Company Reports

Cheniere Energy’s first-quarter earnings point to modest upside to our estimates in the near term and toward the very top end of management's 2024 EBITDA guidance of $5.5 billion-$6.0 billion compared with our $5.9 billion forecast. As usual, the upside is attributable to marketing profits, where Cheniere can capture the benefits of higher liquefied natural gas prices globally. We expect to leave our $161 fair value estimate and wide moat rating unchanged.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022, 55 million tons in 2026, and 58 million tons in 2028. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere’s fourth-quarter and full-year 2023 results met our expectations with $8.8 billion in EBITDA, matching our forecast. However, marketing spreads have declined recently, primarily due to relatively mild weather, very high gas storage levels in the EU, and weak industrial demand in the EU, all factors that are curtailing demand. As a result, Cheniere’s 2024 EBITDA forecast is a midpoint of $5.75 billion, substantially below our estimates. The forecast reflects about $250 million in excess marketing profits over a normalized marketing margin of about $2.25 per mmbtu, which would imply around $5.5 billion in EBITDA using the existing nine trains in operation. Our fair value estimate is based on a long-term EBITDA forecast of $7.1 billion, assuming normalized spreads, which also assumes Corpus Christi Stage 3 and Midscale trains 8-9 in service. Initially, we expect to maintain our $161 fair value estimate and wide moat rating for Cheniere.

The Biden administration has announced that it has paused all new LNG project approvals, likely until after the election in November 2024. We expect the approvals will impact projects under consideration by the Federal Energy Regulatory Commission, or FERC, and the U.S. Department of Energy, or DOE. The announcement does not affect existing efforts already approved, meaning that U.S. LNG capacity is already on track to effectively double in the next few years considering projects under construction.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere’s third-quarter results met our expectations. After updating our model, our $161 fair value estimate and wide moat rating are unchanged. 2023 EBITDA is likely to be toward the top end of guidance at $8.8 billion, due to wider marketing spreads, thanks to the LNG market volatility. This is about $150 million above our prior forecast. On the other hand, our 2024 forecast declines by about the same amount to $6.9 billion after refreshing our model for current LNG market spreads. We reiterate our long-term forecast once all trains under construction are online of about $7.1 billion, which assumes normalized market spreads substantially below current levels, offset, of course, by the increased earnings from the new trains entering service.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

While the REPowerEU plan laid out numerous goals across multiple end markets for eliminating the use of Russian pipeline gas, the European Union has no such plan for Russian liquefied natural gas, which we think will come as a surprise to investors. The EU has reduced Russian pipeline gas imports by over 80% in a very short time, but Russian LNG imports have surged recently and now make up 50% of overall Russian gas imports to the EU. Continuing to increase the use of Russian LNG threatens to undermine the gains and goals achieved via the REPowerEU plan in reducing the use of Russian pipeline gas imports.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere’s second-quarter earnings were better than expected, mainly as its marketing unit continues to find ways to sell more liquefied natural gas cargoes at wider margins. Its performance since the start of 2022 certainly validates Cheniere’s decision to retain a portion of its volumes for marketing purposes, versus fully contracting its facilities as peers have done. Once again, with the revised marketing contributions, Cheniere now expects 2023 EBITDA to reach a midpoint of about $8.55 billion compared with prior guidance of $8.45 billion. After updating our model, our $161 fair value estimate and wide moat rating are unchanged.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere’s first-quarter earnings were predictably strong, but the quarterly cadence of EBITDA shows the return to more normalized levels of EBITDA and market spreads. Cheniere did boost its expected 2023 EBITDA range to a midpoint of $8.45 billion, slightly higher than our $8.4 billion forecast, as it was able to sell a few remaining liquefied natural gas cargoes at higher margins than expected. With first-quarter EBITDA of $3.6 billion, the remaining quarters average out to about $1.62 billion each, reflecting the steep fall in marketing spreads, thanks to lower gas prices. Still, as this is already incorporated into our model, we will leave our $161 per share fair value estimate unchanged, and our wide moat rating intact. Still, Cheniere was able to pursue a reasonable capital allocation plan with the bonus cash flows, repaying $896 million in debt, repurchasing 3.1 million shares, and paying out a quarterly dividend of $0.395 per share during the quarter.

The U.S. gas price outlook looks weak in the short run, in our view, but the outlook should begin to improve in late 2023 and 2024. From a stock perspective, though, we think 2023 will present a potentially very good opportunity to acquire high-quality names leveraged to gas demand at a discount. We favor companies such as Kinder Morgan, Williams, Cheniere, and TC Energy.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere’s fourth-quarter results were well above expectations, as it captured the last few months of extremely wide spreads before the market weakened during 2023. Full-year EBITDA of $11.6 billion was more than double expectations entering 2022, as it captured huge marketing spreads given the significant increase in demand from the EU. Resetting 2023 expectations to market levels, where gas prices and LNG spreads have declined over the past few months, lowers our 2023 EBITDA forecast by about 17% to $8.4 billion. Outstanding capacity is about 50 trillion British thermal units (Tbtu), representing less than $500 million in EBITDA once under contract. The uncontracted capacity helps explain the difference between the low and high end of Cheniere’s guided range of $8 billion-$8.5 billion in 2023 EBITDA. These results still imply wider-than-normalized spread levels, as our long-run EBITDA forecast is about $7.1 billion.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Natural gas prices have collapsed more than 50% off recent highs amid very mild weather in the EU and the U.S. In the U.S., prices are now below $4 per million cubic feet (mcf)—below where they were before the outbreak of hostilities between Russia and Ukraine. Prices are also much closer to our $3.30 midcycle forecast for Henry Hub versus the almost $10 per mcf they traded at in August. EU power prices are EUR 76 euros per megawatt hour (MWH), compared with August levels of closer to EUR 350 per MWH.

One of the more pressing near-term challenges for the EU is addressing the large gap between gas supply and demand in 2023, left by the uncertainty over continuing Russian gas imports to the EU. In a recent report, the International Energy Agency, or IEA, outlined a 57 billion cubic meter, or bcm, gap in 2023, whereas our estimates put the gap at closer to 70 bcm. We expect the EU to close the gap, and how it does so will inform how well it is positioned for 2024 and the expected humanitarian and economic cost.

After raising 2022 guidance four times this year, Cheniere’s third-quarter results were notable solely due to the fact that it reaffirmed its 2022 EBITDA midpoint of $11.25 billion. However, management commented on the call that it would likely reach the high end of the range. After updating our models, we will retain our fair values and wide moats for the Cheniere entities. We do consider them to be overvalued in this market, as we think investors are assuming current market conditions will persist over the long term. In contrast, we expect the EU will enjoy a substantial amount of success in reducing gas consumption with its REPowerEU plan over the next few years and substantially lower its reliance on Russian gas imports and its need for LNG from current levels.