Sabine Pass ahead of schedule
Cheniere Energy (ticker: LNG) reported fourth quarter results yesterday, showing a net income of $109.7 million, or $0.48 per share. Overall 2016 results are a net loss of $610 million, or ($2.67) per share. Both fourth quarter and full year results exceeded 2015 results of $291.1 million and $975.1 million, respectively.
Cheniere’s Sabine Pass LNG project is now operational, as trains 1 and 2 came online in May and September 2016. Train 3 is expected to come online in March and Train 4 is on schedule for completion in November. The final Sabine Pass Train is on schedule for completion in mid-2019.
Cheniere’s Corpus Christi LNG project is also in progress, and is ahead of schedule. Trains 1 and 2 are currently on schedule to come online in February 2019 and June 2019, respectively.
Cheniere delivered to 17 countries in 2016
Cheniere exported 56 cargos in 2016 totaling about 200 Bcf to 17 countries. The most common destination was Chile, where 9 cargos were delivered. Latin America received more than half of all cargos, in fact, with 27 shipments split between Chile, Mexico, Argentina, Brazil, and the Dominican Republic.
Source: LNG Q4 Investor Presentation
The global demand for LNG increased significantly in 2016, with China, Egypt and India showing the largest demand increases. Cheniere states that emerging Asian markets for LNG absorbed the increase in Australian supply and opened cross basin arbitrage.
This echoes predictions made by former Cheniere head Charif Souki, BP and Shell which all state that U.S. LNG will begin to influence prices seen in other locations. While prices will still show moderate regional variation, the presence of a robust international LNG trade will serve to moderate the differentials.
The rise of LNG will make natural gas much more like oil. The extensive international trade in crude oil keeps regional variations in price low, especially when compared to current variations in natural gas prices.
Q&A from LNG Q4 conference call
Q: Turning to the LNG market in the fourth quarter, as noted, there was some really good strength that emerged there as demand really picked up. Some of that has faded into the first quarter here. Just wondering if you could provide any more color in addition to what you said on the call as far as the potential for demand to pick up again, any more strength – pockets of strength in 2017, anything forward looking you could provide there.
LNG EVP & CCO Anatol Feygin: Yes. I guess the overarching message is we continue to be pleasantly surprised by the speed and magnitude of the demand response. The world when it sees attractive prices and the ability to bring these volumes with destination flexibility and timely and reliable deliveries, puts solutions in place that allow underutilized infrastructure to be more utilized, right? That’s the issue in a lot of the Asian markets and as we’ve talked about in the past, the FSRUs continue to help us and other LNG providers place these attractive Btus into the market.
There is historically during these periods of supply additions, the market tends to overestimate the LNG that’s going to come to market, and underestimate how quickly the demand will materialize. We saw that in 2010/2011 when the Qatari volumes ramped up and we’re seeing that today, right?
The projects, we’re on time, ahead of schedule, on budget, et cetera, but lots of other projects as you know have had some teething problems. We’ve mentioned in a number of occasions, a lot of the legacy projects that don’t have the nameplate capacities that the market has gotten used to, and at the same time, this somewhat stealth demand that is harder to handicap because these projects are not nearly as visible as a multi-million ton train that everyone sees and knows chapter and verse about.
So, we’re optimistic that there is a very substantial structural components to this demand response and you will see some seasonality. As you pointed out, we’re clearly seeing that today. But a year ago, nobody had dialed in the kind of strength that we saw in Q4 and continued into Q1
Q: You mentioned the kind of the diversity of cargo destinations, I think 17 countries and 60 different shipments, but the midstream aspect of this trade is proven to be a bit more, I guess, inefficient than we would’ve thought on paper. And we’ve actually seen transportation costs rise a bit over the winter, just from the back of the fact that the trading of those assets and the merchant reaction has been a bit slower than we would have expected and then kind of leading days has been much wider than we would have expected given the destinations.
I’m just curious, how do you think about managing your transportation portfolio against that kind of a backdrop, do you get longer on tonnage than you would have initially thought, just given out the inefficiencies that have kind of popped up here?
Anatol Feygin: So on the shipping side, as we touched on, we are as close to being a 800-pound gorilla there as anybody and have a tremendous team that has been very effective at managing that fleet, but that is one of the places where as we touched on optimization comes into play and we’ve had a lot of opportunities to take advantage of that and take advantage of the very inefficiencies that I guess you speak to.
In terms of our portfolio, I’ve actually been very pleasantly surprised by the utilization rate on those chartered vessels and as you know, we have three on a five-year charter and augment that with medium and short-term positions to service the volumes that we see coming out of SPL and I would say, from our vantage point, that’s been very effectively done at pretty attractive economics and has allowed us to capture some, some meaningful incremental optimization margin.
