Cheniere Energy “one hurricane away from having a very bad year”
The Interview covered US LNG market dynamics and trends, with a focus on Texas-headquartered Cheniere Energy. The company has one “major trick”, we heard — it offers access to US gas and Henry Hub price links. However, this is a double-edged sword, as “all you really have is gas from the US on the Gulf Coast linked to Henry Hub.”
Many portfolio players already have significant exposure to Henry Hub and “they don’t want any more, so getting additional volumes is going to be a bit harder,” the specialist said. In addition, demand is more fragmented now, with smaller utilities, for example, buying in different countries. “In that sense, their core position is strong, but there are challenges in growing it.”
The Interview also discussed Cheniere’s ability to continue securing long-term contracts, with the expert noting that “as long as the price differentials stay high, the utilisation will stay high, and that’s basically how it goes for them”. LNG demand has also been “more resilient than expected” during the pandemic. Meanwhile, with the global drive to reduce CO2 emissions, “the big win there is replacing coal with gas”.
However, the expert is concerned that Cheniere is at risk of becoming “one-dimensional”, with much of its gas coming out of the same region. “They are basically one hurricane away from having a very bad year. It would be very interesting to see how they then try to grow beyond Sabine Pass and Corpus Christi.”
It was also noted that the company is striving to reach investment-grade debt, with it being “no secret that their debt burden is extremely heavy”. This is a huge drag on profitability, the specialist said. “The risk of default is… on the low side, but the fact that it’s just a large amount of debt and the risk there is the fact that your facilities, and your two big ones, are just basically one hurricane away from having a really serious threat of default.”
To access all the human insights in Third Bridge Forum’s Cheniere Energy – LNG export dynamics & project developments Interview, click here to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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