Cheniere Partners Earnings: Weak Marketing Spreads Should Have Less of an Impact Than at Cheniere

Cheniere Partners’ CQP first-quarter earnings were predictably strong, but weaker marketing spreads are expected to damper future quarters this year, thanks to lower gas prices. Still, as this is already incorporated into our model, we will leave our $52 per share fair value estimate unchanged, and our wide moat rating intact. Cheniere Partners, by design, will see less of an impact than parent Cheniere Energy, as it only sees a fraction of the marketing profits that its parent does by a contract that ensures the majority of LNG marketing spreads in a high price environment flow to Cheniere Energy. Thus, we expect Cheniere Partners’ guidance of a $4 to $4.25 per unit distribution payout for 2023 is realistic, though we currently expect a distribution toward the low end. However, for 2024, we would not be surprised to see the base (currently $0.775 per unit quarterly) and bonus ($0.255 per unit) parts of the distribution change, with the base potentially increasing while the bonus portion is diminished.

The LNG market is playing out more or less exactly as we expected following a winter where EU storage levels have soared, thanks to reduced EU consumption. Cheniere noted a 12% decline in gas demand across Europe’s key markets in the first quarter. At the same time, Asian demand is picking up, as prices are now more palatable for these price-sensitive markets, and Cheniere noted a 4% sequential increase in demand.

We expect Chinese demand to start to pick up more in future quarters. In March, Chinese gas demand increased nearly 6% year over year, and LNG imports jumped 14%. On the China policy side, policymakers have suggested pursuing a more balanced approach to using coal and gas this year, likely not wanting to tighten the market too much and drive prices higher. However, over the long run, we think Chinese LNG will resume its role as the major demand driver for LNG and U.S. LNG in particular, thanks to its need to transition away from coal as an energy source.