Cheniere Energy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2024

There are 12 speakers on the call.

Operator

good morning, everyone. Thanks for joining us today as we review our Q1 results, highlighting a successful start to 2024 across the entire Cheniere platform. The Q1 was marked by strong financial results and outstanding execution across Cheniere, including all pillars of our capital allocation plan objectives. We made significant meaningful progress on the future development across both sites, all of which continues to be enabled by relentless focus to be the leading producer of LNG to the world. Our focus and commitment to operational excellence has never been more important as we faced significant and potentially exponential growth in power demand around the globe, which is projected to be met in part with natural gas fired generation.

Operator

The global acceleration of power demand is driven by the penetration of electric vehicles, the electrification of heating, cooling, industrial production and most topically lately, power hungry data centers. As Anatol and I have discussed on previous earnings calls, this opportunity is a global one and only helps to support our long held conviction regarding the structural shift to natural gas around the world. We believe natural gas and LNG are critical to enabling this long term electrification as one of the most reliable, flexible, cost competitive and dispatchable energy sources. And it underscores a critical need for further investment in LNG and natural gas infrastructure worldwide. Please turn to slide 5, where I'll highlight Q1, we generated consolidated adjusted EBITDA of approximately $1,800,000,000 distributable cash flow of approximately $1,200,000,000 and net income of approximately $500,000,000 Zach will address the main drivers of our performance shortly, but I want to address some operational highlights from the quarter.

Operator

In January, while the freeze event in Texas did not physically impact our Corpus Christi facility, as we have robust freeze protection protocols in place, we were affected as a result of the impact the freeze had on upstream infrastructure for natural gas production and processing located in the Permian. These impacts led to temporary composition changes in the quality of our feed gas, which did create some production challenges during the quarter. While we cannot control these external factors, I am proud of the performance of the Cheniere's production professionals to adapt quickly to address the challenges in order to meet all of our commercial commitments and maintain our track record of reliability that our customers are accustomed to. Despite the indirect freeze related production challenges, we still met all of our customer obligations. The experience and knowledge gained from 8 plus years of operating the 2nd largest liquefaction platform in the world has prepared us to strategically and safely respond to volatility and disruptions throughout the LNG value chain, which has been evident repeatedly over the last several quarters and the Q1 was no exception.

Operator

Overall, production across our platform was largely flat year over year, thanks to the stellar operations, lower maintenance and colder weather at Sabine Pass. As noted previously, based on lessons learned in our first major maintenance turnaround last year, we've been able to optimize the maintenance schedule this year and spread out some of the planned maintenance more strategically across the calendar. And year to date, we have already completed several smaller scale, more efficient turnaround programs with minimized impacts to our ongoing commercial operations. Those will continue throughout the year, especially as we continue into the summer months, but we do not anticipate a long outage like we executed in June last year. Looking ahead to the balance of 2024, today we are reconfirming our full year guidance of $5,500,000,000 to $6,000,000,000 in consolidated adjusted EBITDA $2,900,000,000 to $3,400,000,000 of distributable cash flow.

Operator

Our production forecast is largely unchanged since the February call and we have an immaterial amount of volume remaining unsold. We'll continue to update our annual outlook as we progress further into the year and get past some planned maintenance in upcoming hurricane season. During the Q1, Zach and his team continue to make significant progress across our capital allocation priorities. In the Q1, we repurchased over 7,500,000 shares for approximately $1,200,000,000 an all time record quarterly amount for our company, which demonstrates our opportunistic approach to share buybacks. We continue to manage the balance sheet, opportunistically refinancing approximately $1,500,000,000 of debt maturing next year with an overall investment grade bond at the Cheniere Energy level and we repaid $150,000,000 of long term debt at SPL during the quarter.

Operator

We also paid a quarterly dividend of $0.435 and invested over $500,000,000 in Stage 3, which continues to progress extremely well. Speaking of Stage 3, turn to Slide 6, we'll update you on the status of our expansion projects. Corpus Christi Stage 3 and Midscale Trades 8 and 9 and the SPL expansion project. Bechtel continues to progress construction on Stage 3 on an accelerated schedule. The project stood at over 55% completion at the end of March.

Operator

All coal boxes for Trains 1 through 3 have been set in place, over 90% of the pylon have been installed, all mechanical equipment for Train 1 has been delivered to the site, concrete work for Trains 2 and 3 is over 70% complete and the compressors for Trains 2 and 3 have been set. I remain optimistic that together with Bechtel, we will achieve 1st LNG by the end of 2026. During the quarter, we continue to work closely with FERC to progress the permitting approval process for Trains 89 at Corpus Christi. We expect to receive our environmental assessment soon and remain confident that we will receive all necessary regulatory approvals to be able to sanction the project in 2025. And for our major growth project at Sabine Pass, the SPL expansion project, we submitted the full applications to FERC and DOE in February.

Operator

Anatol and team continue to work towards commercializing the project, while Zach and the team managed the balance sheet and CQP's funding plan in advance of sanctioning the project, which remains targeted for 2026. In February, I highlighted my confidence in the critical role of U. S. LNG in the global energy market and the need for significant investment in and permitting of additional liquefaction capacity today to meet the expected growth in global demand over the coming decades. The United States has an unprecedented opportunity to play a vital role in helping provide real long term energy solutions the world over that will improve the everyday lives of 1,000,000 or billions of people while meaningfully lowering global emissions.

Operator

My conviction in this is as strong as ever and I believe the over $40,000,000,000 brownfield infrastructure platform we have developed best positions Cheniere to meaningfully participate in that future growth, while continuing to supply the world with our cleaner burning LNG. Let's further address the vast benefits and critical role of LNG on the next slide. Recently, some reports have challenged the environmental benefits of LNG relative to coal. When compared to coal, natural gas is a more efficient energy source for power generation that results in demonstrable lower greenhouse gas emissions and traditional air pollutants, which improves air quality in public health. In fact, peer reviewed studies examining U.

Operator

S. LNG delivered to China for power generation estimate that coal to gas switching results in approximately 50% lower greenhouse gas emissions on a full lifecycle basis. These findings are based on an extensive body of research, including our own peer reviewed life cycle assessment, utilizing data specific to our supply chain, including operational data. We strongly disagree with recent research, which claims the opposite. While utilizing cherry picked assumptions and that has not gone through peer review, we expect natural gas and LNG to serve as one of the most powerful drivers of global de carbonization like it has in the U.

Operator

S. Where the IEA estimates that coal to gas switching has resulted in a reduction of over 500,000,000 metric tons of CO2 emissions since 2,005. We continue to focus on full lifecycle environmental performance and are working on improving our Scope 1 methane and CO2 intensity, while engaging with our supply chain partners to help deploy detection and quantification technologies to improve the lifecycle emissions of our LNG, further ability and relative affordability of natural gas is unmatched. And developing economies understandably prioritize energy security, reliability and affordability ahead of climate considerations. In fact, global coal consumption reached 8.5 gigatons in 2023, surpassing 20 22's total and setting a new all time global consumption record, with the greatest increases coming from the rapidly emerging economies of China and India.

Operator

Coal to gas switching in emerging markets like these represent the most powerful and executable long term energy solution that enables energy security and reliability, while significantly improving the emissions profiles of these countries. Simply put, natural gas and LNG are currently actionable and common sense solutions to powering emerging economies around the world, while lowering global emissions to meet their climate policies. The global call for energy security in recent years, particularly in Europe, underscores the long term role of natural gas in both developed and developing economies, which is further evidenced by the 1,000,000,000,000 of dollars being invested in natural gas infrastructure worldwide and the fact that there are 400,000,000 tons per annum of LNG facilities today, but over 1200,000,000 tons per annum of regasification capacity and operations are under construction. Our long term tailored LNG solutions provide customers the ability to secure long term reliable energy supply while maintaining flexibility with regard to evolving energy transition plans and pathways. At home, the LNG industry is stimulating the economy and creating thousands of jobs, all by supporting domestic production and stabilizing domestic energy prices and cash flows with our long term predictable demand for the decades of economic resource we're fortunate to be sitting on here in the U.

Operator

S. It was only a few years ago, the market began highlighting the energy trilemma based on its pillars of energy security, energy equity and environmental sustainability. The case for LNG growth for decades to come remains clear to us as does the investment thesis for Cheniere. Looking ahead, we will continue to focus on safely and reliably operating our 2 facilities on the Gulf Coast while generating meaningful value to stakeholders by delivering on our promises to our customers, investors, employees, regulators and communities, supporting the energy needs of 100 of millions of people worldwide. With that, I'll hand it over to Anatol to discuss the LNG market.

Operator

Thank you all again for your continued support of Cheniere.

Speaker 1

Thanks, Jack, and good morning, everyone. Please turn to Slide 9. The global LNG market remained fundamentally balanced throughout the Q1 as winter supply risks moderated, achieving market equilibrium at relatively lower prices compared to last year. Mild weather in Europe sustained elevated gas inventories maintaining pressure on global prices, which fell low enough to stimulate spot buying activity across Asia. For the Q1, JKM and TTF averaged $11.90 in MMBtu and $9.41 in MMBtu respectively, both down than 50% year over year and 65% and 77% lower than full year 2022 levels respectively.

Speaker 1

Henry Hub also decreased in the Q1 falling to an average of $2.42 down 35% year on year. At these lower price levels, incremental price sensitive demand emerged in Asia. In fact, a particularly strong demand response was observed not only in China, but also in India, Thailand and other emerging Asian economies as they replenished LNG inventories and continued to benefit from improving economic outlooks. This resulted in a circa 4% year on year increase in total global LNG import growth in the Q1 supported by small but meaningful uptick in LatAm markets including Colombia as a result of dry conditions and low hydro levels. The middle chart shows a visible uptick in tendering activity in Asia.

Speaker 1

With JKM prices remaining over 50% lower than a year ago, tenders for deliveries to the region in Q1 climbed to the highest level since the Q3 of 2021. And it is not surprising that 2 large price elastic markets of India and China represented 47% 22% of the total awarded cargoes during the quarter. Nevertheless, U. S. LNG continued to flow predominantly to Europe, which is in part due to trade route optimization as Panama and Suez canals continue to be constrained.

Speaker 1

The logistical challenges with both canals have had a relatively limited impact on market fluidity so far given only 10% of global LNG flows have historically transited these passageways. Let's address the regional dynamics in the next page. In Europe, short term demand fundamentals remain subdued and largely unchanged despite a partial return of some industrial demand in countries such as Germany and the Netherlands as shown in the chart on the upper left. The well supplied market coupled with lower power generation due in part to warm weather and lower economic activity have continued to suppress gas demand across all sectors. In fact, February March saw record demand lows for the comparable period as total gas consumption in the key European markets dropped 2.6% year on year.

Speaker 1

Gas fired generation fell 8.4% year on year following a recovery in hydropower, strong wind and lower power demand, all of which reduced the need for thermal generation in the quarter. In addition, industrial gas consumption in the Q1 remained about 20% below 2021 levels despite European gas prices falling to pre crisis levels. Consequently, LNG imports to Europe fell 4,400,000 tons or 13% year on year amid high storage levels, which stood at over 58% full entering injection season, the highest levels since 2011 when the data first became available. These dynamics in Europe resulted in TTF trading at a discount to JKM for most of the quarter, which allowed cargoes to steadily flow to Asia as end users in the region took advantage of reduced price levels to increase purchases and replenish stocks early in the season. Most notably in China, LNG imports for the Q1 grew 4,000,000 tons year on year, a 25% increase as China reinforces its position as the largest LNG market globally.

Speaker 1

The increased pull on gas from across all sources in China during the quarter, including pipe imports and domestic production, coupled with expansion of gas infrastructure across power, underground gas storage and re gas further underscores China's commitment to natural gas as a long term primary energy source. During the quarter, China added around 2.4 gigawatts of gas fired power generation on top of the nearly 10 gigawatts added last year and the 49 gigawatts currently under construction, which we believe will continue to drive natural gas demand in the region. Similar buying patterns emerged in India and Thailand, where imports rose 45% 27% respectively during the quarter, both on increased gas fired power demand reinforcing our thesis that latent demand from price sensitive end use markets should continue to emerge as commodity prices further stabilize. These increases were in stark contrast to the less price sensitive markets of North Asia, especially in Japan and Korea, where slowdown in electricity demand coupled with higher nuclear availability impacted gas demand in the region. LNG imports into these two markets dropped by 2,500,000 tons year on year, partially offsetting the 8,400,000 tons of annualized incremental imports seen in China, South and Southeast Asia.

Speaker 1

On a net basis, Asia's imports rose by roughly 6,000,000 tons year on year during the quarter, making the 4th consecutive quarter with positive growth. As we look ahead in the near term, we see several factors that could tighten the current market balance. Facilities across the U. S. Gulf Coast are currently experiencing heavier than usual maintenance and certain international facilities are severely constrained as exporters turn to the import market.

Speaker 1

Additionally, summer heat waves in India and China are expected to result in elevated seasonal demand. And finally, any delays in expected new supply could of course exacerbate this tightness. Let's move to the next slide to look further ahead to the post 2025 period. The tight and volatile market conditions over the past few years and the ensuing LNG contracting momentum have led to a number of projects reaching FID. As a result, there's roughly 200,000,000 tons per annum of LNG production capacity under construction globally, while even more is targeting FID in order to meet a supply demand gap forecast to open later this decade.

Speaker 1

The level of new capacity is set to come online over the 2026 to 2028 period emphasizes the cyclicality of this industry and the uneven nature of LNG supply growth relative to demand. In fact, the coming supply cycle or wave is a third that the industry will have experienced over its history. This cycle has higher levels of absolute growth than the previous 2, as you can see on the two charts in the slide. As a result, many commentators are cautioning that the market may tip into oversupply later this decade the current wave of projects under construction in the U. S.

Speaker 1

And Qatar along with some pre FID projects start service. We acknowledge that the global capacity under construction today plus what may reach FID in the near term could generate a larger supply increase than seen in previous cycles. We also believe that the underlying market should accommodate the growth efficiently without resorting to curtailments on the supply side. In fact, we note that the only year the market has previously had to resort to such balancing mechanisms was 2020 due to unprecedented demand impacts related to the pandemic. It's important to note that while the amount of new supply may be larger than previous cycles in absolute terms, It is a smaller proportion of the underlying LNG trade than previous waves.

Speaker 1

We also now have a more flexible and diverse global LNG market than ever before with over 1200,000,000 tons of import capacity available by the middle of the decade and another 100,000,000 tons or so in development to ensure more efficient matching of supply and demand. In addition, after the recent high spot prices, we believe there is a good deal of latent demand set to be stimulated at the right price levels, which we have already started to see year to date. This is where we see the coming startup of new LNG supply as constructive for the market. We believe new supply will help moderate spot prices and volatility to a relatively more affordable and less volatile level on a sustained basis, helping LNG reinforce its credentials as an affordable, secure and sustainable component of baseload energy supply, particularly for the high growth nations of Asia, which are currently heavily dependent on coal to support their economic growth and energy security. So in short, we believe new LNG supply in the coming years will be absorbed by the market efficiently and it will be helpful in supporting a price and volatility environment that will reinforce LNG and natural gas as a long term, reliable, flexible and cost competitive energy solution for decades to come.

Speaker 1

With that, I'll turn the call over to Zack to review our financial results and guidance.

Speaker 2

Thanks Anatol, and good morning, everyone. I'm pleased to be here today to review our Q1 2024 results, key financial accomplishments and guidance. Turn to slide 13. For the Q1 2024, we generated net income of approximately $502,000,000 consolidated adjusted EBITDA of approximately $1,800,000,000 and distributable cash flow of approximately $1,200,000,000 With today's results, we have now reported positive net income on a quarterly and cumulative trailing 4 quarter basis, 6 quarters in a row. Our Q1 2024 results reflect lower international gas prices relative to last year as well as a higher proportion of our LNG being sold under long term contracts.

Speaker 2

As Jack noted, our results also reflect some impacts to our operations at CCL following the winter freeze in Texas. Fortunately, our team had been able to forward sell several cargoes at elevated margins, which coupled with the incremental volumes achieved at SPL partially offset these production impacts during the quarter. In addition, realized or locked in optimization margins in Q1 more than offset the financial impacts at Corpus to push our forecast slightly above the midpoint of our guidance ranges, already trending us in the right direction in the first half of the year. During the Q1, we recognized an income 6 19 TBtu of physical LNG, which included 608 TBtu from our projects and 11 TBtu sourced from third parties. Approximately 90% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements with initial terms greater than 10 years.

Speaker 2

This year, our team has continued to execute on our 2020 vision capital allocation plan, maintaining the year to date momentum we highlighted on our call in February. In the Q1 alone, we deployed approximately $2,000,000,000 towards shareholder returns, balance sheet management and disciplined growth and are now over $10,000,000,000 through deploying the $20,000,000,000 plus of available cash we forecast back in the fall of 2022. As we continue to progress towards the goal of $20 per share of run rate distributable cash flow. We remain committed to deploying our DCF efficiently and value accretively, having already deployed over 50% of the at least $20,000,000,000 goal through 2026 in under 40% of the time. During the quarter, we repurchased over 7,500,000 shares for approximately $1,200,000,000 marking the most active quarter for our buyback plan to date or over 3% of our shares outstanding in just 1 quarter, helping to bring our shares outstanding today to below $230,000,000 The buyback activity during the Q1 clearly demonstrates how the programmatic structure of our repurchase plan enables us to be very opportunistic in periods of dislocation.

Speaker 2

The activity last quarter accelerated the progress on our 3 year $4,000,000,000 share repurchase authorization and our progress towards the cumulative one to 1 share repurchase to debt pay down ratio we have targeted. We have now deployed over 75% of the $4,000,000,000 3 year buyback program in just 50% of the time and narrowed the gap between debt pay down and share buybacks by over $1,000,000,000 just in the last quarter. There is now less than $1,000,000,000 remaining on the current authorization, So we will work with our board on a new plan with the expectation we'll have that in place before the end of the year, while always accounting for our balanced approach to capital allocation with a focus on attractive brownfield growth at both sites. Moving to the balance sheet. As Jack mentioned, we issued the inaugural investment grade bond at CEI in March.

Speaker 2

And in April, we used the $1,500,000,000 of proceeds from these 5.65 percent senior notes along with cash on hand to retire the approximately $1,500,000,000 a 5.875 percent senior secured notes at CCH due 2025. This March versus April timing dynamic explains our elevated cash and debt balances at quarter end with both balances since reduced by $1,500,000,000 now that the CCH 25 notes were paid down with the proceeds. Following our playbook for strategic refinancing, this transaction served to extend our maturity During the quarter, we also repaid approximately 150 During the quarter, we also repaid approximately $150,000,000 of long term indebtedness, further addressing the 2024 SBL notes due later this month. In February, Moody's issued a positive outlook at both CQP and SBL, which we hope will lead to favorable rating actions as we continue to opportunistically delever and desubordinate throughout our structure this year and beyond. We also declared a dividend of $0.435 per common share for the Q1 last week and remain committed to our guidance of growing our dividend by approximately 10% annually into the mid-2020s through construction of Stage 3.

Speaker 2

And over time, we plan to steadily increase our overall payout ratio as our platform grows, while still maintaining the financial flexibility essential to our comprehensive long term capital allocation plan and growth objectives. At CQP, we declared a distribution of $0.81 per common unit for the Q1, consisting of the base distribution of $0.775 and a variable amount of $0.035 Adjusting the variable component of the common unit distribution enables us to strategically preserve cash and balance sheet capacity in advance of the SPL expansion project. In the near term, any deleveraging at CQP or SPL can mainly be considered early investments in the SBL expansion project until we are in a position to formally sanction the project, raise financing and begin construction, which we continue to expect in 2026. During the quarter, we funded a little over $500,000,000 of CapEx at our Stage 3 project, bringing total spend to approximately $3,500,000,000 in total for the project. While front loading the equity spend has enabled considerable interest savings, we still have over $3,000,000,000 available on our CCH term loan that we plan on using as additional liquidity for CEI in the coming years through construction.

Speaker 2

We continue to expect to spend between 1,500,000,000 dollars $2,000,000,000 in Stage 3 CapEx this year before accounting for any draws on the CCH term loan. Turn now to slide 14, where I will discuss our 2024 guidance and outlook for the year. Today, we are reconfirming our full year 2024 guidance ranges of $5,500,000,000 to $6,000,000,000 in consolidated adjusted EBITDA and $2,900,000,000 to $3,400,000,000 in distributable cash flow. As we've noted previously, 2024 represents our most contracted year to date. We still expect 2024 to represent a trough year for EBITDA as we expect our results to trend higher after this year as Stage 3 commences and eventually reaches run rate by the end of 2026.

Speaker 2

As a reminder, our operating and financial results and forecast reflect some degree of seasonality, as typically higher winter production at our facilities coupled with typically higher pricing international markets can provide for a somewhat seasonal weighting of our results to the colder quarters versus the hotter ones. For the balance of the year, we don't expect meaningful changes to our earnings forecast for the remaining three quarters with an immaterial amount of unsold capacity remaining. We still expect to produce approximately 45,000,000 tons of LNG this year, inclusive of planned maintenance at both sites. And our guidance continues to reflect only contributions from completed portfolio optimization activities, as we do not forecast potential contributions from future opportunities. We do not forecast any contribution to revenues or EBITDA from Stage 3 in 2024.

Speaker 2

As always, our results could be impacted by the timing of certain cargoes around year end as well as incremental margin from further optimization upstream and downstream of our facilities. Our DCF for 2024 could also be affected by changes in the tax code under the IRA. However, the guidance provided today is based on the current IRA tax law guidance and assumes we are subject to the minimum corporate tax of 15% this year. As the year progresses, we should be in position to tighten our ranges consistent with what we've done in the past. Despite our limited open exposure this year and the lower LNG price environment, our 2024 guidance ranges are above our 9 trillion run rate guidance and we remain in very good shape to achieve our 2020 vision capital allocation plan.

Speaker 2

As we look beyond 2024, our highly contracted infrastructure platform is designed to largely insulate our financial results from any potential short term market dislocations or periods of volatility, particularly as the market absorbs LNG capacity additions later this decade. Most critically, our longer term outlook for the global LNG market is unchanged and periods of moderated market prices and sentiment have enabled us to accelerate our capital allocation progress and put even more distance between us and the competition. With every dollar deployed by our team, we are positioning Cheniere for the long term with a resilient and profitable future. It is the inherent stability and long term visibility of our contracted cash flows along with our scale that enable us to meaningfully return capital to our stakeholders, while methodically pursuing further disciplined and accretive brownfield growth. And at the same time, reliably and responsibly delivering affordable, cleaner burning energy to our customers worldwide.

Speaker 2

That concludes our prepared remarks. Thank you for your time and your interest in Cheniere. Operator, we are ready to open the line for questions. Thank

Speaker 3

We'll take our first question from Jeremy Tonet with JPMorgan.

Speaker 4

Hi, good morning.

Operator

Good morning, Jeremy.

Speaker 4

Thanks. Anatol, I think you had some interesting commentary there with regards to the demand response to prices. And I was just wondering if you might be able to elaborate a little bit more on that and how deep that could be or what that could mean in the coming years given some of the supply dynamics as you laid out there or maybe just examples of what you're seeing?

Speaker 1

Yes, sure, Jeremy. Thanks. Well, first of all, it's an infrastructure question. Both Jack and I touched on this. 100 and 100 of millions of tons of regas capacity, pipe storage capacity are being added globally.

Speaker 1

That includes Europe. Germany just received its 5th FSRU. Greece is coming online now as well, of course, as Asia where you have China that will roughly double its regas capacity. So you're not going to see we don't see a market where you will see significant bottlenecks like you saw in Europe over the last couple of years and that will enable these markets to absorb these marginal volumes. We estimate today that it's order of magnitude 50 to 100,000,000 tons.

Speaker 1

You saw a dramatic pickup in tendering activity in China, in India in the Q1. And we think that with this additional infrastructure and all of the investment as we've mentioned in gas that will help balance the market at moderate prices of high single, low double digits.

Speaker 4

High single, low double. Okay. Thank you for that. And also I was just curious, I guess, Corpus continues, I guess, to make great progress there. And just wondering, at this point, any thoughts you could share with what that could mean for 2025 in the business overall?

Speaker 4

And I guess how that could impact pace of buybacks going forward or amount of buyback?

Operator

All right. So Jeremy, I'll start. This is Jack. Yes, I'm very, very pleased with the progress that's being made at Corpus. If you look at the pictures, you can really see Train 1, 23 and their progress.

Operator

To date, we're well ahead of plan. And I am congratulatory to Bechtel, but not but we're not popping champagne yet, but we're very optimistic of our ability to start producing LNG this year on Train 1. But with that, I'll turn it to Zach.

Speaker 2

Thanks, Jeremy. I'll just say, of course, we're very focused on first LNG this year, but it's really about the first few trains and how those ramp up through this year and into next to get some more meaningful millions of tons of LNG and make a real financial impact to 25 and make 24 more of the trough year as we've stated. As it relates to the buyback, it would be just gravy considering that when we came up with the 2020 vision and the over $20,000,000,000 of available cash, we assume the guaranteed completion dates. And we're talking about completion dates now that are almost a year ahead of schedule. But as we think about the buyback, basically we guided everyone to over $10,000,000,000 would be deployed through 2026 for debt pay down and buybacks.

Speaker 2

We're going to easily surpass that. And it was always the plan to re upsize the buyback plan inside of this time period as that was the only way we're going to get closer and closer to the 200,000,000 shares over time. So now that we're under $1,000,000,000 on the buyback plan with the 7,500,000 shares we bought in the last quarter, I expect that we're currently working with the Board and you should see a meaningful upsize to the buyback plan later this year.

Speaker 4

Got it. That's very helpful. We eagerly await the 200. Thank you.

Speaker 3

And our next question will come from Keith Stanley with Wolfe Research.

Speaker 5

Hi, good morning. Just following up on the buyback question and realize you have to go through a Board authorization. Just to order of magnitude, I mean thinking about the cash position even after that April debt repayment, I think you have a ongoing cash generation?

Speaker 2

There's definitely plenty of liquidity for everything to continue to be meaningful as we continue to fund Stage 3, as we grow the dividend later this year and pay down some debt and as we ramp down that variable DPU at CQP in anticipation of Sabine's expansion. But in terms of liquidity, we have over $3,000,000,000 of cash on the balance sheet. We're going to make over $3,000,000,000 of DCF based on the forecast for the year. And we still have over $3,000,000,000 of availability on the term loan at Corpus. So liquidity is not the problem.

Speaker 2

We will be methodically buying back stock over time and being as opportunistic as we can in times like this because it's only like times like this that we're going to be able to get down to 200,000,000 shares by the middle of the decade. So everything's in good shape and well placed where we'll focus on that pay down inside of CQP and we'll focus on buybacks up at LNG.

Speaker 5

Great. Thanks. And then second question just on the year. So you talked about Q1 EBITDA obviously was just strong with some of the it's just better in the winter, you have more volumes, more of your sort of high priced above market hedges, I guess. I guess how do you think about kind of where the year is tracking overall?

Speaker 5

You also called out some of the gas quality issues with the weather. And then just optimization wise, have you seen anything you'd call out year to date as optimization benefits and market based opportunities? Is Permian gas helping you? And anything like that that you would call out?

Speaker 2

Just to keep in mind, especially compared to 20222023, when you think about Henry Hub shipping day rates or just overall commodity prices on an absolute basis, they're all much lower. So it's much more difficult to see those arbitrages and make as much on the optimization side. But optimization is coming in quite well, but the numbers aren't in the 100 of 1,000,000. We probably made 50 plus so far this year. And with some SBL outperformance so far this year too, that's why we're already tracking above the midpoint of the EBITDA guidance despite we'll need some pickup in production at CCL for the rest of the year.

Speaker 2

So optimization is coming together and with a little more outperformance on production and the upstream and downstream optimization that we've seen, yes, we have a good chance of trying to get to the higher end of the range.

Operator

And Keith, this is Jack. I would say this year is all about execution. So we need to safely execute on our engineering and construction plans. We need to safely execute on our operational excellence plans and we need to continue to commercialize the SPL expansion with Anatol and his team. So it's all about execution for us.

Operator

Thank you.

Speaker 3

And our next question will come from John McKay with Goldman Sachs.

Speaker 6

Hey, good morning. Thanks for the time. I think this is one for Anatol, I guess. You guys have been clear on the positive outlook for global gas demand growth for a while now. But I guess I'd just be curious to drill in a little bit more on maybe how your forecast has changed over the last couple of quarters.

Speaker 6

And if you want to take a shot at the global data center demand growth number, I'm sure we're all ears. Thanks.

Speaker 1

Sure. Thanks, John. Go back 5, even 7 years maybe and our ultimate forecast really hasn't changed much. We've been in the 700 ish 1000000 tons in 2,040 and kind of a relatively somewhat constrained up into the right forecast. What of course has changed dramatically as we've commented on before is the supply side of the equation and how those things have shifted with Arctic Russia primarily being taken out of that supply stack.

Speaker 1

We think that the demand side, as we touched on earlier with Jeremy, is really constrained by having that affordable, secure, reliable LNG stream that we hope to continue to supply. Your second the second part of your question, as Jack mentioned and I mentioned briefly, like the electrification aspect of the world is a key driver, right? That's why things like GE Vernova are doing quite well, and we are very happy to be part of that equation and in conversations unquestionably that is a component. As I'm sure you know that the data center thing is a global phenomenon and it is something that the big guys have a presence in a dozen or dozens in some cases of countries and our conversations do include that as a leg to the stool, but it's only one of the legs to the stool and we think that that's a key driver of gas generation demand and hence LNG will have a role to play there.

Speaker 6

That makes sense. And maybe actually just keeping it with you, we talked about the more sensitive buyers stepping up a little bit here. I know we're still working on the SPL expansion, some commercialization there. Maybe just spend a minute talking about kind of converting that higher recent buying into potential SPAs in the future?

Speaker 1

Yes. So the countries that are seeing this fairly dramatic price elastic demand are primarily Asia, right, South East Asia and China itself. The infrastructure there is not a constraint. You're seeing Thailand set records for LNG imports. You're going to see, we think, India set records, monthly records for LNG imports.

Speaker 1

China probably next year, not this year. And that is all driven by these conversations, and they have had historically a good experience with LNG and certainly with Cheniere's performance and our track record as Jack and Zach mentioned. So we do think that that is a very good hand to play and a nice tailwind to those commercial engagements.

Speaker 6

All right. Thank you. Appreciate the time.

Speaker 3

And moving on to our next question, Theresa Chen with Barclays.

Speaker 7

Hi. Thank you for taking my questions. Maybe as a follow-up to the emergence and growing share of the price sensitive buyers. And again, looking specifically at the uptick in India, how do you view India's role as long term as a demand center for LNG, its regas capability and the like?

Speaker 1

Yes. So this is Anatol again. It is one of the countries that is committed to dramatically increasing gas as the primary energy source. It is about half of the way there. Modi's policies historically and his commitment in during this presidential campaign to infrastructure and infrastructure solutions remains resolute.

Speaker 1

The regas capacity, they're actually commissioning yet another terminal as we speak. Regas capacity will be north of 70,000,000 tons shortly. It is approaching 50,000,000 tons currently, which is double its import run rate. So we don't think that this will be an infrastructure bottleneck question in those markets. It is again a price elastic market.

Speaker 1

Fertilizer is much less price elastic, power is much more price elastic, but these are the prices that stimulate buying are prices that are at or above our long term contracted economics, even assuming the forward curve for NYMEX. So we're very comfortable that again we fit into that equation. LNG does, U. S. LNG does and of course Cheniere's product does.

Speaker 1

So those are all markets that are very interesting to us and we have very healthy engagement with.

Speaker 7

Got it. And then maybe just another question on this global growth and data centers theme and understanding that might be a bit early to put like a number to the market opportunity out there. But I'm curious, to your view as where do you see this likely taking place in the breakthroughs of global LNG flows and other legs of the stool from an infrastructure perspective if necessary?

Speaker 1

Yes. I guess I'll keep going. You're not talking to us to hear about how many GPUs NVIDIA will put into the market. But we look at things, we see roughly a doubling of demand globally by 2,030 from about 2% to about 4% of power for data centers, obviously driven in part by these more power hungry chips. And we think that the easiest places and all the guys who are developing them by the way have huge teams that are looking for pockets of opportunity where there is the ability to add this capacity.

Speaker 1

One of the more interesting dynamics, if you will, is that Japan has been forecasting a dramatic decline in its power use by about 12% from 22% to 2,030. The easiest places in the world to add this capacity is where this capacity exists. So again, these players have dozens of countries where they already have a presence, countries that have very attractive rule of law, IP protection, etcetera, will be some of the primary beneficiaries of this driver. And the next plan from Japan is expected this fall. I would not be surprised if that power demand forecast is not revised higher with this as well as

Speaker 3

And our next question comes from Spiro Dounis with Citi.

Speaker 8

Thanks, operator. Good morning, guys. Maybe just to go back to the Sabine Pass expansion, maybe for you Anatol. I'm curious if you could just give us an update on how commercial discussions are going there. You all had a pretty active 2023 signing that 6,500,000 tons per annum.

Speaker 8

So just curious how you think about 2024 shaping up in that context?

Speaker 1

Yes. Thanks, Birrah. Yes, it's a period as we talked about even last quarter, it's a period of market kind of digesting all of these dynamics and issues. Obviously, absolute record year for the U. S.

Speaker 1

Product writ large in 'twenty two, very healthy year in 2023. But clearly, there have been a number of developments that are causing the buyers to reassess and take their time, right? No one has the fog of war and the proverbial gun to their head like they did in 2022. So I would say the discussions are healthy, they're advancing, but this is more of a normal year for that side of the equation than of course 2022, 20 3 were. But we're very optimistic and we think that what will play out for this year and next is going to very much rhyme with prior years in terms of the types of counterparties and the types of engagements.

Speaker 1

I don't think you'll be surprised by anything that you see from us going forward, but it's not going to be it's unlikely to be a repeat of 2022. The one advantage we have, of course, is again our performance, our track record, the fact that Corpus Stage 3 is progressing as well as it is and that we maintain our perfect track record of deliveries and those are all great calling cards as other projects don't have the same kind of ability to engage based on those factors.

Speaker 8

Got it. And second question, maybe just turning to maintenance and turnarounds. Jack, as you mentioned, you're sort of optimizing it throughout the year and spreading it out. Just curious if there's any way for you to quantify how much maintenance is left at this point and then maybe where some of the heavier periods might be throughout the year?

Operator

Yes, Spiro. So first, I mean, I'm always pleased that the team has figured out ways to make our maintenance not noticeable to you all and that we're able to spread it out and do more maintenance on times when prices or the performance because of the heat during the summer is going to be less and less impactful and less material for us. So, while I'm not going to give guidance on exactly how much maintenance is left, I'll see if Zach wants to add any commentary on what it means financially.

Speaker 2

I think this is pretty similar to what happened last year where consensus was a little lower than our Q1 results as folks often divide by 4, the EBITDA over the course of the year. The major maintenance, the planned maintenance is basically going to be for the most part in Q2 and Q3, which is also the time where production is lower as it's the warmer months. So you should expect a step down in EBITDA to an extent and that's why we're still tracking well in the range and slightly above the midpoint. But that's why we didn't move the guidance range even though we had a strong Q1. So expect that and then maybe in Q4 it comes back up a bit as the weather gets colder and there's not as much planned maintenance.

Speaker 8

Great. I'll leave it there for today. Thank you, gentlemen.

Speaker 3

And our next question will come from Ben Nolan with Stifel.

Speaker 9

I appreciate it. Hey guys, one of the things that we've been hearing a little bit lately about is increasing EPC costs and also even I guess this week labor shortages and just challenges on getting things built. It doesn't sound like that's a problem at all for you guys at the moment in Corpus Christi. But how do you think about things longer term with respect to signing of long term agreements and those sort of things when you don't really know what the cost is going to be at SPL. Just curious if maybe you could validate some of what we're hearing and how you're sort of positioned strategically for that?

Operator

Ben, this is Jack. As you know, we have a long term relationship with Bechtel. We work very closely with them on trying to manage those inflationary costs. The workforce is getting tighter out there. We're over 3,000 workers at Corpus right now, should be close to 4,000 by the middle part of this year.

Operator

They haven't had an issue with finding workers or worker availability, which is why they're extremely ahead of schedule. So I'm very pleased with their performance. We know we pay for it, but they deliver and it's a match made in heaven quite honestly when they're able to deliver those trains early and we're able to capitalize on the benefits of having that production early. So I believe we'll be able to manage the SPL expansion costs in a way that meets all of our environmental or all of our financial criteria and make sure that we continue to add meaningful value for our shareholders.

Speaker 2

And I'll just add, it comes back to the discipline, because if we're not going to be able to build around that 6 to 7 times CapEx to EBITDA, it's a lot easier to continue to just keep on buying back the stock. And considering like a multiple on a company like Cheniere without even accounting for like the brownfield growth prospects we have, the fact that we give run rate at 2 to 2.50 and we don't even show the capturing of all the optimization that every single quarter, even the past one we've done, it's unacceptably too low when you're talking about something under 10 times. So we will be patient on this, but clearly we're doing the work already with Bechtel to have a decent sense and that's why we've signed a few contracts already for the Sabine expansion. And that's why we've signed

Speaker 1

a few contracts already for the

Speaker 2

Sabine expansion. And we've signed a few contracts already for the Sabine expansion. And if yes, if say there were a delay of FID by a year, give or take, that's just another $3,000,000,000 to $4,000,000,000 coming up through the system, meaning that the re upsized buyback plan that we'll announce later this year will just be finished quicker.

Speaker 9

Got it. Appreciate it. And then if I could, for my follow-up on to Anatol. It seems like really, I don't know, since the 1st of the year, maybe even with the start of the pause, long term SBAs for U. S.

Speaker 9

Projects have been pretty slow. There's maybe only 1 or 2 that I've seen. Is it pause related? Is it price related? Is it just sort of LNG prices are a little bit lower and that causes a lack of urgency on the part of buyers or is it none of those things, it's just sort of a process of time do you think?

Speaker 1

Yes. Thanks, Ben. It's hard to pinpoint this precisely, but 150,000,000 tons that the industry executed in 2022, 2023, again, was an unprecedented amount of contracting. And so can I say that the pause is having no effect on discussions? No.

Speaker 1

But as you know, it does not materially affect our timing for midscale 8 and 9 or for the SPL5 expansion. Our counterparties know that, understand that. But as you said, there is a more methodical approach today than there was 12 or 24 months ago.

Speaker 9

Got it. I appreciate it. Thank you, guys.

Speaker 3

And our next question

Speaker 10

And our next question comes from Jason Gabelman with TD Cowen. Yes. Hey, thanks for taking my questions. The first one is maybe somewhat mechanical. You mentioned $950,000,000 left on the buyback authorization.

Speaker 10

You obviously did $1,200,000,000 in 1Q. So if you want to keep up that pace, you're going to have to do an authorization this quarter. I guess, when is the earliest potential opportunity to re upsize the buyback authorization?

Speaker 2

Well, it's not going to be this quarter. And we'll continue to work with the Board over the next few months and even quarter or so and see where we are. And honestly, it depends on how fast we deploy that $950,000,000 The more that the price stays around this level, yes, it will be sooner rather than later. But the commitment is by later this year, we'll have an upsized plan and keep on trucking along to get that share count down to closer to 200,000,000

Speaker 10

dollars Okay, got it. And then the second one is just going back to supply demand balance outlook and you've commented on the demand quite extensively, but it seems like some of your larger peers are discussing delays to industry capacity coming online. And I'm wondering if you're noticing that to any extent where capacity that was expected to come online in 2025 is now shifting out to the right. Are you seeing anything to that extent? Can you quantify maybe any amount of volumes that you expected to come online in 2025 for the industry being pushed out?

Speaker 10

Thanks.

Operator

1st, Jason, I'm very, very pleased with the performance of my E and C team. And as you know, at Cheniere, we try to make it look easy and it's really not. And that's what you're hearing from all of our colleagues, peers, competitors out there that are talking about delays or maybe having trouble going from commissioning to operations. So I'm very pleased with the way we've been able to build our facilities on time and on budget and the way our handoff is from E and C to operations. But as far as actual quantities, Anatol, do you have a on that?

Speaker 1

Yes. Jason, I'll just say, historically, 2 thirds roughly 2 thirds of projects in LNG are delayed. Cheniere, as Jack already mentioned, has been the anomaly with us running on average 9 months ahead of schedule for our trains. And you're certainly seeing that, right? You're seeing that projects that FID ed in 2019 are going to now come online most likely middle of next year, maybe into the second half.

Speaker 1

You're seeing that phenomena globally by some measurements. You can say QEFID, the Northfield expansion in 2017 and that is going to come online in the coming year, year and a half or so. If you want to take a look at WoodMac, it has reset its forecast. And when these things are projected, everyone has roughly the same number and the number stacks up very consistently. And as prosecution of these projects gets into kind of the craft labor mode, you see those numbers come down quite dramatically, both in terms of volume per year as well as years added to execution.

Speaker 1

So I think tens of millions of tons will be smoothed out. We'll have a lot more information over the next year as some of the projects in the Gulf Coast really enter the craft labor phase. But the market is certainly starting to see that now and WoodMac has already started to revise its forecasts.

Speaker 11

Great. That's really good color. Thank you.

Speaker 3

And our next question will come from Craig Shere with Tuohy Brothers.

Speaker 11

Hi, Hassane. Thanks for fitting me in. Anatol,

Speaker 10

there's a

Speaker 11

lot of discussion on the call and other company calls about the growth in global power demand and AI and data centers. As we kind of look back a couple of years ago, probably Europe and maybe some other locations, we're thinking about LNG long term as being the transition fuel and intermittent backup for intermittent renewables. But are you seeing a change in mindset as people start thinking about a systemic need for more baseload power versus just backup power or transition fuels?

Speaker 1

Thanks, Greg. It's a little bit of an unfair question because the people that we engage with have always thought that, right? Like we don't talk to the 1,000 counterparties in the world. We talk to the 3 or 4 dozen that think of things that way. And I will just say that backup to intermittency is still very much part of the equation and that is a role that obviously our product plays very well.

Speaker 1

And that is something that especially the portfolio players think about as they enter these engagements. But clearly our sort of load serving counterparties think of our product as a base load product and that is something that clearly has very good traction. But to be fair, more so in Asia than in Europe.

Operator

And Craig, I'll tell you in my discussions with utilities around the world, there's much more discussion around dispatchability and the flexibility that natural gas combined cycle power plants give the grid versus an intermittent resource like wind or solar as well as voltage regulation. So what doesn't get talked about are VARs or amperage and you can't get either of them from wind or solar, they have to come from thermal or nuclear.

Speaker 11

Good point. And the last question from me on the discussion or debate about life cycle emissions from various fuels. Do you see this kind of obfuscation or debate at all increasing the demand or need to ultimately deploy carbon capture solutions?

Operator

We as you know, we're the only private company that actually did our own life cycle analysis and then had it peer reviewed. We had it published in the American Society of Chemical Engineers. It was commented on. It was blessed by academia and the scientists. We continue to revise it.

Operator

We're using more measured data versus calculated data. The inputs to our LCA is somewhere around 1200 inputs that we plug in to come up with our cargo emission tags that we deliver on every cargo of our LNG. So we're getting better and better at it. We work closely with the National Petroleum Council that's part of the DOE And we have developed a LCA that is, I'd say, a bridge. So it's a directional LCA for those people that maybe don't have the resources to calculate what their lifecycle emissions is or are and that's available now.

Operator

It's been it's an open architecture. It was released in April in Washington. So we're very pleased to be a major part of that analysis. And yes, I do think with this pause with the National Labs study, it will all come back at what the appropriate inputs are for the LCA. You should rest assured that Cheniere will be ready to comment on that and we're going to comment on it with real transparent data, not with guesstimates.

Speaker 11

Understood. Thank you.

Speaker 3

And that does conclude the question and answer session. I'll now hand the conference back over to you for any additional or closing remarks.

Operator

Well, this is Jack. I just want to thank you all for your support and your attention this morning. Be safe.

Speaker 3

Thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day.

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Earnings Conference Call
Cheniere Energy Q1 2024
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