Cheniere Earnings: Marketing Continues To Find Ways To Extract Upside in Tougher Market

Cheniere’s LNG 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 continues to be active on the contracting front. It has signed contracts for about 4 million tons of offtake supply per annum, or mtpa. While it may not top 2022′s 11 mtpa of contracts, we expect it to exceed 2021′s 5 mtpa. These contracts are, for now, tied to Train 7 of the Sabine Pass expansion project. The Sabine Pass expansion project consists of three trains (about 6.7 mtpa each) totaling 20 mtpa of annual capacity. While we think the full 20 mpta remains somewhat aspirational, 4 mtpa represents about 60% of the capacity for the first train. We would anticipate that perhaps another 1.5 million tons are needed to sanction a final investment decision. Cheniere has already entered the pre-review process for permitting and signed a contract with Bechtel for the initial engineering work.

LNG market fundamentals continue to be reasonably healthy, in our view. European LNG demand remains slightly ahead of 2022 levels so far this year, contributing to very healthy EU storage levels amid declining gas consumption. Asian, particularly Chinese LNG demand, is recovering strongly, as attractive LNG prices are prompting higher LNG imports.