Cheniere Earnings: 2023 Guidance Near Top of Range of $8.8 Billion; LNG Market Remains Volatile

Cheniere’s LNG 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.

The LNG market continues to be very volatile with gas prices reacting significantly to any perceived supply disruptions. Areas of concern include unexpected nearly 50% declines in piped Norwegian gas to Europe following unplanned maintenance, concerns regarding Australian LNG strikes, and recent leaks at the Baltic Connector pipeline connecting Finland and Estonia. While EU gas consumption is down, LNG imports to EU are also down about 7% year over year, offset by higher Asian demand, which was up 4% over the same time frame. This demand is primarily China-driven, where demand was up 21% due to a recovery in gas-fired power generation.

Cheniere continues to return huge sums of cash to shareholders through a multipronged approach, as it realizes these ongoing marketing profits are closer to one-time efforts. Year to date, debt has fallen by $1.1 billion, the firm has repurchased $1.1 billion in stock, and the dividend was increased 10% in the third quarter. With debt paydown at about $3.5 billion compared with $1.5 billion in buybacks as part of its current capital return program, we’d expect buybacks to catch up by the end of 2024, meaning another $2 billion in new share repurchases.