Earnings Call: Q2 2021

Aug 5, 2021

Good day, and welcome to the Cheniere Energy, Inc. 2nd Quarter 2021 Earnings Call and Webcast. Today's conference is being recorded. At this time, I will turn the conference over to Randy Bahia, Vice President of Investor Relations. Please go ahead. Thank you, operator. Good morning, everyone, and welcome to Cheniere's Q2 2021 earnings conference call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me this morning are Jack Jack Fusco, Cheniere's President and CEO Anatol Fagan, Executive Vice President and Chief Commercial Officer and Zach Davis, Senior Vice President and CFO. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward looking statements, and actual results could differ materially from what is described in these statements. Slide 2 of our presentation contains a discussion of those forward looking statements and associated risks. In addition, we may include references to certain non GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP measure can be found in the appendix to the slide presentation. As part of our discussion of Cheniere's results, today's call may also include selective financial information and results for Cheniere Energy Partners LP or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy, Inc. The call agenda is shown on Slide 3. Jack will begin with operating and financial highlights. Anatol will then provide an update on the LNG market and Zach will review our financial results and guidance. After prepared remarks, we will open the call for Q and A. I will now turn the call over to Jack Fusco, Cheniere's President and CEO. 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 results from the Q2 and our increased financial guidance for the full year 2021. Please turn to Slide 5, where I will review some key operational and financial highlights from the Q2. The Q2 was an extremely productive one for us as we achieved milestones across the enterprise in origination, marketing, operations and engineering and construction, just to name a few. Global LNG market fundamentals continue to be extremely constructive and we have begun to see the return of long term LNG contracts in support of the construction of new liquefaction capacity. For the Q2, we generated consolidated adjusted EBITDA of $1,023,000,000 and distributable cash flow of approximately $340,000,000 on revenue of over $3,000,000,000 We generated a net loss of approximately $329,000,000 due primarily to the unrealized derivative accounting treatment required on our hedges and on our integrated production marketing or IPM transactions, which Zach will discuss in more detail in a few minutes. For the 3rd consecutive quarter, We're raising our full year 2021 financial guidance. We now forecast 2021 consolidated adjusted EBITDA of $4,600,000,000 to $4,900,000,000 and distributable cash flow of $1,800,000,000 to $2,100,000,000 This increase in guidance is being driven by a number of factors. First, the continued strengthening of the LNG market is yielding higher netbacks on open volumes. For context, since our Q1 earnings call in May, spot margins for 2021 doubled And our portfolio optimization team has been able to capitalize on that with our open volumes. In addition, we've been able to further unlock some additional production for the second half of the year, primarily through maintenance optimization, which has contributed to an upwardly revised production forecast. And lastly, with Henry Hub moving higher over the past quarter, we make some additional lifting margin. So our outlook for the balance of 2021 has improved again based on a very strong LNG market and our very strong operational performance. The fundamentals present in the LNG market are as good or better than at any time since I've been at Cheniere. Anatol will cover the market in more detail in a few minutes, but market dynamics on both the supply side and demand side continue to move in our favor and support our conviction in the long term growth prospects for natural gas worldwide. Just after the quarter ended, we signed our 3rd IPM agreement in support of Corpus Christi Stage 3, This time with Tourmaline, the largest natural gas producer in Canada. This transaction progresses our commercialization efforts on a shovel ready Stage 3 expansion project and helps validate our view of a constructive macro backdrop for long term contracts. In addition, it reinforces Cheniere's record of executing collaborative innovative solutions to meet the needs of our customers. We will continue to leverage our infrastructure platform and commercial advantages to further progress Stage 3 towards FID. During the Q2, we continue to have meaningful success Under our midterm strategy, placing portfolio volumes into the market under various commercial agreements an increase in the percentage of our total volume that is contracted. So far in 2021, we've entered into fixed fee sales agreements for portfolio volumes with multiple counterparties aggregating approximately 12,000,000 tons of LNG volume between this year and 2,032 in addition to the IPM deal with Tourmaline. The success of this midterm strategy underscores the strength in the LNG market today and the strategic competitive advantage of our portfolio volumes. We'll continue to place these flexible volumes in the market, tailoring solutions to meet the growing requirements of LNG customers worldwide. On the production side, the record we set in the Q1 for LNG exports didn't stand very long as we broke that record in the 2nd quarter with 139 cargoes of LNG exported from our 2 facilities. Year to date Asia is our top destination of Cheniere cargoes with approximately 45% of our cargoes exported having landed in Asia, followed by Europe with roughly 35% and Latin America with about 20%. South Korea and China are the top 2 countries importing our LNG so far this year and those 2 alone account for over a quarter of all cargo deliveries. Our operations and maintenance teams at both Sabine Pass and Corpus Christi have done an exceptional job thus far in 2021, managing our operating plans to maximize asset availability and LNG production at our facilities, enabling us to increase our production forecast for the year, all while ramping Corpus Christi Train 3 to full rates and stable operations quickly and safely. We look forward to the same performance with the addition of Sabine Pass Train 6 early next year. Speaking of Train 6, a significant milestone was met last month with the introduction of fuel gas into the train, signaling the start of early commissioning activities. At the site, 17 systems were turned over to the startup team In June, another 12 in July. With the project approximately 90% complete, Bechtel continues to progress this project against an accelerated schedule. Turn now to Slide 6, while I provide a brief review of Stage 3 in the Corpus Christi site overall as the Stage 3 project comes into focus with our recent commercial momentum and the constructive market we are in. As a reminder, our Stage 3 project at Corpus Christi is fully permitted and if fully constructed would have over 10,000,000 tons of LNG capacity per year. Stage 3 enjoys brownfield project economics as it will utilize a significant amount of shared infrastructure constructed as part of Trains 1 through 3, which we believe makes Stage 3 very cost competitive LNG capacity addition. As for the path to FID, We have said this before, we will maintain our discipline to help ensure that the risk and return profile of Stage 3 is consistent with that of the first nine trains we've built. To that end, our origination team is focused on commercializing additional capacity from the project and we are working closely with Bechtel on finalizing the EPC We remain committed to our growth capital investment parameters, which help ensure discipline in our capital investment decisions and the sanctioning of projects only when they meet the high standard we have set for all FIDs to date. Our excitement around the potential investment opportunities at the Corpus Christi site doesn't end with Stage 3. As you may recall, we have acquired approximately 500 acres adjacent to our existing site, which provides us with a platform for major future development potential. Any future capacity developed at this site may be designed to leverage the infrastructure already in place to provide substantial cost advantages. As you can see from the aerial view of the land position at Corpus Christi, the site possesses Substantial running room for growth well beyond Stage 3, and we may develop additional infrastructure there over time, especially as Stage 3 moves closer to FID. Turn now to Slide 7. Last month, we were proud to publish our 2nd annual corporate responsibility report entitled Built for the Challenge. This report, the product of a deep cross functional effort across the entire company, provides insight into key actions taken by Cheniere to ensure business resiliency in 2020 and beyond and is the latest example of our transparency on ESG related issues and how we are building sustainability into our business model. Built for the challenge is the latest milestone in our ESG journey, which has seen tremendous progress in 2021. Highlights of achievements reached thus far through 2021 include the announcement of our cargo and mission tags, The climate scenario analysis we published, our first carbon neutral LNG cargo we announced last quarter, Our participation in the first ever study to measure methane emissions on an LNG carrier and our collaboration with leading academic institutions and several of our upstream natural gas suppliers to implement QMRV of greenhouse gas emissions performance at natural gas production sites across several bases. And finally, earlier today, we announced the publication of our peer reviewed Greenhouse Gas Lifecycle Assessment or LCA, which utilizes greenhouse gas emissions data specific to our LNG supply and will be the foundational analytical tool to estimate greenhouse gas emissions to be included in our CE tags that we provide our customers. The items highlighted on this slide are all steps on a continuous path, and we look forward to leading our industry forward in this area, helping to ensure the long term sustainability of natural gas and helping all participants along the LNG value chain realize the full environmental benefits of our LNG. With that, I'll turn the call over to Anatol, who will provide some more details on recent LNG market developments. Thanks, Jack, and good morning, everyone. Please turn to Slide 9. Globally, the pace of recovery in LNG markets from the COVID related lows has exceeded most Expectations, especially when looking at demand growth in the Q4 of 2020 through the Q1 of 2021. This trend continued in the 2nd quarter with not only meaningful growth over the same period in 2020, but also notably well above the 5 year range, supporting Our constructive market views on 2021 and subsequent years. We continue to see a fundamentally tight market over the next several years, breaking the trend for seasonal demand norms even with rebounding LNG supply. As reflected by the historically high LNG prices in both Europe and Asia, Markets remain tight through this past winter with global LNG demand growing by 9% year over year in the second quarter, slightly surpassing the 4th quarter demand levels, despite the 2nd quarter historically being a shoulder period in the market. Asia and Europe exited spring with sizable storage deficits as the cold winter in Asia and a colder than normal spring in Europe intensified the inter basin competition for LNG supply. Asia and Europe's robust demand caused spreads between the two regions to narrow with European netbacks even surpassing those in Asia in order to attract imports amid insufficient LNG supply availability in Q2. Global LNG production rebounded 8% year over year in Q2, primarily on U. S. Volume growing 80% compared to last year when customers were exercising their cargo cancellation rights. Through the first half of the year, U. S. LNG production is up 43% year over year, approximately 35,000,000 tons. However, non U. S. Volumes have lagged more than expected during most of 2021 so far and remained below 2020 levels in June. These non U. S. Volumes were impacted by feed gas constraints in Trinidad and maintenance and outages in North Africa and other LNG producing regions. Consequently, less LNG flowed to Europe year over year as it competed for cargoes with Asia and Latin America. Overall, U. S. LNG flows to Asia increased over 10% in the first half of twenty twenty one to 48% of total U. S. Exports compared to 38% in the first half of twenty twenty. Meanwhile, flows to Europe dropped over 15 percentage points from 51% to 34% year over year, coinciding with natural gas storage inventories again at multiyear lows. Please turn to Slide 10, where I'll provide additional insight into the regional dynamics of the market. In Europe, weather driven demand supported the gas market well into the injection High carbon prices and low wind generation in June further lifted European gas demand for power generation. However, upstream maintenance across Northwest Europe, flat Russian gas pipeline flows and lower LNG imports kept the market tight and storage inventories deficit relative to historic norms. LNG flows into Europe were 9% or roughly 2,100,000 tons lower year on year in Q2 as a result of tight global LNG supply balances. European inventories currently stand at record low levels with a 16 BCM deficit to the 5 year average, which is equivalent to roughly 170 LNG cargoes. These supply and demand dynamics were reflected in European gas prices during the 2nd quarter, With Dutch TTF settlement averages increasing by over $6 an MMBtu to $7.82 an MMBtu, an almost 3 50% increase year over year. This average was higher than JKM as the basins competed for import volumes. Similarly, in Asia, the continued call on LNG imports to satisfy growing natural gas demand was driven by an early start to the summer, A surge in economic recovery and industrial activity in China along with heavy nuclear maintenance in Korea. Jack mentioned a moment ago that Korea and China alone imported over 25% of all our LNG production year to date. Asia imported 65,000,000 tons of LNG in the 2nd quarter, an increase of 8,000,000 tons or 14% year on year. The JKT region contributed over 20% of that growth despite higher nuclear availability in Japan. 10 nuclear units have restarted in Japan as of July 21, the highest number of operating units since the Fukushima disaster over a decade ago. Japan's nuclear availability was offset by and has a stated goal to become nuclear free by 2025. So this should continue to support the LNG market in the region for years to come. The majority of growth in Asian LNG demand, however, came from Mainland China. Imports in China surged 22% to 20,000,000 tons in the 2nd quarter, making China the largest LNG importer on a global basis, surpassing Japan. LNG imports were supported by hotter than normal weather in South China, rising industrial gas demand and increased power sector demand amid low hydro levels. In addition to Asia and Europe, We saw a notable uptick in Latin American demand as Brazil's imports reached multiyear highs due to severe drought conditions and the resulting lack of hydropower. Latin America's imports increased more than 70% year on year in the second quarter with Cheniere produced cargoes making up nearly 40% of total imports. Flows into Latin America represented 17% of total U. S. Exports, increasing over 5% from the comparable 2020 period. Clearly, both near term and long term dynamics in the LNG market provide a highly constructive backdrop for us to execute on our short, medium and long term LNG origination strategies. With highly flexible portfolio volumes available today and cost competitive brownfield incremental capacity We are actively commercializing. We possess an ideal platform to meet the growing and evolving needs of LNG customers worldwide. Now turn to Slide 11. As natural gas solidifies its place as a foundational fuel in the global transition to lower carbon energy sources, LNG consumers and producers are seeking to optimize the environmental performance of LNG throughout the value chain. Jack reviewed some of the recent steps that we We continue to take as part of a broader strategy focused on data and transparency through the LNG lifecycle, with the ultimate goal of emissions abatement in order maximize the climate benefits of our LNG for all. The growing focus on environmental stewardship and performance is beginning to be reflected in pricing mechanics for energy. In the European Union, carbon prices reached all time highs in the 2nd quarter, reaching over €55 per ton during the quarter and continuing higher to nearly €60 per ton were roughly $3.50 an MMBtu equivalent in early July. Industry commentators view the growth and increased liquidity in the emissions trading market to While Europe is by far the most active market for exchange traded carbon allowances, we're seeing increased activity in other parts of the world as well, especially Asia. China recently launched its own national emissions trading market, making it the largest carbon market in the world at its onset. We believe other markets will follow this trend as progress on climate action will continue to buoy demand for cleaner burning fuels. This is relevant to Cheniere and the LNG market as the appetite for carbon neutral LNG is increasing and carbon offsets are a necessary tool in certifying cargoes as carbon neutral. While this market is nascent today, as of mid July, there were 12 carbon neutral LNG cargoes in 2021 globally. There is significant interest in these offerings among both buyers and sellers. Given our size, scale and progress to date, Leading on data driven environmental transparency and performance and some of the other efforts Jack highlighted, Cheniere expects to play a prominent role in this regard From our life cycle analysis and the cargo emission tags and our QMRV collaboration, we aim to offer increased environmental transparency, while providing low emission solutions and competitively structured products for our buyers. Thank you all for your time. I'll now turn the call over to Zach, who will review our financial results and guidance. Thanks, Anatol, and good morning, everyone. I'm pleased to be here today to review our Q2 financial results and our increased full year 2021 guidance. Turning to Slide 13. For the Q2, we generated revenue of approximately $3,000,000,000 consolidated adjusted EBITDA of approximately $1,000,000,000 distributable cash flow of approximately $340,000,000 and a net loss of $329,000,000 As Jack mentioned, our results for the quarter were negatively impacted by the accounting treatment for our derivative instruments, which includes our IPM agreements. As we have discussed in prior quarters, our IPM agreements, certain gas supply agreements and certain forward sales of LNG as movements occur in the underlying forward commodity curves. This accounting treatment, coupled with significant volumes, Long term duration and volatility in price basis for certain contracts, most notably our IPM agreements, will result in fluctuations in fair market value from period to period. While operationally, we seek to eliminate commodity risk by matching our natural gas purchases and Our long term LNG SBAs do not currently qualify for mark to market accounting, meaning that the fair market value impact of only one side of the transaction is often recognized on our financial statements until the sale of LNG occurs. The unfavorable pretax impact from changes in the fair value of our commodity and FX derivatives during Q2 2021 was approximately $672,000,000 most of which was noncash, but was the primary driver of our recognized net loss for the Q2. For the Q2, we recognized in income 5.22 TBtu of physical LNG, including 50 8 TBtu from our projects and 14 TBtu from 3rd parties. Approximately 80% of these LNG volumes recognized in income were stalled under long term SBAs or from volumes procured under our IPM agreement. We received no cargo cancellations and had no impact to revenue recognition timing related to cargo cancellations in the 2nd quarter. We received $36,000,000 related to sales of commissioning cargoes in the Q2 from LNG, which was in transit at the end of the Q1, corresponding to 6 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 the delivery of those cargoes. As you may recall, we established Debt reduction for 2021 to pay down at least $500,000,000 of outstanding debt. During the Q2, we fully repaid the remaining outstanding borrowings under Cheniere's term loan and fully repaid Cheniere's convertible notes due May 2021, with $500,000,000 of cash on hand and the remainder about $130,000,000 from borrowings under the CEI revolver. So as of June 30, we have already achieved our minimum full year goal of $500,000,000 in debt reduction. With our cash flow profile only improving in the back half of the year, we are poised to exceed that amount this year, along with broadening out our capital allocation plans. Continuing with the balance sheet management. Since our last call, we have locked in a further $200,000,000 of long term amortizing fixed rate notes at SBL on a private placement basis with multiple counterparties. Year to date, we have locked in approximately $347,000,000 of such notes, which will fund on a delayed draw basis in late 2021 and will economically refinance a portion of SBL's outstanding 6.25% notes through 2022. This continued progress on prudently managing the balance sheets Through the Cheniere structure, which goes hand in hand with our efforts on execution and operational performance, was once again recognized by the credit rating agencies during the Q2 as S and P Global Ratings changed the outlook on the credit ratings of both Cheniere and CQP to positive from negative as we mentioned on the May call. S and P cited the EBITDA and cash flow growth resulting from the successful completion of 8 trains, the accelerated schedule of Train 6 and the expectation of significant improvement in leverage levels over the next 2 years as we execute on our stated deleveraging plans. Jack and Anatol have both discussed the success we've had so far in 2021 on marketing and origination, with 12,000,000 tons of midterm deals done as well as the recent 15 year Tourmaline IPM transaction. The execution of these transactions not only Stage 3 integrated focus, but also supports our long term balance sheet management priorities by bringing significantly increased cash flow visibility out into the 2030s given the fixed fees that have always been the bedrock of our commercial strategy. Aggregating the midterm and IPM transactions we've completed year to date, we have sold approximately 25,000,000 tons of LNG, which will generate over $3,000,000,000 in fixed fees into the next decade, which clearly has de risked our cash flows further. Turn now to Slide 14. As previously mentioned, today we are increasing our guidance ranges for full year 2021 consolidated adjusted EBITDA distributable cash flow by $300,000,000 $200,000,000 respectively, bringing total increases to $700,000,000 600,000,000 $4,600,000,000 to $4,900,000,000 in consolidated adjusted EBITDA and $1,800,000,000 to $2,100,000,000 in distributable cash flow. Today's increase in guidance is largely driven by the continued improvement in global LNG market pricing and our ability to capture higher netbacks on our open portfolio volume. Our production forecast we have again revised upward due primarily to maintenance optimization and lastly some added lifting margin due to higher Henry Hub prices. DCF guidance isn't moving up quite as much as EBITDA guidance due to some incremental EBITDA accruing at CQP and SBL, where we have accelerated capital spend at Sabine since Train 6 is ahead of schedule. So we expect to realize the benefits over time in DCF as CQP's distributions increase further in the coming years once fully operational. When we updated guidance on the last call, one of the primary drivers was In market margins from approximately $2 in February to approximately $3 in May. Since then, that margin has gone up by another over $3 and our production forecast has increased as well. The incremental volume that's been added to the production forecast is all in the 3rd and 4th quarters. And although it's single digit number of cargoes in terms of quantity, the impact on the financial forecast is meaningful with netbacks where they are. We currently forecast that dollar change in market margin would impact EBITDA by less than $25,000,000 for the rest of the full year 2021. As we have now sold almost all of our production for the remainder of the year, we would only provide another update if that were to change materially. As well, given the little remaining exposure to the market we have, we are confident in our ability to deliver results within these upwardly revised guidance ranges for the full year. While we don't guide to free cash flow, for over a year now, we have described 2021 as Cheniere's free cash flow inflection point During 2021, we forecasted free cash flow at around $1,000,000,000 for the year. As DCF guidance has moved up $600,000,000 in the subsequent 6 months, it's reasonable to think our FCF forecast has moved up largely in lockstep with DCF, so over $1,500,000,000 This incremental cash flow puts us in a great position from a capital allocation perspective, especially as we work to finalize our comprehensive capital allocation strategy and framework. With that process nearing completion, we expect to be able to provide that to you in the coming months and before the 3Q earnings call in early November, where we will provide you with a first look at 2022 guidance. 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. Thank and one follow-up. If you have additional questions, you may reenter the queue. We will now pause for just one moment. Our first question comes from Michael Lapides from Goldman Sachs. Please go ahead. Hey guys, thank you for taking my question. Congrats on a really good first half of the year so far. This one may be for Anatol. Just two things. 1, how are you thinking about the changes in contract structures that you're seeing in the market? We've seen some other North American LNG players announced deals that are priced at basically a sliding scale tied to JKM. Just curious, when you're thinking about what the market is going to do for new contracts, is your thought that it's still an SPA As in kind of fixed fee driven type of market or do you think it's going to go to more of a variable type fee structure for future deals? Thanks, Michael. Good morning. In short, the market is growing, maturing and we expect To see all of the above in greater quantities. We're in the camp that the traditional SPAs long term are part Parcel of this business is required for us, for example, to commit capital. And we think that our commercial creativity is one of our main calling cards, right? We introduced the IPM business now over 2 years ago and that's a business where The producer gets exposure to those international indices. We collect our fixed fee and the producer Fast allows for that commodity exposure to fast food there to their underlying resource. So We think all of this stuff is part and parcel of the business going forward. You'll see traditional SPAs and you'll see, As we mentioned, a lot more midterm business from us that we've been so successful with since we launched it less than a year ago. Got it. And then one quick follow-up on Stage 3. Just curious, how much more do you think you need to contract Before you think you're getting close to FID. Hey, Michael, I just wanted to add a little bit to Anatol's Answer to your question and then we'll talk about Stage 3. So I would say, we're in the catbird seat. We have a great position. We're able to offer solutions for customers. We've been very successful on offering short term, mid term contracts to those customers that want those that we don't use to grow the business. We're not in the FID business. We're in the making money business. So we're staying extremely financially disciplined on our next expansion project, just like we have on the First 9. But I'll turn it over to Zach to talk more specifics on Stage 3. Sure. Hey, Michael. So I'll just start off by saying last November, Jack mentioned that we were around 85% contracted. And at this point, we're 90% with all the work that the marketing team has done. And when you think about 90% on a 45,000,000 ton book. That's a little over 40,000,000 ton are contracted at this point. So we're actually pretty darn close to considering FID of Stage 3 and why we're so confident about doing that next year. But as noted, as Jack mentioned, it's All about our disciplined approach to just major capital investments, meaning it's not just about the volume, but about the returns on both the levered and unlevered basis from a highly contracted cash flow. So that when we sanction a project, it's value and credit accretive and the very, very best use of our cash. But with that all in mind, it is around, let's say, 4 or so MTPA of additional contracting to underpin all of Stage 3, ensure our run rate contracted capacity remains in that 80% to 90% range even at FID and of course all the investment parameters are met. So again, we're pretty confident that 2022 could be a big year for us. Got it. Thank you, guys. Much appreciated. Michael. The next question comes from Brian Radulance from UBS. Please go ahead. Hi, good morning, everyone. This is Ryan on for Shneur. I appreciate all the color on the $300,000,000 guidance range. Just curious if you could provide a little bit more color on the changes between 1Q and 2Q guidance. In your prepared remarks, you talked about the maintenance optimization. I was just kind of curious how much capacity Cheniere was actually able to free up at these attractive spot margins. I know you talk about a dollar change in marketing margin 25% has been EBITDA impact, but was just kind of curious if you could provide a little bit more color behind all the drivers in the guidance range of $300,000,000 Thanks. Thanks, Brian. And I have to say, I'm so pleased with our operations and maintenance personnel and Our maintenance schedules and take advantage of what seems to be a very high priced LNG market right now. But as far as the details of how it breaks down, I'll turn that over to Zach. Sure. Hey, Brian. So the $300,000,000 upward move in the guidance is pretty simple. It's three things. It's higher netbacks, a bit more production and better lifting margin. But to be clear, higher margins on the open capacity and some additional production where the vast majority of the guidance range. So with the dramatic rise in CMI netbacks since early May from literally just under $3 to Over $6 today for the rest of the year. And with that 40 TBtu previously opened, that added almost $150,000,000 of that raise. Then combine that with another, let's say, 4 or so cargoes from opportunistically managing maintenance for the rest of the year to take advantage of these current market conditions and that added alone another $100,000,000 And the rest with just Higher Henry Hub prices for the rest of the year as we expect to literally lift every last drop of LNG, lifting margin made up most of the rest and that simply gets you $300,000,000 or so. Great. Appreciate all that color. Maybe to pivot to capital allocation and just a follow-up on CCL Stage 3 seems to suggest that you're close to FID at this point, if you can get the necessary contracts. Just in the overall scheme of things, with the Desire to become IG and with recent positive outlooks of the credit agencies, how does growth and leverage reduction effectively impact your desire around buybacks and dividend initiation at this point? Thanks. Sure. I mean, put it this way, we're going to have $3,000,000,000 of DCF per year. And now with how the markets have improved and the curves have improved around $13,000,000,000 of available cash through 2025. And the equity check for something like Stage 3, which let's say it's around the mid-three billion dollars range for the whole thing is only about $800,000,000 per year once funded fifty-fifty with debt and equity pro rata over time. So as you can see in the results, we're pretty much at a point in our life cycle where we can undertake A project with the scale of Stage 3 and not be limited whatsoever from also meeting all of our balance sheet and shareholder capital return goals over the coming years. So nothing is really holding us back at this point. Great. Appreciate the color and congrats on the quarter. Have a good day. Right. Our next question comes from Jeremy Tonet from JPMorgan. Please go ahead. Hi, good morning. Good morning, Jeremy. Just wanted to pick up with the market outlook a little bit more. The Q2 last year, spot LNG, couple of bucks. Now LNG price is comfortably trading above high teens For winter and seasonally high spot rates right now. And I'm just kind of wondering based on carbon prices and structural demand shift, How do you think about, I guess, the pricing dynamic today? Has it changed? Or where do you see us in the cycle? And I guess, How that could impact, I guess, appetite for contracting? Well, I'll start and I'll hand it over to Anatol. The increased volatility and the higher prices just Bring more and more customers to want to lock in their energy costs naturally and reduce the Volatility to their customer base. So as you know, Jeremy, we focused on selling to end users. We sell most of our product to utilities around the world and They need it. And as more and more of these countries try to meet their climate goals and clean up their air, Especially in and around Asia, you're seeing the demand for natgas and the demand for LNG rise fairly significantly and much greater than what was in any of our models initially. But I'll turn it over to Anatol. Yes. Thanks, Jack. Thanks, Jeremy. We've been fairly bullish on the market in the first half of this decade and saw 2021 is a transition year. As we've touched on previous calls, it transitioned faster than we expected kind of across the board. Asia's This rebound and demand growth and all of this investment that we saw in gas infrastructure and LNG infrastructure and demand is playing out arguably faster than we expected. And in the aggregate, U. S. Came to the rescue second half of last year and the first half of this year with additional volumes, but now everything is online, obviously. We and everyone else are trying as hard as Possible to bring this volume to market and the market is still tight, right? Demand exceeded supply in Q2, which is why you saw The storage dynamics and the pricing dynamics that you mentioned, and we are only entering this phase of the market. As Jack said, this is the first time that In his tenure at Cheniere that he's in the bull part of the cycle for the sellers and long term and mid term are accelerating as a result, right? It's not a surprise to anyone that this is playing out, but it is playing out a little bit faster. And Zach mentioned, our comfort level with 2022 is that much higher. The other important component that you touched on, On the carbon side, and this is why the journey to get this LCA product out that we announced this morning was so important. We are highly confident that we have a very low profile, low emissions profile product that will be major contributor to emissions reductions in Europe, Asia and everywhere that we structurally deliver our product into. So There's a mention of a case study in there that shows that our product reduces emissions by about 50% when displacing coal in China. And that is a great starting point on this journey that we've announced this morning. So very optimistic about the structure of Market and our ability to offer these solutions both economically and environmentally. Got it. So it seems like price of carbon could lift the LNG market may be there. And maybe just kind of building on that last point a bit more, you announced this collaboration with natural gas suppliers and academic institutions to Improve emissions monitoring. Just wondering what you're learning here. I think you touched on some of the points here, but just wondering, it Seems like the market is going in this direction. Do you see any other kind of low hanging fruit for Schneer here? Some that are looking to compete with you have Introduce CCUS strategies, do you think that's where the market's going overall? Look, I think The pathway to the energy transition is a very, very long road and it's going to need some of everything, a lot of everything that we can develop today and 20 years from now. We embarked upon the journey back in 2018. We've spent well over the last 3 years Working on a company specific life cycle analysis in LCA that we published recently with American Society of Chemical Engineers. But it's not our program has been very thoughtful and Very forward thinking and we're hoping to lead the industry into ensuring that our product is viewed as a sustainable provider of cleaner energy for the world. So that's what it's all leading to. The lifecycle analysis is Extremely important for us to be able to produce our cargo emission tags or our carbon footprint per cargo for our customers. So we can help them strategize on whether or not What type of offsets they would like to procure and the quantity of those offsets. So, I don't know, Anatol, you have anything to add on? No. Jeremy, as you mentioned, we're taking this leading role In developing these technologies and collaborating and creating the baseline from which improvements will be made over Time. We're starting off at a great point. That's much better than what had been assumed and what is the national average that is Out there and with all of these efforts with our producer partners and our downstream partners and of course at our own facility, As Jack said, we will continue to be laser focused on continuing to improve our emissions profile and we think that that's a key success factor as we compete in the energy transition. Got it. That's helpful. I'll leave it there. Thanks. Our next question comes from Matt Taylor from Tudor Pickering, Holt and Co. Please go ahead. Yes. Thanks for taking my question here. I wanted to keep going on that LTA theme there. My question once is going to focus on the costs. What are you guys seeing on a cost from a DTU basis for offering these cargo emissions tags? And then Sort of a follow on comment to that, do you see this being more of a niche type product where customers are willing to pay a premium for Those cargoes and offset those additional costs or do you just see this being the trend of where the market is going? The first one on the cost, so we're doing a lot of the work in house, Matt. The costs are born with our overall SG and A budgets and there's a slight amount of A little bit of capital dollars, but it's insignificant. It's more of the just the in house expertise on each of the different areas and our ability to help influence the market. And I'm actually looking at Corey Grendel, so on the supplier side to make sure that we're getting good data that we can Quantify, monitor, validate and report on that data and feel good that there's an auditable trail that we can stand behind both from our supplier side, from the midstream and processing folks through our own liquefaction treatment and then in shipping to our customers' docs. I do think the carbon emission tags are necessary For first, most of our European counterparts, they've applauded us for doing it. They've been buying offsets themselves and in most cases they're over buying those offsets. So we It's just a part of doing business that we need to be able to quantify What the carbon footprint is of those of each and every one of those tankers for our customer base. Whether or not eventually we get paid a premium for having a clean cargo, we'll see how that market develops. Right now, there's just a lot of work, a lot of spade work that has to get done before we feel comfortable with actually marketing and selling a product like that. Thanks for those comments, Jack. And then To finish off here, I know you don't have formal guidance for 2022 yet, but just how attractive margins like you're saying Zach have become and With Train 6 30 starting commissioning activities here in July, would you guys be able to provide some preliminary commentary on how you see earnings trending In 2022 versus your run rate guidance? Sure. I'll give you a little bit, but we plan to present that to you Really on the next call in November after we go through the 2022 budget process. But it's really going to come down to where margins are going to be for the winter and then just timing with how Train 6 commissioning comes along in the first half of the year. But at the right can SBL construction is going and With margins for 2022 right now above $6 for the winter and over $3 for the rest of next year, it's looking likely that EBITDA should be over $5,000,000,000 for 2022 if things don't move too much from here. So we're obviously getting closer and closer to run rate. Thanks, Jeff. That's it for me. Next question comes from Mike Webber from Webber Research. Please go ahead. Hey, good morning guys. How are you? Michael, how are you? Good. Jack, I liked your quote earlier, now that you're in the business of making money, not in the FID business, which is Relatively appropriate. So along those lines and then maybe it's a better question for Anatol. I'm curious how Term pricing, taking the netback deals kind of aside and because there is actually some term pricing deals that are getting done. Have we seen any kind of lifts in terms of term pricing dynamics right now, just given the ramp out of COVID and the kind of Homogeneous degree of supply slip, which we've been seeing. Are you getting any support in terms of where that long term SBA level actually sits? Yes, I would say thanks, Michael. We have a lot more appetite engagement traction. I mean, it was only 6, 9 months ago Where when there was a, I would say, a cadre of the industry that was thinking about remaining open for its Sort of fundamental requirements and relying on the spot market that started to fade a quarter after that. And I think that strategy has now been largely forgotten. So now it's about portfolio management, engaging and structuring a portfolio of midterm and long term volumes. And as a result of those conversations, the economics are Stabilizing and firming. And you've seen that relatively openly in the slopes that you see on the Brent side that's an easier one to track, where we've Yes. Come off those very low levels and obviously the economics are stabilizing now for 4 term commitments out of the NYMEX market as well. Got you. If I were to think about that I'm sorry, go ahead. It Depends on when it's going to begin also. So if you think about a term, is it CPed? If it's PP on a greenfield project and it's going to begin 5 years from now, it's probably priced at the marginal cost Of the next investment or the next train, right? And if it's like more like a Cheniere portfolio contract that can begin now or next year or any time for that matter, and then you should expect it to be priced at a higher level, right, for more certainty. Got you. And I guess my follow-up is how uniform you think that is over the broader market. So if I think about maybe the way you guys have priced term business as Kind of IG pricing versus the more aggressive pricing we've seen out of some greenfields, be it netback or not. Do you think that spread between IG term pricing in Greenfield is wider today than it was maybe this time last year or 6 months ago? Or is it being relatively consistent with I think the dramatic changes in that market in that spread played out probably 2 or 3 years ago. I Honestly, I don't have enough precision to tell you if that's moved around a bit. But as Jack said, there is a premium that the market will pay for And our track record in history, as well as for early volumes that are included in that, that obviously Greenfield can't provide. So I just don't have enough precision to give you a good answer on that. Fair enough. And then my follow-up for Zach actually just along the lines of some of the more variable rate deals that we've seen in the market, be they Direct netback deals are not. When you're talking to your lenders about those kind of deals, what kind of guidance do you get in terms of The makeup of a portfolio of a really financeable portfolio? And how should we think about what How should we think about the concentration of those kind of deals within a portfolio of business that is actually financeable? I think I'd just go back to what Jack said. 1st and foremost, we're here to create maximum value for LNG shareholders, Period. So it's not just about the next FID or signing a contract for the sake of FID to win some race for the lowest priced FID or the highest risk FID I mean, sorry, highest risk FBA. So So luckily with the funnel that Anatol and the team have, we think we're just going to be clipping fixed fees for a vast majority of our volume that will meet all of our investment parameters and it's going to be a mix of IPM, DES and FOB deals with each and every one with a creditworthy counterparty and fixed fees for a long, long time. We can't really speak to other business models. That's our business model and We're sticking to it. Yes. And I was curious whether you were getting feedback from your lenders around that, but I can take that offline. All right. Thanks, guys. Appreciate that. Thanks, Mike. Our next question comes from Ben Nolan from Stifel. Please go ahead. Yes, thanks. So I wanted to we'll start with probably an easy one. You talked about the 12,000,000 tons of midterm volume that you have committed over the next 11 years or Can you maybe get a sense of sort of what the average contract duration is for that portion? It's not that easy. Volume weighted, I would say it's just inside of 5 years would be my guess. Okay, that's helpful. Sorry, go ahead. I was just going to add when we're talking about those midterm deals, we didn't mention And all the deals we signed added about $3,000,000,000 of fixed fees through the early 2030s. But just thinking about how much derisking of our cash flows has just occurred over the past quarter, we now have locked in this year fixed fees for about 400,000,000 just in 2022 and comfortably over $1,500,000,000 through 2025. Just give you a perspective of How much has really been locked in, in the past quarter or so? That's great color. I appreciate that, Zach. And Maybe well, boy, I wish I had more than one. We'll stick with this one. So as you're looking at Stage 3 Corpus Christi, obviously Higher steel prices, labor inflation is happening all over the place. As it relates to Corpus Christi III and maybe just In general, expansion for you and anybody else, are you starting to see any inflation And the cost of projects that might necessitate pushing up margins a little bit in order to generate good returns? Thanks, Ben. And I have to say, we have a very strong relationship with Bechtel having completed Nine trains and 45,000,000 tons of liquefaction already. I have complete confidence in Bechtel that they can manage The project to its lowest capital costs out there. We haven't seen any inflationary environment at this point, but I'll turn it over to Zach and let him. Yes. Just to reiterate, we don't really see material risk on the cost side and we're actively pursuing all opportunities through really the end of this year to make it as price competitive as possible. But I'll just say we feel really good to meet all of those investment parameters based on the contracts we're seeing and just the synergies we have with Corpus Train 1 through 3. And that, let's say, approximately 6 times multiple On CapEx to EBITDA, it's still the right one, give or take for the full project. Perfect. I appreciate it. Thank you. Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead. Hey guys, I know we're getting to the top of the hour, so I'll make it quick. If I could just come back to the carbon question, especially if you think about some of the advantaged credits here, Can you talk a little bit more about the specific structuring on how you would take advantage of the 45Q or otherwise from a carbon neutrality perspective to the extent possible? And then separately, just how is relatively that positioned your expansion opportunities here vis a vis alternatives? Again, I gather that geography might be more amenable than others, but that's open ended here. Would love to hear on that. And then do you have any sensitivity you can speak to a little bit on the hedge position on 2018 to clarify the last question there? But I'll leave it there. Okay. So Julien, let me I think I heard your first part of your question was on Carbon and carbon sequestration and just on carbon in 45 years. So I had spent Weeks ago, I spent the week in Washington DC and I wouldn't tell anybody That 45Q, the $50 a ton is not going to cut the mustard for especially for post combustion carbon sequestration. It's not going to work. And there's nothing technically yet that is that economical to make that happen. We do sit on top of a very deep, very large saline aquifer That would be looks to be geologically a good spot to sequester carbon dioxide. Doing it though is a whole another challenge. So we're spending a lot of time and resources on categorizing everything that can possibly be done, Putting a price tag to it and trying to see if 45Q works, so far it doesn't. So I am remiss to say that I don't know why if I'm able to sequester a ton of carbon that it's I only get $50 a ton. But if someone else uses direct air capture, they get 175 a ton or if I drive an EV or I use an Electric vehicle, I guess $4.50 a ton. None of that makes sense to me. If a price of a carbon molecule should be consistent And it should reward those of us that can do something to put the world in a better position. So, then you mentioned something about open capacity for 2022 and hedging. And besides those midterm deals that already locked in around $400,000,000 of fixed margin next year, You can expect that at this point of the year, we're already hedging some of our capacity for 2022 in anticipation of giving you guys full year guidance in November. With $6 in the quarter and $3 for the rest of the year, yes, we're using some of our capital to hedge out forward. All right, great. I'll leave it there. It's noon. Thank you all very much. Have a good day. Thanks, The next question comes from James Carreker from U. S. Capital Advisors. Please go ahead. Hi, guys. Thanks for the question. I guess, first off, really quickly, is there a, I guess a useful guideline to think about margins. When I look at the winter LNG curve at 16% and Henry Hub at 4. I kind of think of a number, a potential margin much higher than 6. Am I doing some calculations wrong or just Any quick high level calculation to think about how that gets to a $6 margin? Well, shipping curves have come way up Also James, you have to add you can either add or subtract the shipping costs to either your JKM $16 You subtract it or you add it to the $4 but shipping is not insignificant when margins get this high and Everything is going to Asia. That trip is a lot longer. So it's just plus or minus $6 shipping costs? Not quite that high, but yes, shipping Also just like the curves themselves has a seasonality, so winter shipping is higher than shoulder shipping. Yes. Okay. It just seems like it wouldn't have moved to that much versus, I guess, just kind of the standard $2 estimate, but maybe it has. The other question Sorry, James, we're also talking about a curve through next year. We're not talking about like a news blurb on Bloomberg today It's like a trader printing a cargo. So, I understand. Right. But you talked about $6 margins in the winter and $3 For the balance of the year. That's right. Yes, I was referring just to the winter months. Then the other question was just now with the Q2 in a row where you found additional production, Does that imply anything maybe about upside to the 5 MTPA run rate per train Long term? Not at this point. That 49 to 51 MTPA for train is the right one. And honestly, a lot of the outperformance this year is thanks to a really smooth ramp up of Train 3. So yes, we're still on that 4.9% to 5.1% range. Thank you. Next question comes from Sean Morgan from Evercore. Please go ahead. Thanks, guys. So the I appreciate the creativity in terms of the commercial aspects with signing up IPMs to start to underpin some of volumes that you're going to need for Stage 3. Is there a possibility to kind of back to back those IPM agreements with more traditional And sort of double up on some fixed fees there? Well, Sean, thanks. It's Anatol. Look, it's a large portfolio. Zach mentioned it's over 40,000,000 tons now and there are a number of positions that are managed in the aggregate. So It is exposure that we have and we are managing on behalf of our producer partners. And clearly, there are synergies in that business with the downstream exposure that we manage on a day to day basis. So the short answer is, it's part and parcel of the opportunity set that we have. Okay, great. And then just really quick follow-up then. So Those IPMs, I mean, in theory, the banks the banking syndicate would be totally fine with you guys filling out that remaining 4 MTPA that you mentioned to get to FID with potentially just supply side deals? Technically, they would, but we think it's going to be a mix. And keep in mind, we already Few contracts that are sitting at CMI and not allocated to a project yet that are DES. And so not everything will be IPM for sure. But again, it all comes back to creditworthiness and a fixed fee And the capability to either deliver us the gas or pick up the LNG and pay us that fixed fee as a percent of their EBITDA. And these counterparties like Tourmaline check all those boxes. Okay. Thanks, Zach. Our next question comes from Craig Shere from Tuohy Brothers. Please go ahead. Hi, thanks for fitting me in. Doing the math on the disclosed fixed fees for the midterm contracts combined with your 3rd IPM agreement. Looks like you're contracting at over $230,000,000 in the second quarter, a little above 1st quarter levels, it might have been more 2.25 ish. Given the current market tightness, could that start approaching $2.5 for 5 to 10 year agreements? Thanks, Craig. I have a spreadsheet in front of me that goes through that. And even with that spreadsheet in front of me, it's pretty hard to summarize. So look, as Jack mentioned in the prompt, For the next number of years, it's market prices, right? And that obviously, these 6s and 3s that we've mentioned on this call filter through into those Midterm Economics. So it depends on the tenor, but you should expect us to capture That market or better for the relatively prompt volumes and then our long term contract economics for the balance. So Can those print above 2.5% if it's a relatively short tenure deal? Of course, right. That's where the market is today. Got you. And I understand the conversation that, hey guys, Clear the market is going to take everything. Some demand that used to be long term fixed And bilateral will go to the medium and spot. There'll be new long term SPAs. There'll be variable rate contracts. But in terms of the amount of new contracting, I'm not talking about 10 years That is filling in for expiring contracts and it doesn't support any new capacity. I'm not talking about your stuff, Talk about maybe some of the Chinese stuff in the Q1. It just seems like in terms of real SPAs or IPM that can support truly new construction and project finance. It's been pretty thin. Do you see that starting to open up more? Do you agree? Do you see it starting to open up more? Could you see this in the future being a significant minority of the market, maybe a quarter of the new contracts? I think your view is skewed to U. S. Counterparties in those contracts. I think if you look globally, Craig, and you looked at the oil index contracts that are being signed almost daily, You'll see the market and the contracting market has been very lively. But if you're talking about just Henry Hub Link U. S. Style markets or contracts, then it's been less, but still pretty strong. Yes. Just to follow-up on Jack's comments, 2020 was obviously an anomalous year, but even then you saw a fair amount of long term And obviously 2018 2019 were big years for the NYMEX market. And As we've discussed, the margin environment and the window is clearly open for more of that engagement now. And I think we view that that piece of the market is going to be volumetrically roughly similar to what it has been historically. Just as the market grows, it will be a smaller percentage of the total. Got you. Okay. Thank you very much. Okay. So that appears that is all we have time for questions for today. I will pass the call back over to management for any additional or closing remarks. I just want to thank everybody for your support of Cheniere. It's been an interesting time with the pandemic. Please be safe out there. Please get vaccinated. And we'll talk to you, I guess, in November. Thanks. Bye bye. This concludes today's call. Thank you for your participation. You may now disconnect.