Cheniere Energy, Inc.
Q1 2021 Earnings Call Transcript
Published:
- Operator:
- Good day and welcome to the Cheniere Energy Inc. Q1 2021 Earnings Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Bhatia, VP of IR. Please, go ahead, sir.
- Randy Bhatia:
- Thank you, operator. Good morning, everyone, and welcome to Cheniere's first quarter 2021 earnings conference call. The slide presentation and access to the webcast for today's call are available@cheniere.com.
- Jack Fusco:
- Thank you, Randy, and good morning, everyone. Thanks for joining us today and thank you for your continued support of Cheniere. I'm pleased to be here this morning to review our outstanding results from the first quarter. Before covering our results and outlook, I want to spend a minute addressing winter storm Uri and its impact on Cheniere. As we described back in February, we were impacted by the widespread power outages in Texas, which resulted in our Corpus Christi facility being down for a few days. I'm extremely proud of our operating personnel at both Sabine Pass and Corpus Christi for rising to yet another weather challenge and working so diligently to manage our operations smoothly throughout the freeze event. From hurricanes the fog, to now historic freezes, the Cheniere platform has withstood whatever Mother Nature throws our way and our focus on safe and reliable operations continues to benefit our customers, shareholders and other stakeholders. As a result of the winter storm, there was no material impact on our assets or operations and we were able to fill some cargoes at Sabine Pass and restore Corpus Christi to normal operating levels quickly, to mitigate impacts on our delivery obligations.
- Anatol Feygin:
- Thanks, Jack, and good morning, everyone. Please turn to slide 8. The global LNG market exited 2020 on a positive note, as cold weather across Asia and continued economic expansion in China helped contribute to an increase in Asian LNG imports in Q4. As non-US supply was slow to respond, markets tightened as Asia pulled cargoes from Europe, a trend which continued in Q1 of 2021. In the first quarter, global LNG supply showed positive year-on-year growth for the first time, since the first quarter of 2020, but net growth was modest as a healthy 17% growth in US exports, was largely offset by declines at several LNG facilities around the globe, which were either shut down or underperforming, including facilities in Norway, Nigeria, Australia, Trinidad and Tobago, and Russia. Extreme cold weather in Asia and then Europe during the first quarter combined with the supply constraints and a tight shipping market caused unprecedented price spikes in JKM in the early part of the quarter, to all-time highs of over $30 in January. Since then extreme temperature conditions have passed and JKM prices have moderated. However, price levels are still well above where they were a year ago, with March JKM settling at $8.26, and June trading above $9 currently. Well above prices around the $2 in MMBtu level a year ago, indicating an underlying structural tightening of the market, supported by strengthening demand fundamentals. As I just mentioned, in Asia LNG imports were very strong in Q1 up over 7 million tons or 11% year-on-year. China added nearly 5 million tons of LNG demand despite robust domestic gas production and increased Russian pipeline gas imports. Early reports of total gas demand in China, show an increase of approximately 15% year-on-year in Q1. Weather continued coal-to-gas switching and a remarkable over 18% increase in Q1, GDP drove the demand increase.
- Zach Davis:
- Thanks Anatol, and good morning everyone. I'm pleased to be here today to review our first quarter financial results and key financial updates, as well as our increased 2021 guidance. Turning to slide 12. For the first quarter, we generated net income of $393 million, consolidated adjusted EBITDA of approximately $1.5 billion and distributable cash flow of approximately $750 million. Our financial results for the first quarter were positively impacted by increased global LNG prices and margins, particularly margins realized on spot and short-term cargoes sold through our marketing affiliate and a higher than normal contribution from LNG and natural gas portfolio optimization activities due to significant volatility in LNG and natural gas markets during the quarter. As we have discussed in prior quarters, our IPM agreements, certain gas supply agreements and certain forward sales of LNG qualify as derivatives and require mark-to-market accounting, meaning that from period to period, we will experience non-cash gains and losses as movements occur in the underlying forward commodity curves. The impact of shifts in these curves on the fair value of our commodity and FX derivatives during first quarter 2021 was a net loss of approximately $120 million, which was substantially all non-cash. For the first quarter, we recognized an income 456 TBtu of physical LNG, including 442 TBtu from our projects and 14 TBtu from third parties. 84% of these LNG volumes recognized in income were sold under long-term SPA or IPM agreements. During and after this winter storm, we were able to work with our long-term customers on cargo schedules as well as shift some volumes from Corpus to Sabine, leading to no material impact to our production for the quarter. We received no cargo cancellation notices and had no revenue related to cargo cancellations in the first quarter. However, we previously recognized $38 million of revenues during fourth quarter 2020 related to canceled cargoes that would have been lifted in the first quarter. Commission activities for Corpus Train 3 went well as Jack discussed and we received $191 million related to sales of commissioning cargoes in the first quarter, corresponding to 25 TBtu of LNG. As a reminder, amounts received from the sale of commissioning cargoes are offset against LNG, terminal, construction and process, net of the costs associated with production and delivery of those cargoes. 6 TBtu of LNG-related to commissioning activities was on the water at the end of the first quarter and will be recorded as an offset to construction in process upon delivery. Turning to the balance sheet. We prioritized debt reduction since raising this near-term loan to refinance convertible notes last year and have committed to pay down at least another $500 million of outstanding debt in 2021. We made good progress toward that goal during the first quarter when we paid down $148 million in outstanding borrowings under the Cheniere term loan. I'll provide some additional color in a few moments. But we are in an excellent position to reach and likely surpass our minimum debt reduction target this year. In February, we locked in an approximately $150 million private placement of long-term amortizing fixed rate notes at SPL, that are committed to fund in late 2021 at a rate of 2.95%, the lowest yielding bond ever secured across the Cheniere complex. In March, CQP opportunistically issued $1.5 billion of 4% senior notes through 2031, the proceeds of which together with cash on hand were used to extend the maturity and accretively refinance all of CQP's 5.25% senior notes due 2025. Our efforts on execution, performance and prudently managing the balance sheet throughout the Cheniere structure continue to be recognized by the credit rating agencies. As we mentioned on our last call, in February, Fitch revised the outlook of SPL's senior secured notes rating to positive from stable while reaffirming its existing BBB minus investment-grade rating. In April, S&P revised the outlook of both Cheniere Engineered Partners BB ratings to positive from negative, a signal that ratings upgrades may be coming. In addition, S&P's commentary indicated a leverage level of 4.5 to five times on a debt-to-EBITDA basis in the next couple of years could be consistent with an investment-grade rating, commentary which is in line with and supportive of our deleveraging plan and goal of investment-grade credit metrics throughout the structure. Turning now to Slide 13. As Jack mentioned, today we are again increasing our guidance ranges for full year 2021 consolidated adjusted EBITDA and distributable cash flow by $200 million, bringing total increases to $400 million above the original ranges we provided in November of last year. Our revised guidance ranges are $4.3 billion to $4.6 billion in consolidated adjusted EBITDA and $1.6 billion to $1.9 billion in distributable cash flow. Today's increase in guidance is largely driven by our strong results in the first quarter, the continued improvement in global LNG market pricing and our ability to execute additional higher-margin forward sales into the stronger pricing. Since the last call, we have continued to lock in additional volumes for the remainder of the year. Though those sales have been offset by an upwardly revised production forecast, driven by maintenance optimization, some favorable weather, and a much faster than expected ramp-up to steady Train 3 volumes. We currently forecast that a $1 change in market margin would impact EBITDA by approximately $40 million for full year 2021. As we have now sold almost all of our production for the remainder of the year and have completed and placed Corpus Stage 3 into service in line with our previously forecasted timing. Our remaining exposure this year is not material and we only plan to provide another update, if that were to change. We are confident in our ability to deliver results within these upwardly revised guidance ranges for the full year. With Train 3 now in operation, we've also now passed the free cash flow inflection point, we have long discussed with our stakeholders. We expect to generate meaningful free cash flow this year for the first time in Cheniere's history of well over $1 billion. We originally committed to $500 million in debt reduction this year but we now think $500 million is conservative due to our strong performance and cash flow generation year-to-date and the forward sales of LNG, we have executed in a strong LNG market. We are continuing to work on our long-term capital allocation strategy with our Board and we anticipate communicating this multiyear plan to you in the second half of the year, including more comprehensive plans for the remainder of free cash flow this year after meeting our initial 2021 debt reduction goal of $500 million. 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.
- Operator:
- Thank you. Our first question comes from Jeremy Tonet with JPMorgan.
- Jeremy Tonet:
- Hi, good morning.
- Jack Fusco:
- Good morning, Jeremy.
- Jeremy Tonet:
- Just want to start off with the kind of improving LNG market here and see what that could mean for Cheniere. It seems like you guys are able to kind of sign some more contracts here. So I'm wondering, how much visibility do you have? Do you think the market is tightening, where longer-term contracts might be at attractive rates that you would look to sign or even just looking at 2022, just how much spreads are you able to capture at this point kind of de-risk your outlook for 2022?
- Jack Fusco:
- So Jeremy, this is Jack. I'll start, and then I'll turn it over to Anatol, and then Zach maybe. But we'll start off with -- first, like I'm extremely pleased with my operating staff and their ability to debottleneck and optimize our maintenance program. So during the freeze at Corpus, we were actually able to do quite a bit of maintenance on the facility. So, when we came back, we came back strong and we revised our production forecast and we found significant number of additional cargoes that we can monetize this year. And that's my expectation with the staff and the team is continuing to work on operating efficiency and our effectiveness and drive our production appropriately with market conditions. Anatol, Jeremy's question was around the market for, I guess, mid and long-term contracting.
- Anatol Feygin:
- Sure. Good morning, Jeremy. Things are, as we mentioned, turning around even faster than we had expected. Some of it is in a system from weather. Some of it is an assist from other facilities that are having operational issues and legacy production declines. We've talked at length over the last couple of years, quarters about the investment that's being made that, Jack mentioned in his remarks on the pipeline re-gas facilities, additional countries that are investing hundreds and hundreds of billions of dollars in long-dated commitments to natural gas. And a lot of those places want to have security of supply. And one of the things as Jack mentioned, we've displayed is that through thick and thin through ups and downs, not only do we reliably perform on those commitments. Our product happens to have the lowest volatility, the most price stability of any of the other long-term contracting options. So, we're entering into a very good period. We are right around the same level that we saw in 2018 in terms of forward margins for the next three, four years. That was, as you know a very good period for us. That's not a necessary condition, but it's certainly very helpful. And the difference between 2018 and now is that was a bit of a countercyclical rally in the market that was driven by a surprising strength in demand out of Asia, primarily China, and frankly delays in terms of some infrastructure coming online like some of the other US projects. So, the difference now, as Jack said, 30 million tons a year, we're added 17 through 2020. You look forward through the middle of this decade. There's not a lot of supply coming in and we are very well positioned with these additional volumes that we're transacting in the short and mid-term. As you may recall, bridging volumes were a key part of our commercial offering and that's something that allows our customers and load serving utilities to sleep at night with that reliability and production. So again, feel very good about the hand that we're playing and feel very good about securing additional margin. And now, I'll hand it over to Zach to clean up.
- Zach Davis:
- Sure. Thanks, Anatol, and hey, Jeremy. Today, we obviously aren't going to give you a look at our open capacity for 2022 yet. Really we have to get through that budget process. We have the annual delivery program or ADP process. And by November, we'll give you our best outlook for 2022 and the open position and probably have even a better sense of when trains fixed, is coming online. But you can expect we're already proactively thinking about it and executing on 2022 and the attractive margins now in the curve over the next few years. And with the success that CMI has had on terming out physically, including through mid-term deals, some of our debottleneck capacity. This has really helped lock in fixed fees this year for the next few years actually. And post-2021, we've already secured over let's say over $500 million and in just in 2022 over $200 million. So, you can say we've already been pretty proactive in locking up a portion of that open capacity for next year.
- Jeremy Tonet:
- Got it. That's very helpful. Maybe just shifting to carbon here. I was just wondering if you could provide thoughts as far as this new transaction you did the value chain carbon neutral LNG cargo to Shell. How do you see that market developing? How much appetite do you think that could be for that over time? And when it comes to carbon capture do you think the current five Q provides sufficient economics for Cheniere to pursue CCS given the dense Purity stream of CO2 that come off LNG facilities?
- Jack Fusco:
- Yes. Well, Jeremy thanks. And as I'll add is I was very pleased to work with Shell one of our largest foundation customers on that first carbon neutral cargo. And I think it's successful execution just ensures that Cheniere's capabilities ensures our capabilities to actually operate across the entire value chain. I think offering climate solutions to our customers is going to be a bigger and bigger portion of our business and right in line with what our value proposition is for the customer. As I've talked about before in the past our first goal though is to monitor validate and report on our carbon footprint. And that's when we announced our cargo emission tags or the CE tags. We're well on our way on that aspect of it. You mentioned CCS. CCS is important our initial blush is that it looks very promising at our facilities. I think we're committed and have committed some real dollars to development and engineering resource. To flush out CCs and its potential capability to help us both at Sabine and at Corpus Christi. But I think our customers are going to expect us to continue to offer a sustainable LNG product. Anatol do you have anything to add?
- Anatol Feygin:
- Thanks Jack. Just very quickly as Jack said transparency and our ability to offer that to our customers is very important. This is another arrow in our quiver and it is part of the comprehensive offering that allows us to capture -- to continue to capture market share. So, this is another box that we have checked in terms of our capabilities and we're grateful to have a partner like Shell as we navigate this and continue to develop our ESG offerings.
- Jeremy Tonet:
- Got it. Thank you very much for the thoughts.
- Jack Fusco:
- Thanks Jeremy.
- Operator:
- Our next question comes from Shneur Gershuni with UBS.
- Shneur Gershuni:
- Hi, good morning everyone. I just kind of wanted to follow-up on the first question that was asked. Just given the fact that you've been successful negotiating incremental contracts into 2023 and kind of the volatility that we've seen and so forth and kind of the forecast that you laid out how close are we to securing enough contracts to give the board comfort in sanctioning Stage 3 to an FID process? And would you do it all at once, or would you do it kind of in a piecemeal type of approach?
- Jack Fusco:
- So, just to be clear we are 100% focused on making sure that Stage 3 gets commercialized as soon as possible. But as I talked about, on previous calls, I mean, we literally have a virtual train of LNG that we need to sell and secure, which is what our mid-term product offering is helping us do. So through our de-bottlenecking efforts and maintenance optimization there was at least 7 million tons of LNG additional LNG coming off the portfolio, that we're blessed to have, quite honestly. So that's first and foremost, is making sure that we secure the existing nine trains worth of LNG, before we go off and build Stage 3 another 11 million tons. But I don't know, Anatol or Zach do you have anything to add?
- Anatol Feygin:
- Thanks for the question sure. We're -- again we're very optimistic. And this all contributes to our goals of increasing the contractual coverage. And we will not waver on our investment commitments which require roughly, we talk about this 1.7 million tons that's total tonnage over time. As Jack said, this is a $10-plus million ton project, plus the volume we have in the portfolio. Per annum, right? So you're talking about kind of an order of magnitude more commercialization that's required, but we feel very good about what we're seeing today and for the coming quarters.
- Shneur Gershuni:
- Great. No. I appreciate the color. And maybe for a follow-up, during the quarter you prepaid $148 million on the term-loan, you've been able to issue debt at 4%. You've had positive outlook revisions from both S&P and Fitch. And you kind of touched on it on your prepared remarks. But I was wondering, if you can expand on the guidance or soft targets around leverage levels to get the upgrade to BB+ and then to investment grade. Any expanded discussion on that would be super helpful. Thank you.
- Zach Davis:
- Hey, no problem. This is Zach here. And I think the S&P note last month for the outlook upgrade at CEI and CQP this really validates everything we've been communicating to you all for the last few years on capital allocation. And it's pretty consistent with how we step-by-step got our -- even our project ratings over time from high-yield to investment grade. That's the being in Corpus by every agency. And now looking ahead, there's a, I guess a defined path of EBITDA growth plus debt paydown to get below six times consolidated leverage to get to BB+ in the next year or so. And then leverage down to sub five times to get to BBB in the next few years. So our path is pretty straightforward to get to IG with S&P, as metrics improve and as we simply grow into our run-rate and follow through with capital allocation and debt paydown of up to $4 billion pretty much consistent with what we've told you. So that's the plan and that's on a consolidated debt-to-EBITDA basis.
- Shneur Gershuni:
- Perfect. Thank you very much. Really appreciate the color. Take care, guys. Have a great day.
- Anatol Feygin:
- Thanks.
- Operator:
- Our next question comes from Christine Cho with Barclays.
- Christine Cho:
- Good morning. When I look at your shareholder list, I think there's probably still some turnover needed in the stock. Maybe it's lack of dividends or debt levels that keeping some of the investors out of stock. But as you think about capital allocation, how are you thinking about bringing new investment? As you talk to investors, who you like in the stock, but aren't currently what do they want? And how is that going to be factored into the broader framework that you're going to come out with later in the year?
- Jack Fusco:
- Christine, it's good to hear from you. I'll start. And I'll turn it over to Zach. I am concerned about the lack of float that we've had in the stock lately. I mean, I think it's consistent with some of the oil and gas industry, overall, but I'd like to see the float get up a little bit more. I think larger investors, especially, index funds, at least in my experience, like to be able to get into stock and then get out of the stock without having too much pain. And so, we need to work on expanding our horizon and being more desirable for the investment community at large. And I think, a big portion of that is what Zach has highlighted is, getting our credit metrics under control. We don't screen very well on a Bloomberg screen. And we need to rectify that. We think we -- we're at an inflection point where we're going to have an opportunity here to give our shareholders back their investment. And we need to be thoughtful about it, which is why we're spending a lot of time trying to make sure that we get this capital allocation program done right the first time.
- Zach Davis:
- And I'll just add to what Jack said, Christine. And I think it's pretty obvious, if we can get to investment-grade in the next couple of years, or even just get into the S&P 500 index it'd be helpful to bring more and more new investors into the stock. And I think it's pretty safe to say, we're on track for both of those with a bit more time. And it's probably time. That's the operative word for this company, because every day that goes by, we'll be making progress on our leverage get closer and closer to our run rate cash flows. And $11 is just going to be too hard to ignore.
- Christine Cho:
- Okay. Thanks.
- Zach Davis:
- Especially, as that goes with capital allocation and growth. The other thing I'd note -- Christine, I'll just add one thing to that, is that it's more than fair to say that over time we're interested in attracting more and more income investors to the stock as well. But we know our leverage goes hand-in-hand with that, to ensure that any shareholder return really is just sustainable, not just for a few years but for decades. So I think the all-of-the-above type strategy to capital allocation, like Jack mentioned in the prepared remarks, is exactly what we're going to try to bring to you all in the next year or so.
- Christine Cho:
- Got it. That's helpful. And then maybe if I can move on to contracting. In the last several weeks months, we've seen a number of long-term contracts signed in the market. And most of them have been with Chinese counterparties. So just curious, with no U.S.-China trade deal how should we think about interest from portfolio companies, especially with delays that are going on with other ongoing LNG projects that are in construction?
- Anatol Feygin:
- Yes. Thanks, Christine. That's absolutely fair. It is a -- the market continues to contract for term. We've always been in the camp that long-term contracts are a key building block to this market, as it continues to grow and develop. And as we talked with Seer, it is a period -- we've gone through a period where oil indexation was more attractive to buyers than NYMEX. Now we're entering a period where we firmly believe the opposite will be true. We are quite optimistic on the Chinese market for gas and for LNG. We think this is a critical component of its economic and environmental objectives. 14th five-year plan continues to commit to that President Xi has committed to limit and actually decrease the amount of coal generation in subsequent five-year plans, which all bodes quite well for us. We're very proud of what we have done to date. We have a great commercial engagement with our Chinese counterparties, the SOEs and the Tier 2 and Tier 3 players and we fully expect to have more commercial success there. It is a very large and important market. As Jack has said in previous calls, it can double the size of Cheniere in and of itself. And we continue to be quite engaged there. But I will tell you one of the reasons we highlighted on this call non-China Asian markets is because there's there is a broad range of opportunities beyond China as well. So just like on capital allocation it will be all of the above. And again, we're entering now what we see as a multiyear period where NYMEX based contracting long-term contracting will be very attractive.
- Christine Cho:
- Got it. Thank you.
- Operator:
- Our next question comes from Michael Lapides with Goldman Sachs.
- Michael Lapides:
- Hi, guys. Thank you for taking my question and congrats for good start to the year. Can you talk a little bit about Sabine 6, just like when you talk about bringing it up into the first half of 2022 are you talking just a couple of months ahead of what you were originally planning, or is it conceivable you could get it very early in the course of next year online?
- Jack Fusco:
- Hi, Michael, it's Jack. And thanks for the kind words. Sabine Pass, which is what you would expect Train 6 is actually our Train number 9 with Bechtel. And I'd like to say we have figured out how to stick build these trains faster and better than probably anywhere else in the world. And it is way ahead of accelerated schedule probably close to a year ahead. So I would expect that barring decent weather because we are about ready to head into the hurricane season again, which seems almost never-ending anymore. But baring decent weather that we'll be producing LNG and commissioning on that train before the end of the year. And so we're hopeful that we can exceed the first half of the year guidance that we've given. And by November when we talk about 2022 guidance, we might be able to be more specific than just the first half of the year. But it's tracking in the right way right now. And in terms of cost there's $600 million to $700 million remaining of unlevered costs there before contingency and a large majority of that is this year. So things are really ramping up there.
- Michael Lapides:
- Got it. Super helpful. And then just trying to think about stage three at Corpus. Is there a material benefit in your, kind of, your cost to construct to be able to take that FID before -- basically before the major construction work that you've done over the last five-plus, seven-plus years with Bechtel kind of winds down. Meaning if Bechtel leaves the site does that make a material change in your sites plural does that make a material change to what stage three would cost, or put another way if you had a two year or three year pause before FID in stage three does that kind of change the outlook for the economics of it and the cost of it?
- Jack Fusco:
- Not necessarily, Michael. For me it's more about the team. We got a great team at Cheniere, Bechtel has a great team supporting us right now. If there's that much of a delay, I'm sure those folks will get assigned elsewhere around the world. They're an international EPC contractor and they're not going to keep their people waiting. So for me it's more about the team and less about mobilization and demobilization costs because those are quite frankly, kind of, immaterial to the total investment. And I would just add that, we're partnering with Bechtel, as we speak actively looking at ways to make it cheaper and cheaper, and more cost competitive. So they'll be around.
- Michael Lapides:
- Okay. And then last one just real quick. You mentioned kind of doing short-term contracts one or two-year $200 million of incremental revenue roughly 1.7 million tons. Just real back of the envelope that's a little over $2 in MMBtu. I would assume that all kind of drops to the bottom line, or almost all drops to the bottom line?
- Jack Fusco:
- Absolutely. That's the beauty of some of these midterm deals. It just gives us even more clarity on how much cash is available for the company to support capital allocation efforts as we give you guys an update later this year.
- Michael Lapides:
- Got it. Thank you, guys. Much appreciate it.
- Jack Fusco:
- Thanks, Michael.
- Operator:
- Our next question comes from Jean Ann Salisbury with Bernstein.
- Jean Ann Salisbury:
- Hi, good morning. Qatar has taken some steps the last few months to move forward with their mega expansion. A lot of investors that I talked to that's their biggest worry is that Qatar could price low enough to keep any other new projects from moving forward? You're obviously in the market. So I just wanted to hear your comment on, if this price pressure is a real thing that you're seeing?
- Jack Fusco:
- Anatol?
- Anatol Feygin:
- Thanks Jean Ann. It's Anatol. Every supply stack that, we've ever put together has our friends at on the far left. And there's no question that, that thing gets dispatched and gets built, but its 32 million tons, right? And as we've mentioned and Jack just mentioned, this market, when it was a smaller market grew at 30-plus million tons per year. So if you β as we look at that supply curve, and we've talked about this over the last year and half, there were a lot of things in that β we thought even a year ago were a foregone conclusion that now may not even materialize this year. The QP North field expansion, of course has been FID and we're always fully expecting that it will get placed into the market. It will be done on an oil index basis most likely. And it's one of our two main competitors that we see kind of as a foregone conclusion being in the market. So we're not afraid of that. We're part of the sort of diversification of supply and contracting structure along with QP and our friends at Novatek.
- Jack Fusco:
- And Jean Ann, I would say that, Zach mentioned, we're working very closely with Bechtel to ensure that our expansion at Corpus Christi is the most competitive economic Henry Hub indexed expansion in the US.
- Jean Ann Salisbury:
- Great. Thank you. And then just as a follow-up, if you can disclose this and I apologize if it was in the early somewhere, but how much on a per MMBtu basis did the carbon neutral offset ad for the Shell cargo?
- Anatol Feygin:
- Thanks, Jean Ann. This is Anatol. We are not disclosing that. Again, we partnered with Shell on that, and Shell has the lead in using its methodology as we continue to develop our LCA and get that completely buttoned up pure reviewed et cetera. But those commercial terms and economics we are not disclosing.
- Jean Ann Salisbury:
- Okay. No problem. That's all for me. Thank you.
- Jack Fusco:
- Thank you.
- Operator:
- And our next question comes from Michael Blum with Wells Fargo.
- Michael Blum:
- Thanks. Good morning everyone. I just had a really a clarification question on the midterm contracts you've been signing. Are you purposely signing these shorter-term contracts for your open capacity, or is that just what the market is willing to bear right now? And given the improving market fundamentals that you described earlier, do you see that changing at all?
- Jack Fusco:
- Michael, midterm contracts have been around in this market forever. So we're not the first and only LNG provider to offer midterm contracts, but it's a great way for us to meet with some of increase our customer base and meet what their objectives are which -- and quite honestly compete with the Qataris or the Russians and -- or the French Total and offering these shorter term midterm contracts. So we found a pretty good appetite of customers. They are not traditionally I would say the customers the utility customers that we see on the long-term side. But there's a good market for that and that helps us manage some of these excess volumes from our production. Anatol?
- Anatol Feygin:
- And Jack, you covered everything. It's just another product in our portfolio one that we we're not offering in and of itself as recently as a year ago. We did do midterm contracts that were effectively stapled to long-term, but it is something that as Jack said helps us engage and broadens our commercial offering. And again, fully expect that long-term contracting will resume in short order given the current margin environment and where we are in the cycle.
- Michael Blum:
- Thank you very much.
- Operator:
- Our next question comes from Julien Dumoulin-Smith with Bank of America. Julien, we are unable to hear you, please check your mute function. Okay. Our next question comes from Greg .
- Unidentified Analyst:
- Thanks for squeezing me in and congratulations on the good quarter. Jack, did I hear you say Corpus Christi Stage 3 could be an 11 MTPA project? And then a related question any updates on further upsizing opportunities for the legacy nine train position?
- Jack Fusco:
- Absolutely Corpus Christi Stage 3 could be 11 million-ton project. And that's currently as we continue to work on value engineering with Bechtel. We continue to drive not only the production of those trains, but also drive the cost down. Greg. And then I'm sorry I missed the last half.
- Unidentified Analyst:
- The rest was on debottlenecking, further debottlenecking on the nine trains.
- Jack Fusco:
- Yeah. So we've the debottlenecking effort has went well above at least my expectations the team has just done a great job at I'd say picking the low-hanging fruit, but they -- and they continue to identify different choke points within the LNG liquefaction process that we can make modifications to continue to drive more output through it. So I do think there's more to come. We'll be giving you some guidance on that as we identify and feel comfortable that we can deliver it over the long-term.
- Unidentified Analyst:
- Thank you.
- Operator:
- Our next question comes from Chris Tsung with Webber Research.
- Chris Tsung:
- Hi, good morning gentlemen. Thanks for squeezing me in. I wanted to just touch on the color you're talking about for the supply curve. And are you able to provide any thoughts on the Mozambique LNG deferral with the projected debt size on 13 NTPA being deferred by at least a year, have you noticed any impact due to market? And has -- is there an impact for Stage 3 with that capacity? Thanks.
- Jack Fusco:
- No. Look I only know about the Mozambique delay with what I read as well as what you read that from Total and Exxon. And it's a sad situation and I hope everybody is safe and healthy that were there to experience at unrest. But, no, I don't think it's -- I don't -- again it's a different business paradigm than what we offer. So we offer a full value product. The customer doesn't have to invest in equity. Customer doesn't have to worry about the E&P side of the business, because we've been able to buy at our peak almost 7Bs a day of U.S. nat gas from almost 100 different producers on 26 different pipelines and deliver it to our two facilities. So we take care of a lot of what the customer needs unlike them having to invest equity or be intimately involved in the E&P side of the business. But Anatol do you have anything to add on Mozambique?
- Anatol Feygin:
- No. Thanks Jack.
- Chris Tsung:
- Right. No that's the point. It seems like the project is challenged and you guys are able to offer a product without equity, and you're able to deliver this product. So could you guys possibly be able to absorb some of that off-take or have discussions with those customers that are impacted as the project is delayed, what are your�
- Jack Fusco:
- Absolutely. Most customers are interested in the diversity of supply and having a reliable supply of LNG and that's what we offer, but absolutely yeah.
- Chris Tsung:
- Okay, okay. All right. And just one more on the -- I guess the ESG front, you guys introduced the cargo and mission tags early in February, and it looks like you guys were able to deliver your first carbon mutual cargo to Shell. It looks like these are measures taken to assuage the European businesses and customers with regards to the carbon intensity of your product. So I guess given -- I guess, how have those conversations change, or have they stayed consistent in the first half of this year?
- Anatol Feygin:
- Thanks Chris. This is Anatol. This is again continued progress by the team, the work that we have done over the last couple of years made us very comfortable with our environmental footprint and emissions footprint. And we are working on again quantifying, validating and having that properly assessed before we roll it out as you know in 2022, we are confident that we are part of the solution for decades to come. We just have to deliver on that transparency and that is something that we're working on. Obviously, the engagement with Shell, demonstrates steps in that direction as well. It is part and parcel of our commercial discussions and that we are -- we fully expect it to be an increasingly important component of those discussions. So, again dealt a very good hand that will continue to improve over time and contribute solutions as our customers move forward.
- Chris Tsung:
- Great. Thanks so much and congrats on a great quarter.
- Jack Fusco:
- Thank you.
- Operator:
- Our next question comes from Sean Morgan with Evercore.
- Sean Morgan:
- Hi. This question is probably best for maybe Anatol. But last time, I talked to Anatol, we were talking about the disruption I guess to customers posed by the super spike that we saw with JKM. I think that maybe causes a little bit of difficulty in terms of customer assurance of signing long-term deals. But have you -- because you saw Henry Hub really hanging with a lot less volatility, is there any kind of demand response that you're seeing now the benefits Cheniere, that maybe more customers looking to sign up Henry Hub based price volumes because of the kind of consistency of pricing there?
- Anatol Feygin:
- Thanks, Sean. If I may redirect a little bit, what I think, we're discussing is, if we were in a world where natural gas prices, global natural gas prices spiked to such elevated levels, it could create long-term headwinds to natural gas' market share in the primary energy mix. What we've always said is that, that disruption that played out in the short-term spot market was a great advertisement if you will for long term contracting, right? Our customers enjoyed almost perfect reliability and almost perfect price stability over that period. And what's being highlighted now, as prices and margins have normalized is that, again, the attractiveness of a $3 minus-ish NYMEX product, plus our economics on the long-term side are very stable and very attractive and we think a key part of a diversified and flexible portfolio. So if anything just like some other price excursions that we've seen over the last couple of years, it continues to highlight the attractiveness of our turb commercial offering. And we're very well positioned for these coming years? Sean, did I lose you?
- Sean Morgan:
- Sorry about that. Yes. Just going back to Mozambique real quick, I noticed that...
- Jack Fusco:
- We're going to -- hey Sean, we're over on our time. So I'm going to go and we still have people in the queue. So, I'm going to ask that everyone left just one question please.
- Sean Morgan:
- Sure. Thanks. Thanks, Jack.
- Jack Fusco:
- Thank you.
- Operator:
- Our next question comes from Ben Nolan with Stifel.
- Ben Nolan:
- Hi, thanks. Appreciate squeeze in here Jack. I wanted to -- and I apologize this is overly simplistic. But just sort of looking at the quarter, you did $1.5 billion of EBITDA, but then sort of extrapolating the guidance for the remainder of the year, it's only about $1 billion a quarter and that's even with not full contribution from Train 3 in the first quarter. Can I don't know Zach or anyone, can you maybe walk through how you're thinking about what the moving parts are to that level of guidance relative to sort of the performance in the first quarter?
- Zach Davis:
- Sure. I think many folks smooth out our quarters over the course of the year and maybe that underestimated what many of you thought we would produce for Q1. But Q1, Q4 often the colder quarters of the year. They're not shoulder season. So there's less demand for LNG as well, and there's more volatility at the same time. All of that adds to higher EBITDA higher figures for the beginning and the end of the year. So this was as expected to us, and we've made it pretty simple that for the rest of the year there's only about 40 TBtu even open. When those cargoes are delivered, that depends on some of the FOB versus Des deals that we have. But this is right on track for where we thought we would be for Q1 with some additional optimization of higher LNG margins, and then for the rest of the year. Q - Ben Nolan All right. Okay. Thanks.
- Operator:
- We'll take our next question from Alex Kania with Wolfe Research.
- Alex Kania:
- Great. Thanks for taking my question. Maybe just a follow-up on the Shell deal. Long-term as you just think about the European carbon market developing, we've seen higher prices there, and theyβve potential for kind of import kind of tariffs, I guess, associated with carbon. Do you actually envision doing a carbon-neutral or carbon-free product kind of being value additive rather than just providing a good ARB rather than just getting a European buyer just pay more money for kind of for just kind of a generic premium, or is it going to ultimately be a positive for you guys just on an ARB basis?
- Jack Fusco:
- Yes. Alex, I would say, first and foremost, in Brussels or in Europe is the US gas market is the most transparent market in the world. So the first thing we need to do is get our LCA done, get it published, get it reviewed by all the scientists of how we're going to calculate the life cycle emissions of the whole LNG train, because there's a lot of disinformation out there. And there is not a very good process for defining terms that everyone agrees to. So when we talk about transparency about monitoring, validating and reporting our carbon footprint that's in direct response to a lot of misinformation and miscalculation to say the least. And then secondly, I do think there's going to be a premium to carbon offsets and our ability to generate and produce carbon offset to help our customers, and those offsets need to be with their appropriate registrar. They need to be validated. I think it's all in line with what our offerings are for our customer and part of our business line and business proposition. But and I -- yes, I think the first go around will be European or a European customer is initially, but I think worldwide the whole industry will move this way. Go ahead Anatol.
- Anatol Feygin:
- Yes. Just to follow-up on Jack's points. We have very good engagement across the world on these issues and metrics. Europe has the most liquid and most transparent carbon emissions market. As you pointed out, it's trading around $60 a ton today. That is a very good sign of the benefits that the natural gas and to the extent that we're comfortable with our LCA and our emissions footprint. Cheniere's LNG is the value that can contribute to that market. But also good engagement really all over Asia as the world continues to focus and we continue to focus on improving our value chain and life cycle emissions profile that we're quite optimistic about. So kind of again, just like capital allocation all of the above.
- Alex Kania:
- Great. Thanks.
- Operator:
- Our next question comes from James Carreker with US Capital Advisors.
- James Carreker:
- Hi. Thanks for the question. Circling back to guidance. I was wondering if we could talk a little bit about what kind of change between now and the Q4 call? I think it was late February and the large spot price LNG spikes had kind of subsided. It was kind of post the storm. And I think you only had 50 TBtus of open capacity at that time. So kind of maybe can you talk a little bit about -- between now and then what has changed to yield $200 million have additional upside?
- Zach Davis:
- Sure. This is Zach. And as you mentioned, we were able to raise guidance last time in February by $200 million. Our 200 TBtu of open capacity went down to 50 TBtu. And as the market went up, we were able to take advantage of that. Since that call, the rest of the year had been looking around $2. That's going up another dollar. And at the same time, our operations folks have been pretty opportunistic on the production. Just with the colder weather Train 3 actually ramping up pretty smoothly after March 26th and then just some opportunistic maintenance during the freeze and fog. That they added around 10 more cargoes to the forecast, that's over 30 TBtu. So when you add those two things together that gets to your $200 million pretty much.
- James Carreker:
- Okay. And is there any amount of that you could quantify that's kind of gas optimization related to the storm?
- Zach Davis:
- Not really, considering I just gave you a number that's maybe three, four if not more of a 200 move.
- James Carreker:
- Okay. All right. Thank you.
- Operator:
- And those are all the questions we have on today's call. That does conclude today's conference. We thank you for your participation. You may now disconnect.
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