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    Cheniere Energy reports Q1 loss, boosts 2022 guidance


Largest US LNG exporter took a $3.1bn non-cash loss on commodity derivatives as LNG prices rose.

by: Dale Lunan

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Cheniere Energy reports Q1 loss, boosts 2022 guidance

Houston-based Cheniere Energy reported May 4 a net loss in Q1 2022 of $865mn, reflecting a $3.5bn loss on derivatives, but increased its guidance for full-year free cash flow and adjusted EBITDA by 25% and 16%, respectively, on strong global LNG margins and higher expected LNG production.

The Q1 loss compares to year-ago quarterly earnings of $393mn. Free cash flow guidance has been increased to $5.5-$6.0bn from $4.3-$4.8bn, while adjusted EBITDA guidance has been bumped up to $8.2-$8.7bn from $7.0-$7.5bn.

“Today we are raising our 2022 financial guidance due to the sustained strength in the global LNG market and an increase in expected LNG production,” CEO Jack Fusco said. “The current volatility in the global energy markets signals the need for additional investment in new LNG capacity, underscoring the power of the Cheniere platform.”

A final investment decision on Cheniere’s Corpus Christi Stage III (CCL Stage III) liquefaction project, incorporating seven midscale liquefaction trains with total capacity of more than 10mn mt/yr, is expected “in the coming months,” he added. In March, prime contractor Bechtel was issued a limited notice to proceed at CCL Stage III, allowing engineering, procurement and early site works to proceed.

Nearly all of the derivative losses, Cheniere said, relate to the use of commodity derivative instruments indexed to international LNG prices, and are primarily related to its integrated production marketing (IPM) agreements, under which Cheniere pays for natural gas supply indexed to LNG-linked pricing – usually the Platts Japan Korea Marker (JKM).

“While operationally we seek to eliminate commodity risk by utilising derivatives to mitigate price volatility for commodities procured or sold over a period of time, as a result of the significant appreciation in forward international LNG commodity curves during the quarter, we incurred approximately $3.1bn of non-cash unfavorable changes in fair value attributed to positions indexed to such prices,” Cheniere said.

“Our IPM agreements are structured to provide stable margins on purchases of natural gas and sales of LNG over the life of the agreement and have a fixed fee component, similar to that of LNG sold under our long-term, fixed fee LNG SPAs,” it added. “However, the long-term duration and international price basis of our IPM agreements make them particularly susceptible to fluctuations in fair market value from period to period.”

During the first quarter, Cheniere exported 160 cargoes of LNG, up from 133 cargoes in Q1 2021, consisting of 584 trillion Btu of LNG, up from 480 trillion Btu a year earlier.