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Morningstar | Cheniere Should Benefit From Higher Chinese Demand for LNG in the Coming Years

Cheniere is well positioned to be the exporter of the incremental LNG supplied to the global market over the next few years, particularly as demand ramps up from China. Cheniere should have 31 to 34 million tonnes per annum on line in 2020 and 40 to 44 million tonnes per annum online in 2022. We expect the bulk of Chinese LNG demand growth to be met by U.S. gas supply, given our marginal long-term forecast of $3 per thousand cubic feet for U.S. gas, and the U.S.'s ability to increase gas and therefore LNG supply significantly. That said, volatility in the market should provide ample opportunities for Cheniere to take advantage of wide LNG differentials at different hubs around the world, given its access to growing U.S. supply and the very stable cash flows brought in by its Sabine Pass and Corpus Christi trains.Cheniere is ready to add more capacity as opportunities arise with an expansion being reviewed by the Federal Energy Regulatory Commission (FERC). The FERC application is for Cheniere's effort to develop smaller and more modular trains that might be more easily contracted and constructed and consists of four trains with 9.5 mtpa of capacity. We think the wave of cash becoming available in 2020 is more likely to be devoted to higher distributions and dividends as well as funding expansion efforts. We think one of Cheniere’s best moves at the moment would be seeking additional 15- to 20-year marketing contracts with utilities or gas traders, such as its recent 15-year agreement with a Chilean power plant to supply its LNG. These types of efforts diversify the company away from a potential overreliance on Asian LNG demand. However, we expect competition to be fairly fierce for these types of development efforts, as the integrated majors with exposure to LNG have been operating in many of these new countries for decades and may already have the relationships in place.