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Morningstar | Cheniere Reports Strong 3Q; Moves Forward on Sabine Pass Train 6

The Cheniere entities reported a strong third quarter, thanks to higher levels of LNG production, and we plan to boost our fair value estimates modestly (a few dollars) to reflect the addition of Train 6 to our model while keeping our wide moat ratings unchanged. As Cheniere gains experience operating its trains, it has been able to find ways to debottleneck production at a very low cost ($300 a ton) and optimize maintenance to increasingly take boost production up to and beyond the plants' nameplate capacity. Cheniere now believes it can operate its trains in a range of 4.4-4.9 million tons per year from 4.3-4.6 million tons annually. These efforts have led the firm to boost its 2018 EBITDA to a midpoint of $2.5 billion, above our $2.4 billion expectation. 2019's midpoint guidance of $3.05 billion matches our expectations.

Cheniere also announced that it will go forward with a limited notice to proceed to Bechtel for the Sabine Pass Train 6 in preparation for a final investment decision. The just-signed 24-year contract with the Polish state-owned company, Polskie Gornictwo Naftowe, for 1.45 million tons per year with deliveries starting in 2019 was a key contributor, in our view. Other recent contracts with CPC Corporation, Taiwan, and Vitol for another 2.7 million tons per year in LNG in the past few months were also valuable. Demand from China, which has accounted for about 50% of incremental LNG demand to date in 2018, continues to be very strong and aligns with our long-term forecast for China's LNG demand being well above consensus expectations.

Please see our Energy Observer, "China Oil & Gas Demand: Above-Consensus Forecasts for Medium-Term Growth, But Electric Vehicles Loom Large for Oil" for more on our Chinese oil and gas demand forecasts.