Earnings Call: Q1 2021

May 4, 2021

You, operator. Good morning, everyone, and welcome to Cheniere's Q1 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 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 financial 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 selected financial information and results call for Cheniere Energy Partners LP or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy Inc. 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 review our financial results and guidance. After prepared remarks, we will open the call for Q and A. I'll now turn the call over to Jack Fusco, Cheniere's President and CEO. Conference call. Thank you, Randy, and good morning, everyone. Thanks for joining us today, and thank you for your continued support of Cheniere. Call. I'm pleased to be here this morning to review our outstanding results from the Q1. Before covering our results and outlook, I want to spend a minute addressing winter storm Hurry and its impact on Cheniere. As we described back in February, we were impacted by the spread power outages in Texas, which resulted in our Corpus Christi facility being down for a few days. Call. I'm extremely proud of our operating personnel at both Sabine Pass and Corpus Christi for rising call is yet another weather challenge and working so diligently to manage our operations smoothly throughout the freeze event. Call. From hurricanes to fog to now historic freezes, the Cheniere platform has withstood whatever mother nature throws our way and our focus on safe and reliable operations continues to benefit our customers, shareholders and other stakeholders. Call. As a result of the winter storm, there was no material impact on our assets or operations, and we were able to fill some cargoes at Sabine Half call and restore Corpus Christi to normal operating levels quickly to mitigate impacts on our delivery obligations. Call. We did recognize a financial benefit as a result of some optimization activity in the period leading up to the storm, call, but the magnitude of that benefit is not material to our expected full year 2021 financial results. Call. More importantly, the global LNG market has recovered significantly for 2021 and beyond call as demand has outstripped supply, resulting in higher prices even during the shoulder and summer months. Call. I continue to believe in the long term viability and sustainability of LNG as an essential fuel source call is in the low carbon future. Please turn to Slide 5, where I will review some key operational and financial highlights call from the Q1, including our upwardly revised 2021 guidance. Call. After delivering on our 2020 guidance, despite a maraud of challenges, we continued our momentum into the Q1 call and are off to a fast start. Now full year 2021 is looking even better for us than it did on our last call in February. Call. For the Q1, we generated approximately $1,500,000,000 of consolidated adjusted EBITDA, approximately $750,000,000 of distributable cash flow and almost $400,000,000 in net income on revenue of approximately $3,100,000,000 call. We've often described 2021 as Cheniere's cash flow inflection point, and you can see progress on that early in the year call is in our Q1 financial results. Zach will cover these numbers in more detail in a few minutes. Call. During the Q1, we exported a quarterly record of 133 cargoes of LNG from our 2 facilities, with production call is incentivized by strong global LNG margins during the quarter, and we had the benefit of Corpus Christi Train 3 commissioning volumes. Record production is also despite Corpus being down a few days as a result of the winter storm in February. Call. A sustained stronger LNG margin environment together with our results for the Q1 contribute to our ability to raise our full year 2021 financial guidance for the 2nd consecutive quarter. Outlook for the balance of the year has improved since our last call in February with a slightly higher production forecast augmenting the impact call of the improved LNG margins we see throughout the balance of the year. We now forecast consolidated adjusted EBITDA of $4,300,000,000 to $4,600,000,000 and distributable cash flow of $1,600,000,000 to $1,900,000,000 call for the full year 2021. Near the end of the quarter, Train 3 at Corpus Christi achieved substantial completion call within budget and in line with the accelerated timeline we've previously communicated. With the completion of Train 3, the Cheniere and Bechtel relationship conference call has now delivered 8 LNG trains ahead of schedule and within project budgets, which is truly world class execution. And that execution excellence continues with our 9th train. As construction on Train 6 at Sabine Pass continues to progress call against accelerated schedules. The estimated substantial completion timeline has accelerated once again. Substantial completion is now projected to be achieved in the first half of next year. Call. As I hope you all saw this morning, we issued a press release announcing we supplied a carbon neutral LNG cargo to Shell, call whereby Cheniere and Shell jointly offset the full lifecycle emissions of the cargo. The carbon offsets conference call cover full lifecycle emissions from the wellhead through consumption, with Cheniere delivering the cargo to Shell FOB at Sabine Pass and Shell delivering the cargo to a European regasification facility. This first carbon neutral cargo call is another step in Cheniere's environmental efforts I've discussed over the past several months. Our efforts emphasize enhanced transparency call is a critical step towards improving environmental performance and maximizing the benefits of our LNG call for Cheniere, our customers and our value chain partners. Today's carbon neutral cargo announcement follows our February announcement of cargo emissions tags development. Call. The response to our CE tags from current and prospective customers has been extremely positive and has spurred further engagement. Call. Our focus is to ensure the long term benefits of natural gas as an affordable, reliable and clean energy source call for the world. Turn now to Slide 6, where I'll discuss what I'm seeing in the market today and why I'm so optimistic call is about Cheniere's future prospects. In the short term market, we are beginning to see the impact of the structural shift to natural gas call is a primary energy source for the world as evidenced by the global LNG demand growth we saw in 2020 despite the pandemic. Conference call. There was constructive LNG demand tension between Europe and Asia earlier this year that left some countries short of natural gas. Call. In addition, South America is entering its winter demand month and is contributing to the tightness in the global LNG market. Call. With natural gas storage below normal levels in Europe and precious little new supply entering the market this year, call. We also have a constructive backdrop in the LNG market for the balance of this year and into next year in 2023. Call. With Corpus Christi Train 3 completed very early and the completion timeline for Sabine Pass Train 6 call recently accelerated again to the first half of next year, we are ideally positioned to benefit from these near term market dynamics. Call. In the longer term, the supply and demand fundamentals in the global LNG market are even stronger and reinforce our confidence call and the value of our existing platform and in our ability to commercialize our Corpus Christi Stage 3 expansion project. Call. In the 4 year period from 2017 to 2020, the global LNG market added almost 120,000,000 tons of capacity, call is an average of almost 30,000,000 tons per year. In the subsequent 4 year period, that average is expected to drop call is approximately 11,000,000 tons a year, a significant slowdown in supply growth, which will be amplified call are output declines from older legacy projects. On the demand side, the structural shift to gas call on a global basis is evidenced by the near term doubling of LNG importing nations in the last 10 years call and the 100 of 1,000,000,000 of dollars of natural gas oriented infrastructure being built around the world today. Call. LNG consumers recognize and value LNG's flexibility, reliability, affordability call and the critical role natural gas plays in improving environmental performance and achieving decarbonization goals. Call. We forecast that global LNG trade will approximately double, expanding by approximately 350,000,000 tons per annum over 700,000,000 tons per annum by 2,040, which would support additional approximately 225 1,000,000 tons per annum of incremental global supply. Our constructive long term view on the LNG market call was recently reinforced for the results of a comprehensive climate scenario analysis we conducted with a leading global management consulting firm. Conference call. We published this analysis last month and it's available on our website. This study analyzed Cheniere's business over long term under various energy transition scenarios and concluded that even under the most aggressive Energy Transition Scenario Analyze. Demand for LNG and natural gas is expected to grow for decades to come call and that not only are Cheniere's existing assets well positioned to take advantage of that, but new LNG capacity call will be needed to meet that demand. With regard to Cheniere specifically, our accomplishments and progress over the past 5 years of LNG operations have been nothing short of transformative and position the company to take full advantage call is the constructive market we see in front of us. We have established ourselves as a premier LNG operator, call demonstrate to LNG buyers worldwide the reliability and certainty associated with a long term supply agreement with Cheniere. Call. In addition, our continuous improvement efforts have yielded efficiency gains and debottlenecking has unlocked a significant amount call have extremely cost effective volume across our projects, which further improves our competitive position call will be recorded and increased financial returns. As construction ramps down, the long awaited financial results call of our multi year capital programs are bearing fruit as evidenced by today's results. This year, call. We expect to generate well over $1,000,000,000 of free cash flow and we are quickly approaching our expected run rate metrics. Call. Our run rate forecast of $11 per share and distributable cash flow not only has a high degree of visibility, call, but also empowers us to execute on an all of the above strategy for capital allocation, which includes achieving investment grade credit metrics, funding a significant portion of Corpus Christi Stage 3 with cash flow after that project is commercialized call and returning significant capital to shareholders via buybacks and dividends. Zach and his team and I are working diligently with the Board call and the rest of management on our detailed capital allocation plans, which we will communicate to you later this year. Call. I'm excited about what we are seeing in the LNG market, how Cheniere is positioned to capitalize with our portfolio volumes, a shovel ready brownfield expansion project, commercial offerings tailored to customers' needs call and an improving credit and cash flow profile. 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 8. Call. The global LNG market exited 2020 on a positive note as cold weather across Asia and continued economic expansion in China help contribute to an increase in Asian LNG imports in Q4. As non U. S. Supply was slow to respond, markets tightened as Asia pulled cargoes from Europe, call is a trend which continued in Q1 of 2021. In the Q1, global LNG supply showed positive year on year growth for the first time since the Q1 2020, but net growth was modest as a healthy 17% growth in U. S. Exports was largely call is set by declines at several LNG facilities around the globe, which were either shut down or underperforming, including facilities in Norway, Nigeria, Australia, Trinidad, Tobago and Russia. Extreme cold weather in Asia and then Europe during the Q1 combined with these supply constraints and a tight shipping market call caused unprecedented price spikes in JKM in the early part of the quarter to all time highs of over $30 in January. Call. Since then, extreme temperature conditions have passed and JKM prices have moderated. However, price levels are still well above where they were a year ago with March JKM settling Q1 was $8.26 and June trading above $9 currently, well above prices around the $2 an MMBtu level a year ago, call is indicating an underlying structural tightening of the market supported by strengthening demand fundamentals. As I just mentioned, in Asia, LNG imports were very strong in Q1, up over 7,000,000 tons or 11% year on year. China added nearly 5,000,000 tons of LNG demand call despite robust domestic gas production and increased Russian pipeline gas imports. Early reports of total gas demand in China call show an increase of approximately 15% year on year in Q1. Weather, continued coal to gas switching and a remarkable over 18% increase in Q1 GDP drove the demand increase. In the Japan, Korea, Taiwan area, LNG imports increased 8% or 3,000,000 tons year on year due partly to scheduled nuclear and coal outages. Call. From a structural demand level, 10 years after the Fukushima earthquake, most Japanese nuclear plants remain offline call with only 9 units totaling 9.1 gigawatts resuming operation as of Q1 2021 compared with 42 gigawatts in 2010, solidifying LNG is a critical fuel for the stability of the energy system in Japan and in the region as a whole. Call. In Europe, gas demand in major markets rose by 9% year on year during Q1 and stronger heating and gas fired power demand. Significant drawdowns from storage through winter and into April has left European storage approximately 34 Bcm call were around 50% lower than the prior year by the end of April and approximately 11 Bcm or approximately 3 75 Bcf below the 5 year average. To attract LNG volumes away from Asia to help replenish storage, TTF prices remain elevated. April TTF settled higher than JKM at $6.46 an MMBtu, call was 13% higher on the month and up almost 200% year on year. Current prompt margins are in the $3 range, inclusive of a dramatic upward shift quarterly and charter rates from the $30,000 a day range, well above the $80,000 a day range today. Based on these demand fundamentals, call. Although specific conditions during the Q1 led to some dramatic LNG price volatility, we believe we have also seen indications call is that the structural tightening that we've been predicting for some time is now underway. As such, we've continued to transact incremental volumes aligned with our midterm strategy. Call. The team has secured an additional approximately 1,700,000 tons, locking in over 200,000,000 of fixed fees across 2022 2023. Call. We see strong appetite for mid term agreements as both intermediaries and end users add diversity, security and flexibility to their portfolios. Conference call. Turn now to Slide 9, where I will discuss some longer term aspects of the market. We've discussed over the last few years that we viewed 2021 is a transition year to a tight market, and as we just described, that has played out so much faster than we expected. Forward margins today during the Northern Hemisphere spring shoulder season are higher than they have been at any point for this season since we began operating just over 5 years ago. A number of market conditions that have been headwinds to entering into long term commitments have more recently become tailwinds, call, such as oil price, prompt margins and forward supply growth, just to name a few. We remain quite sanguine on the long term contracting market for our products over the coming quarters years as the demand for LNG will continue to increase over time with many current markets expanding and new markets continuing to be added. Specific to Asia, along with China and India, markets in South and Southeast Asia have show keen interest in expanding their natural gas infrastructure from pipelines to power plants to support their rapidly growing economies. Call. In Power Generation, forecast suggests that gas is expected to be the 2nd highest growth segment after renewables in terms of capacity additions. Call. The need to expand access to reliable energy across the region means that natural gas is expected to play a crucial role in ensuring sustainable economic growth call while reducing emissions intensity. Of the roughly 3,000 gigawatts of forecast incremental power generation capacity in Asia by 2,040, conference call is expected to be gas fired. Just for reference, a gigawatt of combined cycle natural gas generation operated as baseload call requires approximately 1,000,000 tons of LNG per annum. A significant portion of that sum will be in China, but almost half of it is expected to satisfy growth in South and Southeast Asian countries such as India, Indonesia, Bangladesh, Vietnam and the Philippines. Call. Some of these countries are already well established gas users with indigenous resources, which are mature and declining. Data from Wood Mackenzie suggests that the region could lose more than 20 Bcf a day of domestic output by 2,040, call, while current upstream developments are considered unlikely to offset more than just a small fraction of that decline. In addition, gas demand in the region is currently expected could grow by at least 18 Bcf a day during the period to 2,040, creating a gap of more than 35 Bcf a day of gas, call, which we expect to be satisfied in large part by LNG. Again, for reference, 35 Bcf a day is equivalent to approximately 250,000,000 tons per annum of LNG. Please turn to Slide 10. LNG demand growth across the various markets of South and South East Asia is in aggregate very significant. LNG demand growth in South and Southeast Asia is expected to accelerate and potentially grow fivefold by 2,040, adding between 160,200,000,000 tons to global trade. We believe that over the next 2 decades, over 20% of the growth in Asian demand will come from China and call. Approximately 70% will come from South and Southeast Asia as these countries prioritize gas over coal to secure economic growth and meet their climate goals. Call. This region consumed over 17% of global coal and was responsible for more than 1 third of global greenhouse gas emissions in 2019. Call. While most net zero pledges came from outside the region, we believe that nations in South and Southeast Asia have been increasingly determined to improve environmental performance call and find ways to fuel growth in a more environmentally sustainable manner. We see Cheniere's LNG as a secure, reliable and cost effective fuel for the region call, which along with renewables will displace more polluting fuels. Jack already touched on our leadership and initiatives in ESG, call. And I'll just add that we are seeing increasing interest and engagement from both existing and potential customers on the environmental opportunities we are developing. Cheniere stands ready to work with customers in the region and all over the world to create practical solutions that fit their commercial needs call will be recorded and satisfy global environmental imperatives. We believe our low emitting LNG standards will play a role in supporting the region's environmental goals call and its energy priorities. Thank you all for your time. I'll now turn the call over to Zach, who will review our financial results and guidance. Conference call. Thanks, Anatol, and good morning, everyone. I'm pleased to be here today to review our Q1 financial results and key financial updates as well as our increased 2021 guidance. Turning to Slide 12. For the Q1, we generated net income of $393,000,000 consolidated adjusted EBITDA of approximately $1,500,000,000 and distributable cash flow of approximately $750,000,000 call. Our financial results for the Q1 were positively impacted by increased global LNG prices and margins, call, particularly margins realized on spot and short term cargoes sold through our marketing affiliate and a higher than normal contribution LNG and Natural Gas portfolio optimization activities due to significant volatility in LNG and Natural Gas markets during the quarter. Call. As we have discussed in prior quarters, our IPM agreements, certain gas supply agreements and current forward sales of LNG qualify as derivatives and require mark to market accounting, meaning that from period to period, we will experience non cash gains call and losses as movements occur in the underlying forward commodity curves. The impact of shifts in these curves call on the fair value of our commodity and FX derivatives during Q1 2021 was a net loss of approximately $120,000,000 call, which was substantially all non cash. For the Q1, we recognized an income 4.56 TBtu of physical LNG, call, including 442 TBtu from our projects and 14 TBtu from 3rd parties. Call. 84% of these LNG volumes recognized in income were sold under long term SPA or IPM agreements. Conference call. During and after this winter storm, we were able to work with our long term customers on cargo schedules call as well as shift some volumes from Corpus to Sabine, leading to no material impact to our production for the quarter. Call. We received no cargo cancellation notices and had no revenue related to cargo cancellations in the Q1. Call. However, we previously recognized $38,000,000 of revenues during Q4 2020 call related to canceled cargoes that would have been lifted in the Q1. Commissioning activities for Corpus Train 3 went well, call, as Jack discussed, and we received $191,000,000 related to sales of commissioning cargoes in the Q1, corresponding to 25 TBtu of LNG. As a reminder, amounts received from the sale of commissioning cargoes are offset against LNG terminal construction in process, net of the costs associated with production and delivery of those cargoes. Q1. 6 TBTU of LNG related to commissioning activities was on the water at the end of the Q1 and will be recorded as an offset call to construction in process upon delivery. Turning to the balance sheet. We've prioritized debt reduction since raising the Cheniere term loan call to refinance convertible notes last year and have committed to pay down at least another $500,000,000 of outstanding debt in 2021. Call. We made good progress toward that goal during the Q1 when we paid down $148,000,000 in outstanding borrowings under the Cheniere term loan. Call. I'll provide some additional color in a few moments, but we are in an excellent position to reach and likely surpass our minimum debt reduction target this year. Call. In February, we locked in an approximately $150,000,000 private placement of long term amortizing fixed rate notes at SBL call that are committed to fund in late 2021 at a rate of 2.95%, the lowest yielding bond ever secured across the Cheniere complex. Call. In March, CQP opportunistically issued $1,500,000,000 of 4% senior notes through 2,031, the proceeds of which, call together with cash on hand were used to extend the maturity and accretively refinance all of CQP's 5.25 percent senior notes due 2025. Our efforts on execution, performance and prudently managing the balance sheet call throughout the Cheniere structure continue to be recognized by the credit rating agencies. As we mentioned on our last call in February fits revised the outlook of SBL's senior secured notes rating to positive from stable, while reaffirming its existing BBB- investment grade rating. Call. In April, S and P revised the outlook of both Cheniere and Cheniere Partners BB ratings to positive from negative, call is a signal that ratings upgrades may be coming. In addition, S and P's commentary indicated a leverage level of 4.5 times to 5 times call on a debt to EBITDA basis in the next couple of years could be consistent with an investment grade rating. Commentary, which is in line with in support of our deleveraging plan and goal of investment grade credit metrics throughout the structure. Turn now to Slide 13. Call. As Jack mentioned, today we are again increasing our guidance ranges for full year 2021 consolidated adjusted EBITDA distributable cash flow by $200,000,000 bringing total increases to $400,000,000 above the original ranges we provided in November of last year. Call. Our revised guidance ranges are $4,300,000,000 to $4,600,000,000 in consolidated adjusted EBITDA call and $1,600,000,000 to $1,900,000,000 in distributable cash flow. Today's increase in guidance is largely driven by our strong results in the Q1, call is the continued improvement in global LNG market pricing and our ability to execute additional higher margin forward sales into the stronger pricing. Call. Since the last call, we have continued to lock in additional volumes for the remainder of the year, though those sales have been offset by an upwardly revised production forecast call is driven by maintenance optimization, some favorable weather and a much faster than expected ramp up to steady Train 3 volumes. Call. We currently forecast that a $1 change in market margin would impact EBITDA by approximately $40,000,000 for full year 2021. Call. As we have now sold almost all of our production for the remainder of the year and have completed and placed Corpus Spring 3 into service in line with our previously forecasted timing, call. Our remaining exposure this year is not material, and we only plan to provide another update if that were to change. Call. We are confident in our ability to deliver results within these upwardly revised guidance ranges for the full year. Conference call. With Train 3 now in operation, we've also now passed the free cash flow inflection point we have long discussed with our stakeholders. Call. We expect to generate meaningful free cash flow this year for the first time in Cheniere's history of well over $1,000,000,000 call. We originally committed to $500,000,000 in debt reduction this year, but we now think $500,000,000 is conservative call due to our strong performance and cash flow generation year to date and the forward sales of LNG, we have executed in a strong LNG market. Call. We are continuing to work on our long term capital allocation strategy with our Board, and we anticipate communicating this multiyear plan to you in the second half of the year, call, including more comprehensive plans for the remainder of free cash flow this year after meeting our initial 2021 debt reduction goal of $500,000,000 call. 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. Call. Thank call. Call. Our first question comes from Jeremy Tonet with JPMorgan. Call. Hi, good morning. Good morning, Jeremy. Just want to start off with the kind of improving LNG market here and see what that could mean for Schneer. It seems like you guys were able to kind of sign some more contracts here. So I'm wondering How much visibility do you have? Do you think the market is tightening where longer term contracts might be at attractive rates that you look to sign? Or even just looking at 2022, just how much spreads are you able to capture at this point kind of de risk your outlook for 2022? Call. So Jeremy, this is Jack. I'll start and then I'll turn it over to Anatol and then Zach maybe. Call. But we'll start off with first, look, I'm extremely pleased with my operating staff and their ability to debottleneck and optimize our maintenance program. So during the freeze at corpus, we were actually able to do quite a bit of maintenance on the facility. So when we came back, we came back strong and we revised our production forecast and we found significant number of additional cargoes that we can monetize this year. And that's my expectation with the staff and the team is continuing to work on operating efficiency and our effectiveness and drive our production appropriately with market conditions. And I'll tell Jeremy's question was around the market for, I guess, mid and long term contracting. Sure. Good morning, Jeremy. Things are, as we mentioned, turning around even faster than we had expected. Yes, some of it is an assist from weather, some of it is an assist from other facilities that are having operational issues and legacy production declines. We've talked at length over the last couple of years, quarters about the investment that's being made. Jack mentioned it in his remarks on call. The pipeline, re gas facilities, additional countries that are investing 100 and 100 of 1,000,000,000 of dollars in long commitments to natural gas and a lot of those places wants to have security of supply. And one of the things, as Jack mentioned, we've displayed is that capability, the most price stability of any of the other long term contracting options. So we're entering into a very good period. Call. We are right around the same level that we saw in 2018 in terms of forward margins for the next 3, 4 years. That was, as you know, a very period for us, that's not a necessary condition, but it's certainly very helpful. And the difference between 2018 and now is that was a bit of a countercyclical rally in the market that was driven by surprising strength in demand out of Asia, primarily China call and frankly delays in terms of some infrastructure coming online like some of the other U. S. Projects. So the difference now, as Jack said, 30,000,000 tons a year, we're added 17 through 20. You look forward through the middle of this decade, there's not a lot of supply coming in call and we are very well positioned with these additional volumes that we're transacting in the short and mid term. As you may recall, bridging volumes were a key part of our commercial call offering and that's something that allows our customers and load serving utilities to sleep at night with that reliability of production. So again, feel very good about the hand that we're playing and feel very good about securing additional margin. And now I'll hand it over to Zach to that cleanup. Call. Sure. Thanks Anatol, and hey, Jeremy. Today, we obviously aren't going to give you outlook at our open capacity for 2022 yet. Really, we have to get through that budget process. We have this annual delivery program or ADP process. Call. And by November, we'll give you our best outlook for 2022 and the open position and probably have even a better sense of when Train 6 is coming online. Call. You can expect we're already proactively thinking about it and executing on 2022 and the attractive margins now on the curve over the next few years. And with the success that CMI has had on terming out physically, including through midterm deals, some of our debottleneck capacity, This has really helped lock in fixed fees, this year, for the next few years actually. Call and post 2021, we've already secured over, let's say, over $500,000,000 and in just in 2022, over $200,000,000 call, so you can say we've already been pretty proactive in locking up a portion of that open capacity for next year. Got it. That's very helpful. Thank you. Maybe just shifting to carbon here. I was just wondering if you could provide thoughts as call. This new transaction you did, the value chain carbon neutral LNG cargo to Shell. How do you see that market developing? How much appetite do you think that There could be for that over time. And when it comes to carbon capture, do you think the current 45Q provides sufficient economics call for Cheniere to pursue CCS, given the dense purity stream of CO2 that come off LNG facilities? Yes. Well, Jeremy, thanks. And as I'll add is, I was very pleased to work with Shell, one of our largest foundation customers on that first carbon neutral cargo and I think its successful execution just ensures that Cheniere's capabilities ensures our capabilities to actually operate across the entire value chain. And I think offering climate solutions to our customers call is going to be a bigger and bigger portion of our business and right in line with what our value proposition is for the customer. As I've talked about before in the past, our first goal though is to monitor, validate and report on our carbon footprint. And that's when we announced our cargo emission tags or the CE tags. We're well on our way on that aspect of it. You mentioned CCS. CCS is important. Our initial blush is that call. Some real dollars to development and engineering resource to flush out CCS and its potential capability to help us both at Sabine and at Corpus Christi. But I think our customers call are going to expect us to continue to offer a sustainable LNG product. Call. Anatol, do you have anything to add? Thanks, Jack. Just very quickly, as Jack said, transparency and our ability to offer for that to our customers is very important. This is another arrow in our quiver and it is part of the comprehensive offering that allows us call to continue to capture market share. So this is another box that we have checked in terms of our capabilities and we're grateful to have a partner like Shell as we navigate this and continue to develop our ESG offerings. Call. Got it. Thank you very much for the thoughts. Thanks, Jeremy. Our next question comes from Shneur Gauthunay call. Hi, good morning, everyone. Just kind of wanted to follow-up on the first question that was asked. Just given the fact that you've been successful negotiating incremental contracts into 2023 and kind of the volatility that we've seen and so forth and kind of the forecast that you laid out, how close are we to securing enough contracts to give the Board comfort in sanctioning Stage 3 to an FIP process. And would you do it all at once or would you do it kind of in a piecemeal type of approach. So just to be clear, we are 100% focused call on making sure that Stage 3 gets commercialized as soon as possible. But as I talked about on previous calls, I mean, we literally have a virtual train of LNG that we need to sell and secure, Which is what our midterm product offering is helping us do. So through our debottlenecking efforts and maintenance optimization, There was at least 7,000,000 tons of LNG, additional LNG coming off the portfolio call that we're blessed to have quite honestly. So that's 1st and foremost is making sure that we secure the existing nine trains worth of LNG before we go off and build Stage 3 another 11,000,000 tons. But Anatol or Zach, do you have anything to add? Thanks for the question, Shahriar. Again, we're very optimistic and this all contributes call is to our goals of increasing the contractual coverage and we will not waver on our investment commitments which require roughly and we talk about this 1,700,000 tons, that's total tonnage over time. As Jack said, this is a 10 +1000000 ton project plus the volume we have in the portfolio per annum, call. So you're talking about kind of an order of magnitude more commercialization that's required, but we feel very good call is about what we're seeing today and for the coming quarters. Great. No, appreciate the color. And maybe for a follow-up. During the quarter you prepaid $148,000,000 on the term loan. You've been able to issue debt at 4%. You've had positive outlook revisions from both S and P and Fitch and kind of touched on it on your prepared remarks, but I was wondering if you can expand on the guidance or soft targets around leverage levels to get the call to BB Plus and then to investment grade. Any expanded discussion on that would be super helpful. Thank you. Conference call. Hey, no problem. This is Zach here. And I think the S and P note last month for the outlook upgrade at CEI and CQP just really validates everything we've been communicating to you all for the last few years on capital allocation. And it's pretty consistent with how we step by step got our even our project ratings over time from high yield to investment grade at Sabine and Corpus by every agency. And now looking ahead, there's a, I guess, a defined path EBITDA growth plus debt paydown to get below 6x consolidated leverage to get to BB+in the next year or so and then leverage down to sub 5 times to get to BBB- in the next few years. So our path is pretty straightforward to get to IG with S and P as metrics improve and call. As we simply grow into our run rate and follow through with capital allocation and debt pay down of up to $4,000,000,000 pretty much consistent with what we've told you. So that's the plan and that's on a consolidated debt to EBITDA basis. Call. Perfect. Thank you very much. Really appreciate the color. Take care guys and have a great day. Thanks. Conference call. Our next question comes from Christine Cho with Barclays. Good morning. When I look at your shareholder list, I think there's probably still some turnover needed in the stock. Maybe it's lack of dividend or debt levels that's keeping some of the investors out of stock. But as you think about capital allocation, how are you thinking about bringing new investment? As you talk to investors who you like in the stock, but aren't currently, what do they want and how is that going to be factored into the broader framework that you're going to come out with later in the year. Christine, it's good to hear from you. I'll start and I'll turn it over to Zach. I am concerned about the lack of float that we've had in the stock lately. I mean, I think it's consistent call is some of the oil and gas industry overall, but I'd like to see the float get up a little bit more. I think larger investors, especially index funds, call, at least in my experience, like to be able to get in a stock and then get out of the stock without having too much pain. So we need to work on expanding our horizon and being more desirable for the investment community at large. And I think A big portion of that is what Zach has highlighted is getting our credit metrics under control. We don't screen very well on a Bloomberg screen. Call and we need to rectify that. We think we're at an inflection point where we're going to have an opportunity here to give call are shareholders back their investment and we need to be thoughtful about it, which is why we're spending a lot of time trying to make sure that We get this capital allocation program done right the first time. And I'll just add to what Jack said, Christine. And I think it's pretty obvious if we can get to investment grade in the next couple of years or even just get into the S and P 500 index, call would be helpful to bring more and more new investors into the stock. And I think it's pretty safe to say we're on track for both of those with a bit more time. Call and it's probably time that's the operative word for this company because every day that goes by we'll be making progress on our leverage, get closer and closer to our run rate cash flows. And $11 is just going to be too hard to ignore, call, especially as that grows with capital allocation and growth. The other thing I'd note, Christine, I'll just add one more thing to that is that it's more than fair to say that over time, call. We're interested in attracting more and more income investors to the stock as well. But we know our leverage goes hand in hand with that call to ensure that any shareholder return really is just sustainable not just for a few years, but for decades. So I think the all of the above type strategy capital allocation, like Jack mentioned in the prepared remarks, is exactly what we're going to try to bring to you all in the next conference call. Got it. That's helpful. Call. In the last several weeks, months, we've seen a number of long term contracts signed in the market and Most of them have been with Chinese counterparties. So just curious, with no U. S.-China trade deal, how should projects that are in construction. Yes. Thanks, Christine. That's absolutely fair. It is a The market continues to contract for term. We've always been in the camp that long term contracts are Yes, it is a period we've gone through a period where oil indexation was more attractive to buyers than NYMEX. Now we're entering a period where call, where we firmly believe the opposite will be true. We are quite optimistic on the Chinese market for gas and for LNG, we think this is a critical component of its economic and environmental objectives. 14th 5 year plan continues 5 year plans, which all bodes quite well for us. We're very proud of what we have done to date. We have a great commercial engagement with our Chinese counterparties, the SOEs and the Tier 2 and Tier 3 players, and we fully expect to have more commercial success there. Call. It is a very large and important market. As Jack has said in previous calls, it can double the size of Cheniere in and of itself call and we continue to be quite engaged there, but I will tell you one of the reasons we highlighted on this call non China Asian markets is because there is a broad range of opportunities beyond China as well. So Just like on capital allocation, it will be all of the above. And again, we're entering now what we see as a multiyear period where NYMEX based contracting, long term contracting will be very attractive. Got it. Thank you. Call. Our next question comes from Michael Lapides with Goldman Sachs. Hey guys, thank you for taking my question and congrats for a good start to the year. Can you talk a little bit about Cymbine 6 just Like when you talk about bringing it up into the first half of twenty twenty two, are you talking just a couple of months ahead of what you were originally planning or is conceivable, you could get it very early in the course of next year online. Hi, Michael, it's Jack and thanks for the kind words. Sabine Pass, which is what you would expect Train 6 is actually our train number 9 with Bechtel call. And I'd like to say we have figured out how to stick build these trains faster and better than probably anywhere else conference call is in the world and it is way ahead of accelerated schedule, probably close to a year ahead. So I would expect call that barring decent weather because we are about ready to head into the hurricane season again, call, which seems almost never ending anymore, but barring decent weather that we'll be producing LNG and commissioning on that train before the end of the year. And so we're hopeful 2022 guidance, we might be able to be more specific than just the first half of the year, but it's tracking In the right way right now. And in terms of costs, there's $600,000,000 to $700,000,000 remaining of unlevered costs there before contingency call and a large majority of that is this year. So things are really ramping up there. Got it. Super helpful. And then just Trying to think about Stage 3 at Corpus. Is there a material benefit in your kind of your cost to construct To be able to take that FID before basically before the major construction work that you've done over the last 5 plus 7 plus years with Bechtel kind of winds down. Meaning, if Bechtel leaves the site, does that Make a material change in your more sites plural. Does that make a material change to what Stage 3 would cost? Or put another way, if you had a 2 or 3 year pause before FID in Stage 3, does that kind of change the outlook for the economics of it and the cost of it? Not necessarily, Michael. For me, it's more about the team. We got a great team at Cheniere. Bechtel has a great team supporting us right now. If there's that much of a delay, call. I'm sure those folks will get assigned elsewhere around the world. They're an international EPC contractor call and they're not going to keep their people waiting. So for me, it's more about the team and less About mobilization and demobilization costs, because those are quite frankly kind of immaterial to the total investment. Got it. I would just add that we're partnering with Bechtel as we speak actively looking at ways to make it cheaper and cheaper and more cost competitive. So They'll be around. Okay. And then last one, just real quick. You mentioned kind of Doing short term contracts, 1 or 2 year, dollars 200,000,000 of incremental revenue, roughly 1,700,000 tons. Just real back of the envelope, That's a little over $2 an MMBtu. I would assume that all kind of drops to the bottom line or almost all drops to the bottom line? Absolutely. That's the beauty of some of these midterm deals. It just gives us even more clarity on how much cash is available for the company call to support capital allocation efforts as we give you guys an update later this year. Got it. Thank you, guys. Much appreciated. Call. Thanks, Michael. Our next question comes from Jean Ann Salisbury with Bernstein. Hi, good morning. Qatar has taken some steps the last few months to move forward with their mega expansion. A lot of investors that I talked to, that's their biggest worry is that Qutara could price low enough to keep any other new projects from moving forward. You're obviously in the market, so, I just wanted to hear your comments on if this Price pressure is a real thing that you're seeing. Thanks, Jean Ann. It's Anatol. Every supply stack that we've ever put together has our friends at QP on the far left. And there's no question that that thing gets dispatched and gets built, but it's 32,000,000 tons, right? And as we've mentioned and Jack just mentioned, this market when it was a smaller market grew at 30 +1000000 tons per year. So if you as we look at that supply curve and we've talked about this over the last year and a half. There were a lot of things in that that call. We thought even a year ago were a foregone conclusion that now may not even materialize this year. QP Northfield expansion, of course, has been FID'd and we're always fully expecting that. It will get placed into the market. It will be done on an oil index basis most likely and Yes, it's one of our 2 main competitors that we see kind of as a foregone conclusion being in the market. So We're not afraid of that. We're part of the sort of diversification of supply and contracting structure along with QP and our friends at Novatech. And Jean Ann, I would say that, as Zach mentioned, we're working very closely with Bechtel call to ensure that our expansion at Corpus Christi is the most competitive economic Henry Hub Indexed expansion in the U. S. Period. Great. Thank you. And then just as a follow-up, if You can disclose this and I apologize if it was in the release somewhere, but how much on a per MMBtu basis did the carbon neutral offset add for the Shell Cargo? Conference call. Thanks, Yanan. This is Anatol. We are not disclosing that. Again, we partnered with Shell on that and Shell has lead and using its methodology as we continue to develop our LCA and get that completely buttoned up, peer reviewed, etcetera. But those commercial terms and economics we are not disclosing. Sure. No problem. That's all for me. Thank you. Call. Thank you. And our next question comes from Michael Blum with Wells Fargo. Call. Thanks. Good morning, everyone. I just had a really a clarification question on the midterm contracts you've been signing. Are you Purposely signing these shorter term contracts for your open capacity or is that just what the market is willing to bear right now? And given Michael, midterm contracts have been around in this market forever. So we're not the first and only LNG provider to offer mid term contracts, but it's a great way for us to meet with some of increase our customer base and meet what their objectives are, which and quite honestly compete with the Qataris conference call for the Russians and or the French hotel and offering these shorter term, midterm contracts. So we've found a pretty good appetite of customers that are not traditionally, call, I would say the customers, the utility customers that we see on the long term side, but there's a good market for that and that helps us manage call. Jack, you covered everything. It's just another product in our portfolio, one that we were not offering in and of itself as recently as a year ago, we did do mid term contracts that were effectively stapled to long term, but it is something that, as Jack said, helps us engage and broadens commercial offering, and again fully expect that long term contracting will resume in short order given the current margin environment and where we are in the cycle. Thank you very much. Call. Our next question comes from Julien Dumoulin Smith with Bank of America. Conference call. Our next question comes from Greg Scherer with Chewy Brothers. Thanks for squeezing me in and congratulations on the good quarter. Call. Jack, did I hear you say Corpus Christi Stage 3 could be an 11 MTPA project? And then a related question, Any updates on further upsizing opportunities for the legacy Nine Train position? Absolutely, Corpus Christi Stage 3 could be 11,000,000 ton project. And that's currently what as we continue to work on value engineering with Bechtel, call. We continue to drive not only the production of those trains, but also drive the cost down, Craig. And then I'm sorry, I missed the last half. The rest was on debottlenecking, further debottlenecking on the Nitrain. Yes. So we've the debottlenecking effort has went well above at least my expectations. The team has just done a great job at, I'd say, picking the low hanging fruit, call. And they continue to identify different choke points within the LNG liquefaction process call that we can make modifications to continue to drive more output through it. So I do think there's more to come. Call will be giving you some guidance on that as we identify and feel comfortable that we can deliver it over the long term. Call. Thank you. Call. Our next question comes from Chris Seng with Weber Research. Good morning, gentlemen. Thanks for squeezing me in. I wanted to just kind of touch on the color you were talking about for the supply curve. And are you able to kind of provide any thoughts on the Mozambique LNG deferral with the project of that size on 13 MTPA Being deferred by at least a year, have you noticed any impact through the market? And is there any impact for Stage 3 No, look, I only know about the Mozambique delay with what I read as well as what you read from Total and Exxon and it's call is a sad situation and I hope everybody is safe and healthy conference call that we're there to experience that unrest. But no, I don't think it's I don't again, it's a different business paradigm than what we offer. So we offer a full value product. The customer doesn't have to invest in equity. Customer doesn't have to worry about the E and P side of the business because we've been able to buy at our peak almost 7 Bs a day of U. S. Natgas call from almost 100 different producers on 26 different pipelines and deliver it to our 2 facilities. So we take care of a lot of what the customer needs, unlike them having to invest equity or be intimately involved In the E and P side of the business. But Anatol, do you have anything to add on Mozambique? No. Thanks, Right. No, that's kind of the point. It seems like the project is kind of challenged and you guys are able to kind of offer a product without equity and You're able to deliver this product. So could you guys possibly be able to observe some of that off take or have discussions with those customers That are impacted because of project delay. Absolutely. And most customers are diversity of supply and having a reliable supply of LNG and that's what we offer, but absolutely. Okay. All right. And just one more on the I guess, the ESG front, you guys introduced the cargo emission tags early in February and it looks like you guys were able to deliver your 1st carbon neutral cargo call. It looks like these are measures taken to kind of assuage the European businesses and customers With regards to the carbon intensity of your product. So I guess Given I guess, how have those conversations Change or have they kind of stayed consistent in the first half of this year? Thanks, Chris. This is Anatol. This is again continued progress by the team. The work that we have done over the last couple of years made us very comfortable with our environmental footprint and emissions footprint. And we are working on, again, quantifying, validating and having that properly assessed before we roll it out as you know in 2022, we are confidence that we are part of the solution for decades to come. We just have to deliver on that transparency and that is something that we're working on. Obviously, call. The engagement with Shell demonstrates steps in that direction as well. It is part and parcel of our commercial discussions and that we are call, we fully expect it to be an increasingly important component of those discussions. So again dealt very good hand that will continue to improve over time and contribute solutions as our customers move forward. Great. Thanks so much and congrats on a great quarter. Thank you. Conference call. Our next question comes from Sean Morgan with Evercore. Hey, this question is probably best for call, maybe Anatol. But last time I talked to Anatol, we were talking about the disruption, I guess, to customers close by that super spike that we saw with JKM. And I think that's maybe causes a little bit of difficulty in terms of customer assurance of signing long term deals. But have you because you saw Henry Hub really hanging in with a lot less volatility, is there Any kind of demand response that you're seeing now that benefits Cheniere that maybe more customers looking to sign up Henry Hub based price volumes because of the kind of consistency of pricing there? Thanks, Ron. If I may redirect a little bit, what I think we're discussing is, If we were in a world where natural gas prices global natural gas prices spiked to such elevated levels, it could create long term headwinds to natural gas' market share in the primary energy mix. Look, what we've always said is that that disruption that played out in the short term spot market was a great advertisement, if you will, for long term contracting, right? Our customers enjoyed almost perfect reliability and almost perfect price stability over that period and what's being highlighted now as prices and margins have normalized is that again the attractiveness of a $3 minuteus ish NYMEX product plus our economics call on the long term side are very stable and very attractive and we think a key part of a diversified and and flexible portfolio. So if anything just like some other price excursions that we've seen over the last couple of years, call continues to highlight the attractiveness of our term commercial offering and we're very well positioned for these coming years. John, did I lose you? Sorry about that. Yes, just going back to Mozambique real quick. Hey, Sean. Sean, we're over on our time. So I'm going to go and we still have people in the queue. So I'm going to ask that conference call. Our next question comes from Ben Nolan with Stifel. Hey, thanks. I appreciate excuse me in here, Jack. I wanted to and I apologize this is overly simplistic, but just sort of looking at the quarter, you did $1,500,000,000 of EBITDA, but then sort of extrapolating the guidance for the remainder of the year, it's only about $1,000,000,000 a quarter and that's even with not full contribution from Train CRE in the Q1. Can I don't know Zach or anyone, can you maybe walk through how you're thinking about what the moving parts are to that level of guidance relative to sort of the performance in the Q1? Call. Sure. I think many folks smooth out our quarters over the course of the year and maybe that underestimated what many of you thought we would produce for Q1. But Q1, Q4 cost in the colder quarters of the year, they're not shoulder season, so there's less demand for LNG as well. And there's more of a volatility at call. The same time, all of that adds to higher EBITDA, higher figures for the beginning and the end of the year. So this was as expected to us call. And we've made it pretty simple that for the rest of the year, there's only about 40 TPTU even open. When those cargoes are delivered, that depends on some of the FOB versus DES deals that we have, but this is right on track for where we thought we would be. Call for Q1 with some additional optimization of higher LNG margins and then for the rest of the year. Call. All right. Okay. Thanks. Call. We'll take our next question from Alex Kania with Wolfe Research. Great. Thanks for taking my question. Maybe just a follow-up on the Shell deal. Long term, as you just think about the European carbon market developing, we've seen higher prices there and The potential for kind of import kind of tariffs, I guess, associated with carbon. Do you actually envision doing a carbon neutral or carbon free product kind of being value additive rather than just providing a good ARB rather than just getting a European buyer just You know, pay more money for a kind of a for just a kind of a generic premium or is it going to ultimately be a positive for you guys just on an ARP basis? Conference call. Yes. Alex, I would say, 1st and foremost, in Brussels or in Europe call is the U. S. Gas market is the most transparent market in the world. Call. So the first thing we need to do is get our LCA done, get it published, get it reviewed by all the scientists of how we're going to calculate the lifecycle emissions of the whole LNG train, because there's a lot of disinformation out there call and there is not a very good process for defining terms that everyone agrees to. So when we talk about transparency about monitoring, validating and reporting our carbon footprint, that's in direct response to a lot of misinformation and miscalculation to say the least. And then secondly, I do think there's going to be a premium to carbon offsets and our ability to generate and produce carbon offsets to help our customers. And those offsets need to be with their appropriate registrar. Call, they need to be validated. I think it's all in line with what our offerings are for our customer and part of our business line and business proposition. Yes, I think the first go around will be European, our European customer call is initially, but I think worldwide, the whole industry will move this way. Go ahead, Anatol. Yes, just to follow-up on Jack's points, we have very good engagement across the world on these issues and metrics. Europe has the most liquid and most transparent carbon emissions market. As you pointed out, it's trading around $60 a ton today, that is a very good sign of the benefits that the natural gas presentation to the extent that we are comfortable with our RLCA and our emissions footprint, Cheniere's LNG, the value that that can contribute to that market, but also good engagement really all over Asia call as the world continues to focus and we continue to focus on improving our value chain lifecycle emissions profile that call, we're quite optimistic about. So, kind of again, just like capital allocation, all of the above. Call. Great. Thanks. Our next question comes from James Carreker with U. S. Capital Advisors. Call. Hi, thanks for the question. Circling back to guidance, I was wondering if we could talk a little bit about What kind of change between now and the Q4 call? I think it was late February and the large spot price LNG spikes had kind of subsided. It was kind of post the storm and I think you only had 50 TBtu of open capacity call. So kind of maybe can you talk a little bit about between now and then what has changed to yield $200,000,000 of additional upside? Sure. This is Zach. And as you mentioned, we were able to raise guidance last time in February by $200,000,000 call are 200 TBtu of open capacity went down to 50 TBtu and as the market went up, we were able to take advantage of that. Since that call, the rest of the year had been looking around $2 that's gone up another dollar. And at the same time, our operations folks conference call have been pretty opportunistic on the production just with the colder weather, Train 3 actually ramping up pretty smoothly after March 26 and just some opportunistic maintenance during the freeze and fog call that they added around 10 more cargoes to the forecast. That's over 30 TBtu. So when you add those two things together, that gets you your 200 pretty much. Call. Okay. And is there any amount of that that you could quantify that's kind of gas optimization related to the storm? Call is not really considering I just gave you a number that's maybe 3 fourths, if not more of a 200 move. Call. And those are all the questions we have on today's call. That does conclude today's conference. We thank you for your participation. You may now disconnect.