operations and financial results.
In partnership with <unk>.
Not only did Sabine pass train six reached substantial completion over a year ahead of guaranteed schedule, but following substantial completion, our team was able to bring train six to full utilization and stable operations well ahead of plan, which along with.
General production outperformance across the portfolio.
Also contributed to our financial results this quarter with a few additional cargos supporting our increased guidance for the year.
Shortly after substantial completion of train six.
We announced the signing of our fully ramped lump sum turnkey EPC contracts with backfill for Corpus Christi stage, three we issued effect a limited notice to proceed in order to commence early engineering procurement and site mobilization in preparation works, while we finalize the financing ahead of reaching.
<unk>, which we expect to occur this summer.
I am extremely proud of the seamless operations continued excellent achieved by our senior team during the quarter, we safely produced loaded and delivered a record number of volumes across our platform. Thanks to our continued focus on operational excellence and portfolio optimization on the contracting front, we announced increases and extension to our existing.
Long term contracts with EOG and <unk>.
Of which reinforced the value of our commercial platform and the sustained long term demand for LNG and natural gas in the global energy markets and just this morning, we announced a new 15 year IPM agreement at Corpus Christi stage, three with arc resources, one of the largest natural gas producers in Canada.
Signing this contract once again demonstrates our ability to provide innovative flexible solutions for our global customer base and this IPM agreement further enables Canadian gas to reach international markets. Each of these agreements support the sanctioning of stage III and reflect the urgency in the global market for investments in <unk>.
New LNG capacity as customers from around the world look to secure long term supply, which anatol will discuss in more detail shortly.
Finally in terms of our financial strategy Zach and his team are executing on our long term capital allocation plan faster than originally forecast due to the sustained higher margins accelerating our initial debt paydown timeline, returning capital to shareholders or unit holders and currently.
In the process of raising the financing and have a formal sanctioning of stage III.
Turn now to slide six for an update on the significant progress we have achieved in our climate and sustainability initiatives and.
In April we announced our latest <unk> RV program that builds upon our existing studied with natural gas producers and LNG shipping providers now applying that methodology and rigor to examining the greenhouse gas emission emissions associated with the delivery of natural gas to our facilities.
As part of the program, we announced a collaboration with several of our key midstream infrastructure providers, including Kinder Morgan Williams, MPLX, DT midstream and Crestwood as well as multiple emission detection technology providers and leading academic institutions to improve the overall understanding.
Of greenhouse gas emissions and further deployment of advanced monitoring technologies and protocols across midstream infrastructure, that's part of our value chain.
From here, we expect to commence as similar <unk> programs specific to our liquefaction equipment.
We expect these robust kill marvy programs to improve the data and transparency of emissions throughout the LNG value chain to help maximize the climate benefits and environmental competitiveness of U S natural gas engineers LNG.
These <unk> programs are built upon our climate and sustainability principles that support our broader climate strategy initiatives, especially our cargo emission tags, which will began providing to our customers. This year.
Now please turn to slide seven while I'll provide a brief update on Corpus Christi stage III as I mentioned, a moment ago during the quarter, we finalize EPC contract with Bechtel for stage three and we've released them to begin early work under a limited notice to proceed and you can see.
Early visual progress on stage three site preparations.
In this slide.
We are pleased to have the contract finalized in stage three underway with pricing consistent with what we've communicated to the investment community over the past few years.
We expect to announce the <unk> Corpus Christi stage III soon after we finalize the financing of the project, which is currently in process.
Once completed Corpus Christi stage III is expected to provide the global market with over 10 million tons of incremental LNG per year.
The development of additional LNG capacity is ever more critical as countries worked to secure reliable and affordable energy supplies for the long term in support of both energy security and environmental priorities.
As such we continue to develop opportunities to leverage infrastructure of both of our existing brownfield sites for further LNG capacity additions.
<unk> Sabine pass.
In Corpus Christi possess significant in place infrastructure that puts capacity additions at those sites at a significant cost advantage relative to Greenfield development.
We look forward to sanctioning stage III sometime this summer and coming back to you after that with our plans for further LNG capacity growth.
Which would be supported by brownfield economics, and underpinned by long term contracts consistent with our investment parameters.
With that I want to reiterate my gratitude to the entire Cheniere team for their work to ensure the reliability of our LNG. During these unprecedented times in our industry.
I will now turn the call over to Anatol, who will provide an update on the LNG market.
Thanks, Jack and good morning, everyone. Please turn to slide nine.
As Jack noted the global energy and natural gas landscape has faced significant challenges this year.
Find ourselves in unchartered territory as impacts from the award in Ukraine filter through gas markets, sparking extreme price volatility and a renewed focus on security of reliable long term natural gas supply.
In March <unk> in TTS daily prices were pushed to new all time highs with April deliveries, reaching approximately $85 and $72 per <unk>, respectively.
That being said since our last call J Cam predominately traded at a discount to TGF is Europe transition from being the market of last resort once responsible for balancing the global LNG market to the market of greatest need with destination flexible LNG available to respond to the market signal.
While geopolitical risk premiums have since subsided front month settlement prices remain elevated given the structural tightness that's been present in the market since the second half of 2021.
As you can see from the Middle chart on this slide LNG supply growth continues to be underpinned by the U S with U S. LNG exports growing 23% year on year to $20 4 million tonnes.
This growth has been supported by the strong call on LNG demand in Europe , as well as new capacity additions, including Sabine pass train six.
Overall supply grew 6% or 4 million tonnes year on year in Q1 with supply growth from the U S and to a lesser extent, Russia offsetting declines, resulting from outages in Indonesia, and Malaysia maintenance in Qatar as well as gas supply disruptions in Nigeria.
U S. LNG represented nearly half of European LNG imports during the quarter, helping meet the needs of our European Allies and partners in.
In fact, cheniere produce cargos supplied more LNG into Europe than any other country in Q1 with approximately 75% of volumes produced at our facilities landing in the region are testaments to the market responsiveness of destination flexible LNG largely pioneered by Cheniere and the U S LNG industry.
Please turn to slide 10, where we will look at the regional dynamics and a little more detail.
Much like last quarter. The focus in Q1 has been on the European market and how much LNG can divert from Asia.
However, the pure supply interruptions from the war in Ukraine have only exacerbated the sense of urgency and what was already a tight market given the strong rebound in post pandemic demand low inventory levels in the region and limited spare LNG production capacity.
Russian gas flows into Europe trended downwards throughout 2021, but trended even lower in Q1 of 'twenty two while the ongoing conflict has raised fears of disputes and flow disruptions.
As a result, Europe began relying more heavily on LNG imports rather than rush from pipeline gas for the first time.
Pipeline imports from Russia fell 26% year on year or 11, bcm as buyers nominated down shipments via Ukraine and reversed flows eastward.
Record high LNG imports were able to plug the gap representing nearly one third of Europe's total gas supply in Q1 up from just 20% a year ago.
Fortunately the 66% year on year jump in LNG imports helped ease Europe's gas storage deficit and brought inventories back within the five year range as of April inventories are finally approaching 2021 levels.
More than two thirds of Atlantic Basin, LNG flow to Europe in the first quarter as Europe did cargoes away from Asia as a.
LNG imports into Asia dropped, 8% or $5 8 million tonnes, creating increased demand for alternative sources of gas and power supply.
Four of the worlds top five LNG buyers all in Asia scaled back LNG imports during the quarter, reflecting the impact of higher global prices deferred consumption and fuel switching.
In Japan and Korea nuclear.
Nuclear and coal fired power generation helped make up for lower LNG imports with LNG falling, 11% $2 6 million tonnes, and 4% <unk> 5 million tonnes year on year in each market respectively.
At the end of Q1 major Japanese electric utilities, LNG inventories were approximately 0.8 million tons below 2021 levels.
One was the only major Asian buyer to post growth, adding 0.4 million tonnes of LNG demand, that's up 8% relative to Q1 'twenty one thanks to restrictions on coal burn during winter and reduced nuclear capacity lending support to gas fired generation.
<unk> LNG imports have returned to growth in March on the back of coal fired power maintenance and outages in Korea, and Taiwan as well as an increased call on gas fired generation following a relatively minor earthquake in Japan.
In China, LNG imports fell, 13% or $2 6 million tonnes year on year in the first quarter as buyers opted to instead divert high value cargoes to the premium market in Europe .
Domestic gas production and imports of Russian pipe gas increased in the first quarter, but were not enough to balance domestic price levels.
Deregulated prices for domestic truck LNG roughly doubled in February and March compared with the same period in 2021, indicating a tight gas market. Despite robust coal fired generation Dan of course, some recent COVID-19 induced lockdowns.
Thailand served as the largest growth market in Asia during the quarter importing a record $2 3 million tonnes of LNG that was up 16% quarter on quarter.
Island procured spot LNG cargoes to continue providing gas to the power and industrial sectors amid declines in both domestic gas production and pipeline gas imports from me and Mark.
Please turn to slide 11.
While it is likely too early to draw conclusions around the long term impacts of the current geopolitical uncertainties. The worn Ukraine is already having a significant impact on energy policy thinking globally with long term security of supply of top of the priority list of utilities and governments alike.
<unk> is now fast tracking additional LNG infrastructure throughout the region, which coupled with the inclusion of natural gas within the Eu's Green taxonomy last fall. We believe further reinforces the critical role of natural gas in the regions energy mix for the long term.
How quickly and how orderly Europe is able to fulfill its stated objectives to reduce its reliance on Russian gas.
We will have a meaningful impact on global market conditions for natural gas over the next few years.
Despite the ongoing conflict in Ukraine, Russian gas has continued to flow.
However, last week, Russia halted exports to Poland in Bulgaria over refusal to pay for gas supply in rubles, marking an escalation between Russia and Europe , specifically with respect to energy supply.
Regardless of how quickly an orderly Europe reduces its dependence on Russia supply demand signals suggest that tighter and potentially volatile near term gas market at least through the current LNG supply cycle, especially with the Asian demand growth story remains firmly intact.
As a result, we believe the market will see a shift in LNG procurement strategies as more buyers seek the stability security and reliability of long term LNG contracts.
As Jack mentioned, the demand for our flexible and reliable LNG on a long term basis is only been amplified this year given the outlook for continued market volatility and our ability to structure tailored solutions for our customers.
Our recently announced deals with Engie, EOG and arc resources, not only evidenced the long term view of the role of LNG and natural gas in the global energy mix.
Also highlight the criticality of reliable and flexible long term energy supply the.
The value proposition that clearly benefits cheniere as customers.
And now I'll turn the call over to Zach to review, our financial results and guidance.
Thanks, Anatol and good morning, everyone.
I'm pleased to be here today to review, our first quarter 2022 financial results, our key financial accomplishments and our increased 2022 guidance a testament to the value of our platform and the effectiveness of the entire Cheniere team.
Turning to slide 13.
During the first quarter, we generated adjusted EBITDA of $3 2 billion and distributable cash flow of approximately $2 5 billion.
Both record quarterly amounts.
Our first quarter results benefited from the drivers of our guidance increase back in February , namely the early completion of an accelerated ramp to full utilization of Sabine pass train six.
And bind with the sustained higher margin environment across global LNG markets.
Additionally, the contribution of a few CMI cargoes loaded at year end 2021, but delivered in 2022 as well as incremental lifting margin based on higher Henry hub prices further contributed to first quarter results.
We recognized an income 592, <unk> a physical LNG during the first quarter, including 580, <unk> from our projects and 11 <unk> sourced from third parties.
Approximately 82% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements.
We generated a net loss of $865 million in the first quarter.
Net income line continues to be impacted by the unrealized noncash derivative impact related to our long term IPM agreements as we have discussed on prior earnings calls.
Turning to our progress on capital allocation, we are executing on the plan we laid out in September of last year on a significantly accelerated pace as higher than expected marketing margins and production are providing a meaningful tailwind to the timeline, we previously laid out.
During the first quarter, we redeemed or repaid over $800 million of long term indebtedness, bringing the total now to over $2 billion.
Out of the $4 billion, we targeted to pay down by the end of 2024.
During the first quarter, we also repurchased nearly a quarter of a million shares for approximately $25 million.
Paid our second quarterly dividend of <unk> 33 per share for the fourth quarter of 2021.
While we are prioritize debt paydown, thus far given our consolidated leverage targets the share repurchase plan is in a good position to meaningfully repurchase shares on an opportunistic basis, including in the present quarter as our cash balances have continued to grow.
Commercialization of stage three was completed with the EOG transaction and further enhanced by the <unk> deal as well as the arc resources IPM transaction, we announced this morning in.
In addition, we are also officially assigned over the Glencore ENN in Terminalling contracts to Sabine pass now that train six is up and running which leaves our long term contracts with CPC.
TG NRG sinochem.
Gran <unk> Apache EOG and now arc deals available to underpin the stage III financing a truly global contract portfolio with a mix of Fob.
Yes in IPM deals to.
The fixed price turnkey EPC contract with Bechtel was executed during the first quarter and stage III is underway with bechtel working under an <unk>.
We officially launched the financing process in April with our Bank group and expect to finalize a widely syndicated financing ahead of a full <unk>.
Which we expect to announce this summer.
Turning now to slide 14, where I'll provide some more details around our second consecutive significant increase in 2022 guidance.
We are increasing the midpoint of our guidance ranges for full year 2022, consolidated adjusted EBITDA and distributable cash flow each by another $1 2 billion.
Bringing expected consolidated adjusted EBITDA to $8 2 million to $8 7 billion.
And distributable cash flow to five $5 billion to $6 billion.
This increase can be attributed to a few factors summarized simply is more volume and higher margin.
First the incremental volume we've added to our forecast from the continued success and maintenance optimization is driving an increase in the production forecast of approximately 30 TVT you are roughly eight cargos.
In addition, the faster than expected ramp up of train six along with general production outperformance across the portfolio contributed a few extra cargoes for the 2022 forecast.
All told this incremental production accounts for over half of the increase in forecasted EBITDA and DCF for the year.
Second market margins secured on a previous opening capacity were up by approximately $8 per and then btu compared to our late February call.
This increase in margin contributes about another $400 million in the EBITDA and DCF forecast.
The balance of the increase is predominantly attributable to higher lifting margin on higher Henry hub pricing.
With respect to the EBITDA sensitivity from here, we have sold over 95% of our total expected production for this year and have approximately 70 <unk> unsold.
This is based on the revised production forecast inclusive of the incremental volume mainly from the maintenance optimization.
We currently forecast that a $1 change in market margin would impact EBITDA by approximately $40 million for the rest of 2022.
Under our revised capital allocation plan announced last September we've already repaid or redeemed over $2 billion of long term debt.
And repurchased over a quarter million shares through Q1 with the expectation of growing our deployment to both capital allocation initiatives further this quarter and through the rest of the year.
Including our recent dividend declarations for Q1, we have also declared nearly $1 per share in dividends and began paying a base plus variable distributions at <unk> <unk>.
All of which has strengthened our balance sheet accelerated our path to investment grade credit metrics and delivered value to our shareholders.
Accelerated progress on our plan continues to be recognized by the credit ratings agencies.
Last week, S&P upgraded SPL to Triple B flat from Triple B minus.
Pending the completion of train six and the consistency and resiliency of our cash flows as catalysts for the ratings action.
With Cei and <unk> rated double B plus with positive outlook at S&P. We view. This upgrade of SPL is a meaningful step towards reaching investment grade ratings at the corporate levels and given our accelerated progress on this front, we anticipate coming back to you all with updated capital allocation goals in early 2023 are potentially later this.
This year.
Until then we will continue to execute on our comprehensive plan prioritizing debt Paydown opportunistically repurchasing shares paying our dividend and investing in stage III.
While we do not have any debt maturing for the balance of 2022, we do have our existing term loan at CCH, which is fully pre payable.
We'll focus our debt pay down on this facility in the near term with an eye to the SPL maturity next spring as we expect to approach sustainable consolidated investment grade credit metrics across the company in the coming quarters.
That concludes our prepared remarks, thank you for your time and your interest in Cheniere.
Operator, we are ready to open the line for questions.
Yes, Sir Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal.
Ben.
Once again that is star one if you would like to ask a question.
And we'll take our first question from Jeremy Tonet with JP Morgan.
Hi, good morning.
Good morning, Jeremy.
Thanks for taking my question here just wanted to start off with the guidance and the raise here I was just wondering if you could maybe help us parse through a bit here was the guidance raise if you think about which quarters contributed to it is that just reflecting the benefits in the first quarter being higher or should we think about the next three quarters being a little bit higher.
Then your original forecast just trying to understand some of the drivers there.
Hey, Jeremy exact over here and I'll just say.
In the February call, we are pretty much two thirds the way through the quarter.
So we pretty much anticipated then with train six already up and running that we would have around $3 billion of EBITDA.
For for Q1, so basically what <unk>, saying is that this $1 $2 billion increase is actually going to be spread out more so over Q2 through Q4.
And clearly with eight two to $8 seven of EBITDA 22 to $24 of cash flow and.
Honestly will be under four times on debt to EBIT. This year at this rate.
We'll be capitalizing on capital allocation for the rest of the year, but to give people a sense of the numbers around the drivers of the $1 2 billion increase.
As I mentioned, the <unk> that were open going into the last call with $8 increased selling those cargoes through the volatility in the mid Twenty's, let's say in terms of netback that was $400 million.
And then all of this.
<unk> on maintenance and the incremental cargos.
That added over $600 million.
And then yes higher Henry hub better lifting margin was about the rest so really it's it's coming now youll see it in the future quarters, this incremental plus billion.
Got it that's that's very helpful. Thanks for that and.
Maybe just pivoting towards the long term guidance I keep hearing you guys optimizing and squeezing out more production I'm just wondering your.
Kind of.
Existing long term run rate EBIT guidance is that still current or should we be thinking kind of an upward bias to that just given all the incremental capacity that you guys keep squeezing out here.
Yes, Jeremy.
I'll take some of that I am so proud of my maintenance and operations teams for what they've been able to do with these trains and their focus on maximizing the efficiency and effectiveness.
The trains to get them to optimal performance has just been fantastic and world class, but.
As far as the actual run rate guidance I'll turn that over to Zack.
Sure.
The rest of this year and honestly, even next year, we're seeing netback than let's say the mid to high teens in our forecast.
We're going to stick with the existing forecast for you all where we had CMI at 2% to $2 50.
Because we can honestly make a very good.
<unk>.
Building, new infrastructure like stage, three with long term contracts in that range.
Just to put in perspective for stage III at $7 billion Unlevered six times Capex to EBITDA.
And pretty much fully contracted at this point and we're talking about double digit Unlevered returns.
So for now we're holding tight with our.
Long term guidance or nine trains and then with stage III.
But with this extra cash I mean that at this point from 'twenty one through 'twenty four it's about $16 billion of available cash the numbers getting a little silly. So we'll we will get you back to this year, which is only let's say 5 billion plus.
We'll be bringing down the share count will be reducing interest expense and ideally eventually, yes, increasing that guidance, but we'll stick with what we got today.
Got it going off with beat and raises as a good way to go about it. So thank you for all the color. They are really helpful. Thanks.
Thanks, Jeremy.
Well now take our next question comes from Brian <unk> with UBS.
Hi, Good morning, everyone and appreciate all the color on the.
Capital allocation allocation update later in this year.
Maybe to pivot to CCL stage three.
It appears that you guys are targeting a late 'twenty five in service date, but just given that you have given backfill the thumbs up to start construction effectively.
And just given that you guys have brought on a few of your previous trains on nearly a year early was curious if these midscale modular trains have the potential to come online in late 'twenty four versus <unk> 25 to take advantage of some of the market dynamics, just given that the global Nat gas market is expected to stay tight through the mid 2020. Thanks.
Yeah. Thanks Ryan.
I will say as I am.
I'm always impressed with what David craft and his team at <unk> been able to do with <unk> and bring our trains and significantly ahead of schedule and my expectation is still that way.
As you know we tend to be fairly conservative in our guidance and we've guided you guys to the to the guaranteed delivery dates from backfill and as we get sooner into that.
I will I will keep you informed of let you know of what our expectations are but right now that plan has.
Two.
To have the first train.
Producing.
LNG and in commercial office by the end of 'twenty five and then every three to four months thereafter have another train startup.
And but.
As you can tell I think the world of my team and I.
Pretty confident we will we will hit the plan.
Great appreciate that feedback maybe as a follow up curious if you could perhaps just some.
Commentary on the <unk> program to monitor CHD emissions I was curious if you could share some of the early results of the program and whether the data that you are effectively collecting is helping.
Counterparties and customers get comfortable with signing up spot contracts, specifically those counterparties that were a little bit more hesitant to sign up for long term deals given the ESG concerns before thanks.
Got it.
Thanks, Ryan this is anecdotal I'll start there. So it's still relatively early days, we're very optimistic we're learning a lot obviously kicks off.
The third leg of the stool at Gillis.
And we will continue as Jack said to drive that and.
And implemented our own facilities as well.
One of the things that we're doing as you know is having it.
Having it done in partnership with universities and academic institutions and.
And making sure that all of the data are verified and.
Properly collected embedded so it's too early to comment on any output but.
The effort and the commitment and the obvious engagement that we have with the entire supply chain is critical as you said moving forward and continuing to drive engagement with.
With Counterparties and I think that that's the way the world is going to go and this will continue to keep us.
To keep us in a great position, leading the charge on on all of these fronts and reducing our ultimately reducing our lifecycle emissions. So too early to give you any any specific findings, but we are learning a lot and we will have a lot more to say over the coming quarters.
Great looking forward.
Also you may have a great day everyone.
We will now take our next question from Michael Lapides with Goldman Sachs.
Hey, guys. Thank you for taking my question and congrats on a great quarter and guidance rates.
Going to come back to the maintenance optimization.
I wanted to tie this into the Debottlenecking that you've talked about a little bit.
Is what Youre seeing is a pull forward of the debottlenecking, a little bit meaning the extra $1 2 million tons, a year that you've talked about where is this simply a delaying some maintenance work from 2022 and may be doing it in 2023, so kind of just pulling pushing out that maintenance works. So maybe.
Volumes this year are a little bit more elevated but.
You kind of lose a little bit of that when we think about next year.
Yes, Michael this is not doesn't have anything to do with Debottlenecking. So our maintenance optimization program, it's a continuous process.
My ops and maintenance teams are constantly working.
To ensure that that they can maximize production through I'll call. It a reliability centered program. So.
We actually as we get into the year, we start doing more diagnostics on the actual equipment that we're going to maintain and looking at its performance and what we found out this year is that.
We had scheduled in our five year plan to do the maintenance based off of a time base schedule from the original equipment manufacturers and now we've went to a reliability centered program and that's allowed us to.
To extend the useful lives of that.
Components.
And in this case it ended up.
Having us produce Zach mentioned over eight eight cargoes of additional production.
I just think it benefits everybody that we continually continually challenge ourselves and make sure that we're maximizing the performance of those components before we.
Before we change them out so that that's.
What we mean by maintenance optimization.
Got it.
There is a little bulletin, that's in the queue and just curious do you see now.
Got all six trains fully running at Sabine that there is some cost savings cost synergy opportunities over the next year or so or even longer term, we're kind of an average cost per train might come down on the O&M side.
Yes, absolutely I mean, you should think of us as a southwest of.
<unk> liquefaction trains right. We have nine trains that are that are the same design.
And there should be significant synergies now.
Parts and labor and operational effectiveness.
And I'll just add that if you look at our O&M results and you compare it to Q4 compared to Q1 last year now that we're just producing a lot more than that dollar per <unk> is coming down and should expect that for the full year.
Got it thanks guys much appreciate it.
Thanks, Michael.
Okay.
We will now take our next question from Spiro <unk> with credit Suisse.
Thanks, operator, good morning, guys.
Check would appreciate your thoughts on the regulatory landscape and U S energy policy here more broadly and I think we've seen a few olive branches and positive developments from this administration to support more U S LNG into Europe , but.
It feels like Thats kind of stop short of a comprehensive policy to really foster more development. So curious what you're seeing and hearing from regulators and policymakers both here and in Europe .
Well.
Needless to say that.
The EU has been very very helpful and very grateful for what we've been able to do.
In the 150 cargoes.
That were produced at Cheniere and sent to Europe .
Our relationship with.
The regulators FERC FEMSA.
The administration has always been strong.
We've talked about it before that.
Sure.
Obama administration approved or our ability to export and our permits to build the facility.
And we continue to work collaboratively with all of them I was very pleased that we got tank one back.
In service and we're working closely with them on <unk> III.
Got it.
The additional.
Capacity from FERC on our Debottlenecking efforts and then and then we've got the non FTA approval. So we're getting what we need.
They're very busy these days, we're having to be patient.
But we will continue to work collaboratively with the bonds.
Great.
Helpful.
Second question, just moving to upstream and working more with E&ps seeing a lot more upstream companies expressed interest in LNG and tapping into that market. Your announcement of course with arc is another great example of that.
We did have some in E&P is talking about taking an equity interest in LNG projects directly and so curious that you described your interest levels from here to take on more E&P customers and if you'd be open at some point, even jointly developing something going forward.
Thanks, Barry Xenical chiming in.
We love these IPM deals for a number of reasons, obviously, it's very much in line with.
With our risk tolerance and the fees that we collect from them, but it's also the.
The gas supply that comes with it.
The operational flexibility that comes with it and as Zach mentioned.
In the portfolios.
The projects, having a mix of Fob eds in IPM transactions.
<unk> is very elegant composition as you know we've always been limited by the pool of potential Counterparties, we've expanded that pool. Fortunately to include now to Canadian producers.
And the idea that we would more of this.
Center of the fairway for us.
Especially as as credit quality improves for the E&ps.
That pool continues to increase so you should expect more of that from us.
And we think that Thats part of our balanced diet, if you will.
And then on yes.
Yes, they are partnerships and equity with new contracts.
Just to reiterate what we said before but with $16 billion of available cash 10 plus million tons of contracts already raised pretty much for stage three.
Yes, we're not going to need many contracts contingent on project equity and clearly we're pretty focused on simplifying the structure.
As much as possible so happy to do more IPM deals with credit worthy counterparties.
And we'll leave it at that.
Got it helpful color guys. Thanks for the time.
We will now take our next question from Jean Ann Salisbury with Bernstein.
Hey, good morning, and if the run rate for volume that you've been at year to date like if youre looking at gas grapes and staff and a good proxy for the year for steady state or do you anticipate that there is more maintenance and kind of not in the wintertime that might bring down the average level.
At this exact I'll, just say I think we produced around 11 million tonnes across the portfolio in Q1.
And at the rate, we're going accounting first train six coming online in February we'll be in our run rate range for all of the trains.
This year on an annualized basis.
It might be a slightly up.
Just with the colder weather in Q1, but it's a decent proxy.
Great. Thank you and I know, we're all focused on getting the STC is stage three <unk>.
But could you talk about the steps that would be required to get at train beyond that market.
And whether you'd kind of be comfortable contracting volumes on this theoretical train while it's still in the FERC process.
Yes.
I'll start and I'll ask Anatol, if he wants to jump in on it.
We've got very strong relationships with our customers and we've pretty much.
<unk>.
An ability for us to continue to grow this business.
I feel very comfortable.
Cheniere will grow for many many years.
Hereafter I think the brownfield aspects.
Can't be matched.
You can see from our stage three that the economics are extremely strong and I think there's more run rate.
Left.
Yes, thanks Ian.
In terms of contracting obviously, you've seen the activity.
It's been a very strong three and even six months. This is the time when when.
When the U S product engineers product in particular, given its reliability and performance that we've talked about.
Stands out.
We have a range of offerings and as the market continues to absorb those volumes and continues to afford us incremental opportunities. We do have the opportunity to engage on on future projects as well so.
We we have the ability to.
Serve customers with volumes right now with volumes of course off stage, three and given the strength of the market.
Discussions on.
On further opportunities as well.
Great. Thank you and congrats on the on the guidance range.
Thanks.
We will now take our next question from Sean Morgan with Evercore.
Hey, guys.
Kind of a continuation on that same theme, but so if we see this really rapidly changing market, where a lot of.
Russian market supply to Europe might be kind of up for grabs in sort of a market share shift is there.
One part is kind of how long would it take to get FERC approvals on an expansion beyond.
Beyond stage three in terms of whole months and if it is going to take.
Sort of a long time you have potentially.
I'm not trying to minimize the tenant tpa that is coming on with phase III, but if you had this may be unique opportunity.
Would potentially buying FERC approved project, but just kind of stalled out that you guys are not involved with on the table.
You heard from Zack Sean that we're building in stage III at six times EBITDA.
Okay.
This creates a significant amount of long term value.
I do think there is the build and buy situation.
I've seen it in my whole career.
And for the foreseeable future I, just think we can build it faster better cheaper.
And then then than buying it from someone else.
Okay, Great and then.
The news on the import export bank potential involvement I mean is that you.
You guys have traditionally been able to.
Finance everything that you wanted to develop on your own how do you sort of view involvement potentially by the federal government.
On building this as an opportunity to reduce the cost of capital.
Contagious for Cheniere or how do you kind of think about that.
Yes, I can only speak for Cheniere, but I'll just say, we're quite confident just with our bank group, which is a mix of say 30 to 40 project finance and investment banks that in the next couple of months, we will get binding commitments for three $5 billion to $4 billion spread let's say one five <unk>.
<unk> or so.
And that's not going to need any government agency funding support whatsoever.
<unk> support.
So we have a bank process thats already kicked off.
And we're going to get what we need really efficiently and quite attractive as well.
From the regular <unk>.
Market.
I can't really speak to those that may need that.
Okay, alright, thanks, a lot.
Hi.
Thank you.
We will take our next question from Mark Sollecito with Barclays.
Hi, Good morning, just one on my end.
The largest domestic buyer of natural gas just curious is there any insight you have on the recent strength in domestic gas prices and as more LNG export capacity is added curious if you think $3. Henry hub is still equilibrium point, where does this call on U S. LNG kind of changed that at all recognize there's a multitude of variables that factor into that with domestic production in <unk>.
A national pricing, but just curious about any thoughts you might have on that dynamic.
Thanks Mark.
This is anatol again.
We still see the.
The U S gas market U S and Canadian gas market I should say as structurally three to $4 market.
We do think that there is a bit of a latency and responding to to these price signals as the curve continues to move up you would see an increase in activity Youre seeing.
Once again record production of natural gas that lagged after we had that record production number into late 19.
That has lagged the recovery in LNG exports, but we think that that will catch up in the coming quarters and feel very good about this this $3 to $4 level long term.
In the short term much like theres not much of a.
Switching capability globally, because commodity prices are elevated across the board. The similar dynamic is playing out domestically, but we have very high coal prices domestically. So that fuel switching bands are at a point of <unk>. So we think there will be a supply response, we think that's well underway and.
The curve is sort of pricing that as we get into the $4 range as we get into the back half of next year and beyond.
Great I appreciate the time.
Well take our next question comes from Ben Nolan with Stifel.
Yeah, Thanks, Hey, guys.
Yes.
Obviously corpus expansion is next on the list and the same I'm sure we'd be true.
FERC process, but just curious theres been a lot of activity in the market around Louisiana.
And other projects and so forth how are you thinking about.
Sabine pass is there any possibility that you might consider sort of simultaneously developing or expanding both facilities.
Or is it just really corpus.
Into the foreseeable future.
No I'd say, we have we have two great.
Sites in two great assets, we have.
Additional real estate at both sites and it's not out of the question to see us pivot.
Either do them, both are our pivot to back to Sabine.
<unk> has come in coming along very well I know there havent been any questions on it but we would expect to receive.
Our first ship there some time at the end of this year.
And then we will have.
More infrastructure there to load in.
Additional ships.
So we're very excited about our prospects.
Got it.
Then if you can I got to keep my team focused.
On making sure we execute what's in front of us and we.
We get stage three across the finish line, that's first and foremost for all of US here and then we'll look at.
Additional growth.
Potential.
Okay, absolutely understand that Jack.
And then if I could just real quick France, you had mentioned a little bit in your prepared remarks that a number of the Asian markets were sort of down a little bit more of the volume.
He was moving to Europe , and the prices better.
Do you think that there are possibly any long term implications there.
As a function of what's happening at the moment that there might be some.
Long term demand destruction, just because prices are as high as they are in Europe as you know.
Buying as much as they are.
Yes, great and very valid question and we keep as close an eye on that as possible. We don't see anything like in part it is again going back to the previous discussion is the competing fuels issue.
Australia coal is $16 17 Bucks, an app right. So that's no bargain either.
And in fact, it is much more expensive than the long term contracted supply that we and others bring to the table. So we're not seeing any any pivots away from the commitment to natural gas, we still see Asia as as the driver of gas demand, obviously, what's going on in Europe .
<unk>.
We'll change the supply portfolio, but is not going to meaningfully change the overall gas demand profile.
Asia, We believe will in.
To Europe .
Partly to your question the contracting activity that you've seen over the last three six months has still been very easily driven right. So so.
So we expect that to continue we are keeping a very close eye on that.
At this point don't see any.
Any structural shifts in.
The demand profile going forward.
Alright I appreciate it thank you guys.
We will now take our next question from Michael Blum with Wells Fargo.
Thank you. Thanks for squeezing me in here I will just combine my questions into one really.
The question is just given the commodity price environment and the geopolitical tensions.
Can you just talk kind of broadly how you think that.
All night shaped the duration structure of contracts going forward and the second part of that just in light of everything all your comments earlier.
How about Europe why are we seeing most of the new LNG contracts get announced come out of Asia.
I'll stop there thanks.
Yes, Thanks, Michael It's Anatol again.
The fundamental driver to the second part of your question is going back to the previous question, that's where the demand growth is right. So if youre going to underpin.
Sure.
Load serving entities that have growing demand it makes perfect sense to us and we've always seen and said that the majority of the long term contracts are going to be driven by by those structurally short Asian players.
The European issues, obviously, a little too early to call right now what's happening and what should be happening is is a tremendous focus on infrastructure solutions that has to come first we have seen these record numbers of imports into Europe and.
And there are constraints, there's only so much that you can bring into the existing infrastructure. So that is for Europe to solve first they are dedicating a lot of resources. The governments are dedicating a lot of resources to solving these bottlenecks. So we'll see more ability to bring volumes into Europe , but how that is commercially.
Underpinning still still has yet to yet to shake out so unprecedented times and challenges Asia is going to continue to be the growth driver in.
The majority of contracts signed this last quarter, we're 20 years or longer so we've always believed that.
20 year, the demise of the 20 year contracts that was was greatly exaggerated and you've seen that in the last few quarters really come back again as you said driven by the Asian players.
Thank you.
We will now take our last question from Matt Taylor with Tudor Pickering, Holt <unk> company.
Yes. Thanks for taking this last one exactly like you said youre cash flow is starting to look a bit silly here, so with that backdrop, but Jack have you thinking changed at all on broadening your organic development lengths, what I mean by that is extending the value chain a bit in developing shorter cycle opportunities as well.
Obviously your focus would still be on long term contracting.
Wondering if you guys are thinking through.
On how to potentially develop beyond just production capacity.
Okay.
I'll go first as CFO and then.
Jack chime in if he wants but I think we enjoyed the sweet spot that we're in right on the Gulf Coast of Texas, Louisiana.
With corpus and Sabine.
And I've mentioned before.
We like our debt metrics in the 4% to five times not our valuations.
So we're going to stick with.
Liquefaction on the coast and not go too far upstream and then downstream I think we are the biggest fans of anyone creating more demand for our product.
But we'll let others do that because that's a very different risk adjusted return prospects.
Very well thanks for that.
Okay.
Okay.
To conclude our question go.
Go ahead.
No I just wanted to thank everybody for their continued support.
<unk> has been an interesting time to be in the energy.
Markets and we appreciate all of your support.
And that does conclude today's conference. We thank you all for your participation you may now disconnect.
Okay.
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