Cheniere Energy Inc. continues to deliver increasing volumes of LNG and said Thursday its production hit a record last week, but the company reported a steep third quarter loss related to the purchase of feed gas at prices linked to international benchmarks.
CEO Jack Fusco said liquefied natural gas output at the company’s terminals in Texas and Louisiana hit an all-time high of over 7 TBtu amid a surge in overseas buying this year.
But financial results were impacted by derivative losses tied to gas supply deals with North American producers the company calls integrated production marketing (IPM) agreements. Under those deals, Cheniere buys supplies at prices linked to international benchmarks less shipping and liquefaction fees. It liquefies and markets the fuel purchased under those deals.
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The company said due to the significant appreciation in forward international gas and LNG price curves it booked noncash losses this quarter as it has in recent periods.
The company sells over 80% of its volumes under long-term deals linked to Henry Hub. It is largely insulated from price swings as it secures gas for buyers under those contracts, charges a liquefaction fee and passes on commodity risk to offtakers who move cargoes overseas for sales on other indexes.
It has signed a series of IPMs in recent years with producers in the U.S. and Canada that have helped underpin its expansion projects and left it more exposed to volatile commodity prices.
CFO Zach Davis told analysts on the company’s third quarter earnings call Thursday that “as margins stabilize and price volatility subsides over time” management expects the unrealized, noncash derivative losses will become “much less pronounced in our quarterly results.”
Congestion in Europe
Cheniere loaded 156 cargoes, or 559 TBtu of LNG during the third quarter. That was up from 141 cargoes, or 500 TBtu in the year-ago period.
The bulk of its cargoes went to Europe, which has imported 65% more LNG this year, said Chief Commercial Officer Anatol Feygin. The continent took in a record 87 million metric tons/year (mmty) between January and September. U.S. imports accounted for 44% of that total.
Feygin said Cheniere has been responsible for a quarter of Europe’s LNG imports so far this year.
“We’ve also seen the congestion at European regas terminals continue to grow,” he added, “once again evidencing the need for additional import capacity and related infrastructure in order to provide relief and allow greater volumes of LNG to access the market, particularly in Northwest Europe.”
Feygin acknowledged Europe is moving aggressively to get more LNG into the continent. He said Cheniere expects 60 mmty of regasification capacity to come online in the region next year with the addition of floating offshore terminals. That number is expected to exceed 70 mmty by 2024.
“We think Europe is in no way out of the woods without that pipeline flow,” Feygin said of Russian supplies that helped fill storage this year. Russian exports to the continent have been cut significantly throughout the year amid the war in Ukraine.
“It is next winter that we are more worried about,” he added.
Feygin said strong overseas demand for U.S. LNG is helping to provide momentum for the next wave of export projects. U.S. projects accounted for 75% of all LNG supply contracts signed this year and 44% of all contracts signed last year, he said.
Cheniere noted that long-term deals linked to Henry Hub could surpass the globe’s dominant contracts tied to crude prices in a few years.
Feygin stressed, however, that many U.S. projects have yet to make a final investment decision given the “rigorous commercial, financial, regulatory and technical hurdles” they have to overcome. “And those hurdles are only getting higher, given volatility, inflation and rising interest rates.”
Cheniere itself sanctioned an expansion of its Corpus Christi LNG export terminal in South Texas in June. The company broke ground on that project this month and CEO Jack Fusco said the project is “off and running.” The company has also started the pre-filing review process with federal regulators for another expansion at the terminal.
A third marine berth was also completed at the Sabine Pass terminal in Louisiana this month. The dock, Fusco said, would allow increased flexibility for cargo loading operations and could ultimately aid in any future expansion at the facility.
Cheniere reported a third quarter net loss of $2.4 billion (minus $2.39/share), compared to a net loss of $1.1 billion (minus $1.08) in 3Q2021. Revenue was $8.9 billion, up from $3.2 billion over the same time.