Cheniere $LNG – Top winner in 2022 & great potential for the future

What is Cheniere Energy $LNG?

Cheniere Energy is an energy company that operates in the liquefied natural gas (LNG) industry. It is the leader US LNG exporter thanks to its 2 terminals, Sabine Pass (30MTPA) and Corpus Christi (15MTPA) both located in the Gulf of Mexico.

Its business model relies on long term contracts (10-20 years) with energy companies for a fixed amount of LNG per year. The usual structure of the contracts is based on a fee of $2.5/MMBtu + 115% natural gas price at Henry Hub (spot price).

Additionally, Cheniere launched its Marketing division in 2019. This division does not have long-term contracts with clients. Otherwise, it rents vessels and use them to deliver LNG directly to the customer terminals taking advantage of spot prices.

The structure of Cheniere Energy is a bit complex as it has 100% interest on the Corpus Christi terminal and the marketing division, plus 50.6% interest on Cheniere Energy Partners $CQP which owns 100% of the Sabine Pass Terminal (The rest is owned by Blackstone Group & Brookfield AM).

At the time of this writing, Cheniere has a market cap of $40Bn and $24Bn long-term debt. For comparison, Cheniere achieved an Adjusted EBITDA of $11.5Bn and Distributable Cash Flow of $8.7Bn in 2022

How is Cheniere Energy doing in the current situation?

Cheniere has been hugely profitable in 2022. In fact, it was the best year in Cheniere Energy’s history. Driven by geopolitical tensions, the weaponization of energy, and years of underinvestment in natural gas, Cheniere managed to achieve >$11.54 Bn of Adjusted EBITDA & $8.7 DCF. Also, it was favoured by the incident that keep Freeport close for half of the year

We believe that Cheniere is making a smart capital allocation of these funds. It paid down $5.4Bn debt, used $1.4Bn to repurchase 9.3MM shares, started a quarterly dividend distribution and allocated the rest of it to grow (Stage 3 of Corpus Christi Terminal).

Best of all, it is that despite 2022 being extraordinary, we think that the coming years are going to be very profitable for the company. The reason for that is the problem that the world has with LNG is far to be solved. The delicate European situation and the increasing role of natural gas as the bridge source of energy in the transition from coal & oil to renewable energy in the next 20-30 years will make the LNG industry to have an increasingly important role. And among all LNG players, Cheniere has shown that it is in the best position to take advantage of it. Also, it has recently obtained Investment grade at the beginning of 2023 which will help it to obtain better condition when signing new debt (beware of current market conditions)

As commented before, Cheniere has 45MTPA capacity. However, it is moving fast to double this figure within this decade, in what we believe that it is a very ambitious plan. Although, we have to admin they they have always underpromised & overdelivered in the construction of its 9 operative liquefaction trains. Let’s break this capacity growth into the two Cheniere terminals.

Sabine Pass Terminal

It has 6 operating trains with 30MTPA total capacity. The sixth was completed in February 2022. At the moment, it is in pre-filling process with the FERC to 20MTPA (3 liquefaction trains of 6.5MTPA each). First LNG of the new 20MTPA is expected in 2030

Corpus Christi Terminal

It has 3 operating trains with 15MTPA total capacity plus 7 small trains in construction that will add 10MTPA in total once finished in 2025 (25% completed). Moreover, it has Midscale trains 8 & 9 in prefilling process with FERC (4 MTPA in total). Furthermore, the Stage 4 (all in construction and projected for the near term is stage 3) is in pre-filling process with FERC and it is planned to add another 10 MTPA in the longer term.