Cheniere's Train Is Fully Gassed Up

| About: Cheniere Energy, (LNG)
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The only American company that has received an LNG export license, Cheniere Energy (NYSEMKT:LNG), has now filed an application with the Federal Energy Regulatory Commission and the U.S. Department of Energy (DoE) as it moves towards developing a fifth and sixth processing unit - known as 'trains' to expand the terminal's capacity. The company is capitalizing from the decline in natural gas prices in the U.S. The company now has enough buyers from Asia and Europe lined up to keep six trains operating near full capacity. This is putting Cheniere in the position of having to continue taking on debt to fund future revenue streams.

With the two new trains, Cheniere now wants to increase its export capacity by 9 million metric tons. The company has also filed a separate application to supply LNG from the two new trains to countries that hold and do not hold a free trade agreement [FTA] with the U.S., something that is still a bit of a political football up on Capitol Hill.

The Sabine Pass, La terminal has created quite a stir in the industry, as it is the only place from which American LNG can be exported to countries that do not have a free trade agreement with the U.S. The terminal was originally designed to import LNG, but with the shale gas boom creating a massive and structural glut, it became feasible for US gas producers to start exporting the commodity at a higher prices overseas. Cheniere is the sole owner of Sabine Pass and has created a publicly traded partnership Cheniere Energy Partners (NYSEMKT:CQP) whose wholly owned subsidiary Sabine Pass LNG owns and operates the terminal.

Because of this Cheniere Energy had first mover advantage while its rivals, including Exxon Mobil (NYSE:XOM) are awaiting government's approval to do something similar - convert an import terminal into an export one - which now has them several years behind Cheniere. Moreover, the issue of LNG export is itself facing stiff opposition in Washington D.C. - both political expediency as well as the belief in energy security -- which could delay the approval process for years. While this works to Cheniere's advantage at some level, it does place doubt on the approval for trains 5 and 6. However, Cheniere is pleased with the Obama administration, as its CEO Charif Souki has recently told reporters that the President and his staff have done a "very good job" with regards to LNG exports. Read into that what you will.

On 17th December, it signed a sale and purchase agreement for LNG from the fifth train with Total S.A (NYSE:TOT) for a period of two decades. The current application process can take several months, if not longer. The company has once again reiterated that it is on track to start exporting LNG from the terminal by the end of 2015. Work on the first two trains is now 20% complete. Cheniere has signed a 20 year contract to supply 4.2 million metric tons annually (mmtpa) from Train-1 to a subsidiary of BG Group (OTCQX:BRGYY). Besides Total and BG Group, Cheniere has also signed supply contracts with Spain based Gas Natural Fenosa, Korea Gas Corp and India's GAIL. Aside from Total, all other contracts are related to the first four trains for which Cheniere already has the DoE's export authorization.

Definitive commercial agreements

Trains 1, 2

Trains 3, 4

Trains 5, 6

BG Gulf Coast LNG, LLC

4.2 mmtpa

1.3 mmtpa

Gas Natural Fenosa

3.5 mmtpa

Korea Gas Corp

3.5 mmtpa

GAIL (India) Ltd.

3.5 mmtpa

Total Gas & Power N.A.

2.0 mmtpa

A project consisting of three trains, the Corpus Christi Liquefaction facility, with a total capacity of 15 mmpta is also in the pipeline. Cheniere is expected to give cost estimates by the second half of 2013. The important milestones that the company has so far achieved for all 9 trains are given in the table below.

Trains 1, 2

Trains 3, 4

Trains 5, 6

CCL Trains 1-3

DOE export authorization



Initiating Filings 1H13

Received - FTA;

Pending Non-FTA

Commercial Agreements

7.7 mmtpa

8.3 mmtpa

2.0 mmtpa


FERC authorization



Initiating Filings H1-2013


Commence operations





As the company gears up the development work on these trains, it has reported widening losses in its most recent quarterly filings for the period ending 31st December. Cheniere Energy's quarterly revenues fell by 7.12% to $67.4 million as LNG pipeline operating expenses more than doubled from $10.08 million in Q4-2011 to $20.47 million in Q4-2012. As a result, the company's loss widened by 63.2% to $94.32 million. Similarly Cheniere Energy Partners also reported widening losses due to increased development work and early extinguishment of debt which cost $42.58 million. The partnership recorded losses of $63.52 million, up from $7.46 million a year ago, while total revenues dropped by 5.0% to $67.3 million. The company's adjusted loss came in at $0.06 per share.

But the near term operations is not what is important. It is the contractual revenue coming from all of that pre-sold gas into a market desperate for it. Cheniere is a growth play and as such, until someone else is granted an export license looks to be the only player to be able to grab the enormous arbitrage that exists between U.S. and Asian LNG prices. Until a trading hub is established in for the Asia-Pacific region - and the likeliest candidate at this point is Singapore - this arbitrage will remain wide and underwrite Cheniere's operating losses.



Stock 6M



Market Cap

$4.72 Bn

$7.38 Bn










Op Margin









In the last six months, Cheniere Energy's stock LNG has been up by a massive 46.0% while its listed partnership CQP is down by 5.22%. Since CQP is a master limited partnership [MLP], whose general partner is Cheniere Energy Partners GP, LLC it throws off an attractive yield of 7%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.