Business Strategy and Outlook| Stephen Ellis |
Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 60 million metric tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly. That said, volatility in the market should provide ample opportunities for Cheniere to take advantage of wide LNG differentials at different hubs around the world, given its access to growing U.S. supply and the very stable cash flows brought in by its Sabine Pass and Corpus Christi trains. This is expected to pay off in a huge 2022 with LNG spreads at record levels as Europe and China compete for incremental LNG cargoes. The benefits are sizable, and we estimate Cheniere is reaping about $5.5 billion in excess marketing profits in 2022. Historically, its sale and purchase agreement contracts were signed on a free-on-board basis, meaning the customer is responsible for shipping costs. However, it also has signed delivered ex-shipping contracts recently, meaning Cheniere is responsible for shipping, so it has procured a mix of short- and long-term vessel charters to protect its contract economics. Cheniere can assign these DES contracts to its marketing operations, which provides flexibility in terms of where to source the LNG from, potentially improving overall economics.