From the Wall Street Journal
New CEO says he is focused on long-term contracts instead of chasing short-term deals
Natural-gas exporter Cheniere Energy Inc. reported a second-quarter loss Tuesday as its ramp-up in production of liquefied natural gas faces a world-wide glut that is depressing prices.
Surging natural-gas supplies in North America and slowing demand from traditional buyers in Asia have pushed down LNG spot prices and made it more difficult for suppliers to ink fixed-price contracts needed to secure financing for export projects.
The Houston-based company, which exported the first shipment of LNG from the U.S. mainland earlier this year, posted a loss of $298.4 million, or $1.31 a share, for the three months ended June 30, compared with a loss of $118.5 million, or 52 cents a share, a year ago.
Cheniere Energy Partners L.P., a publicly-traded affiliate that owns and operates the parent company’s assets, said it lost a $100.1 million, or 21 cents a share, in the second quarter, compared to a loss of $60 million, or one cent a share, in the year earlier period. Revenue during the quarter came to $151.2 million, up from $67.7 million in the previous year, it said.
Cheniere said it began recognizing LNG revenue and sales costs in the second quarter after taking full control of the first of seven LNG production lines, or trains, being built for it by Bechtel Corp., each of which can process up to 4.5 million metric tons annually.
The company said it has shipped 22 cargoes of LNG from its first production line at Sabine Pass in Louisiana. But it will halt production for four weeks in September to fix a design flaw related to burning off, or flaring, excess gas, it said.
Cheniere’s new chief executive told financial analysts he is focused on long-term contracts instead of chasing short-term deals. “Having stability in the cash flow is more important to Cheniere than trying to play some spot market, or basis, spreads throughout the world,”Jack Fusco, who was named CEO in May, said on a conference call.
The company is banking on demand for LNG to meet or exceed supply early in the next decade, and an accompanying shift toward longer-term supply contracts that offer greater price stability. “While the market for LNG is loose at the moment, we expect it to start tightening between late this and early next decade,” said Anatol Feygin, a senior vice president in charge of marketing.
Mr. Feygin said growing demand for LNG in markets such as Egypt, Jordan and Pakistan is offsetting slack demand from big Asian buyers such as Japan and South Korea. Some 30 new markets are considering LNG imports, with much of the new growth spurred by installation of floating re-gasification terminals that are cheaper and can be built more quickly than onshore facilities, he said.
Cheniere said it has contracted with 20 buyers committed to taking delivery of 87% of the production capacity currently under construction. Those contracts will help pay down a debt load that hit $17.8 billion as of June 30, up from $14.9 billion in December.
The company is building five LNG trains for Sabine Pass and two more at a facility in Corpus Christi, Texas. It is considering up to four additional trains if it can secure long-term supply agreements with buyers. That represents a more cautious approach from a year ago.
Under longtime CEO Charif Souki, who was fired in December over disagreements about the pace of expansion and strategic direction, Cheniere envisioned a total of 11 LNG trains at Sabine Pass and Corpus Christi, plus two other plants by 2025.
