Good morning. Welcome to the Cheniere Energy 1Q 2019 Earnings Call and Webcast. Today's conference is being recorded. At this time, I'd like to turn the call over to Randy Bhatia, VP of Investor Relations. Please go ahead.
Thanks, operator. Good morning, everyone. Welcome to Cheniere Energy's first quarter 2019 earnings conference call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me on today's call are Jack Fusco, Cheniere's President and CEO, Anatol Feygin, Executive Vice President and Chief Commercial Officer, and Michael Wortley, Executive 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 two of our presentation contains a discussion of those forward-looking statements and associated risks. In addition, we may include references to non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow.
A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in the appendix to the slide presentation. As part of our discussion of Cheniere Energy, Inc.'s results, today's call may also include selected financial information and results for Cheniere Energy Partners, L.P., 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 three. Jack will begin with operating and financial highlights. Anatol will provide an update on the LNG market. Michael will review our financial results. After prepared remarks, we will open the call for Q&A. I'll now turn the call over to Jack Fusco, Cheniere's President and CEO.
Thank you, Randy. Good morning, everyone. I'm happy to be here today to discuss our results from the first quarter, which was another excellent quarter and one marked by a number of successes, from continued unparalleled execution of our LNG platform to a flawlessly executed maintenance turnaround at Sabine Pass and financial results in line with our previous forecast. This enables me to reconfirm our full year 2019 financial guidance. Slide five presents a summary of key results from the first quarter. We generated net income of $141 million, consolidated adjusted EBITDA of $650 million, and distributable cash flow of over $200 million on revenue of almost $2.3 billion for the first quarter. Looking forward to the balance of 2019, today we are reconfirming our full-year consolidated EBITDA guidance of $2.9 billion-$3.2 billion and distributable cash flow guidance of $600 million-$800 million.
Michael Wortley will cover our financial results and outlook in more detail later in the call. In the first quarter, we produced and exported 87 cargoes, a record number, and the quarter was highlighted by achieving substantial completion of Corpus Christi train 1 in late February and Sabine Pass train 5 in early March. The achievement of substantial completion on 2 liquefaction trains only days apart at separate project sites and both ahead of schedule and on budget is one of the best examples yet of our relentless focus on execution. We set the standard for execution in U.S. LNG at Sabine Pass, and we're proud that our reputation and track record are being reinforced as competitive advantages as we begin to bring LNG capacity online at Corpus Christi. We have now demonstrated that execution isn't site-specific. Rather, it's Cheniere-wide.
I'd like to recognize and congratulate the Cheniere and Bechtel teams at both project sites for their performance and contributions to the achievement of these milestones. Commissioning activities began earlier this year for train 2 at Corpus Christi, and we expect to introduce feed gas in the coming weeks. We continue to expect train 2 to be completed in the second half of this year, ahead of schedule and within budget. Construction continues to progress very well on train 3 at Corpus Christi, with the overall project about 52% complete as of the end of March. During the first quarter, we also issued full notice to proceed on the Midship pipeline project after obtaining all required regulatory approval and closing the debt financing.
We entered into the credit facilities with total commitments of up to approximately $680 million and expect that project to be completed and placed into service by the end of 2019. Turn now to slide six, where I'll update you on a few priorities as we look forward to the balance of 2019. Entering 2019, one of my key priorities for the year was to place trains 1 and 2 at Corpus Christi and train 5 at Sabine Pass all into service safely, ahead of schedule, and on budget. We are already two-thirds of the way towards achieving that goal, and as I just mentioned, we are on track to achieve it when we place train 2 into service in a few months. Next, we expect to reach a positive FID on train 6 at Sabine Pass in the first half of 2019.
Early engineering, procurement, and site works for train 6 continue to progress under limited notices to proceed to Bechtel, giving that project a head start in anticipation of FID while fixing the cost and construction schedule. Pile driving is complete, with over 6,000 piles completed, and Bechtel is continuing foundation work and beginning structural steel erection. We are concluding the financing process for train 6 and supporting infrastructure, and expect to progress that project to FID in the near term. Next, I'd like to address the higher-than-normal maintenance at Sabine Pass we're managing this year. As you may know, we have recently completed a maintenance turnaround on trains 1 and 2 that I'd like to highlight. First, my hats off to Aaron Stephenson and his staff, since the turnaround was executed flawlessly.
Over the course of approximately three weeks, over 185,000 man-hours were worked, and over 1,000 work orders were completed across multiple equipment packages and processes throughout Trains 1 and 2. Not only was this work completed on schedule, but more importantly, all of this was completed with zero safety incidents. I'd like to recognize the entire production team, maintenance and operation teams, and all those who helped manage a successful undertaking, and for demonstrating that safety is one of Cheniere's core values. Shifting to the next phase of our growth after Sabine Pass Train 6, we are focused on Corpus Christi Stage 3, a 9.5 million ton per year expansion project. In March, we received a positive environmental assessment on Stage 3 from FERC. That project is progressing through the regulatory process better than we expected.
We maintain our expectation that Stage 3 will have all the required regulatory approvals by the end of 2019. We are actively commercializing Stage 3, and all is progressing well. Finally, a brief update on the development of our capital allocation framework. This effort is one of the highest priorities for Michael and I, and the rest of the executive team, as well as our board. We have spent a significant amount of time and effort developing a framework that prioritizes growth investments in our LNG platform, ensures responsible leverage at our project entities and on a consolidated basis over the long term, and provides for the return of excess capital to our shareholders in a meaningful and flexible manner. We expect to finalize and communicate this framework in the coming weeks. In early June, we plan to host meetings with the investment community to review these important strategic items.
We'll be sending out more information very soon. We hope to see many of you there. Now, I'll turn the call over to Anatol, who will provide an update on the LNG market.
Thanks, Jack, and good morning, everyone. The LNG market is currently undergoing a phase of strong growth, as nearly 11 million tons of new LNG supply was added year-over-year in the first quarter of 2019. This is the largest year-over-year quarterly increase since the first quarter of 2010, when Qatar's mega trains were brought into service. The supply growth followed an equally strong year-on-year increase in the fourth quarter of 2018 when five trains began production, more than half of the total capacity that started up last year. Two of those trains were, of course, our trains, Sabine Pass Train 5 and Corpus Christi Train 1, which reached substantial completion in the first quarter ahead of schedule and on budget.
The incremental supply volumes in Q1 coincided with a reduced appetite for spot LNG in Asia as a result of warmer-than-normal winter temperatures and higher storage levels across the region, which led to a flat year-over-year Asian LNG demand number in the first quarter of 2019. The combination of a temperature-driven moderation in Asian demand growth and strong global supply growth resulted in record flows into European regas terminals during the quarter. Q1 imports into Europe reached 21 million tons, more than double the level seen in the first quarter of 2018, resulting in higher storage levels. Increased storage levels have led to lower spot gas prices, but have underpinned an increase in gas-fired power generation. Increasing carbon prices have also played a role in incentivizing higher gas-fired power generation, especially in countries such as Germany, where ample capacity exists to displace coal in the generation stack.
As you can see from the price chart on the bottom right, not surprisingly, recent LNG supply and demand dynamics have combined to shift global gas prices lower year to date. However, we've already begun to see Asian and European prices rebound as strong carbon prices have provided gas pricing support. Now please turn to slide nine to look at some of the regional trends in more detail. As I mentioned, Asian demand in the first quarter was flat to the first quarter of 2018 and decreased slightly from the fourth quarter of 2018 as mild weather and strong storage levels suppressed import demand growth. Temperatures in North Asia were approximately one degree Celsius above normal in Q1, resulting in a reduction in heating degree days of over 10% relative to the 30-year average.
Imports from the established markets of Japan and South Korea decreased by 9% and 20% respectively compared to the first quarter of last year, primarily due to ample storage levels achieved in Q4 and greater nuclear power generation. Looking forward, we see some positive signals for these markets. In South Korea, 2.3 GW of older coal-fired power plants are set to shut down in the first half of 2019, while nuclear maintenance and a change in coal and LNG taxes that incentivize coal to gas switching during the back half of the year could spur new LNG demand. The country decreased taxes on LNG and raised them on coal starting April 1st as part of its efforts to curb air pollution. In Japan, five nuclear reactors totaling 5.6 gigawatts are expected to undergo scheduled maintenance between the second and third quarter.
Another four reactors will have maintenance in the upcoming winter. Looking further out, Japan's Nuclear Regulation Authority recently announced news around retrofit extensions that could negatively affect 10 reactors, six of which are currently online. This increases the uncertainty around nuclear generation output during the early 2020s and could spur an increase in LNG demand. Emerging LNG markets in Asia exhibited strong year-over-year demand growth in Q1 and helped counterbalance the demand weakness in North Asia. China's imports were up 28%, driven by continued economic growth, continuing the significant multi-year growth trend in that country. We've spent a significant amount of time in China already this year, further solidifying our relationships with key commercial decision-makers of current and prospective counterparties.
We remain bullish on Chinese LNG demand growth and believe Henry Hub-linked LNG remains very attractive to Chinese buyers, especially relative to Brent-linked LNG, given current market prices and the under-weighting of Henry Hub-linked LNG into China. Elsewhere in emerging Asian markets, Pakistan and Thailand both recorded double-digit growth % to support their growing economies and declining indigenous gas supply. These countries, along with other countries and regions throughout Asia, such as Bangladesh, India, Taiwan, and others, continue to add new LNG regasification infrastructure that allow for larger LNG import volumes in the future. Based on these regional dynamics, we have seen JKM fall from around 13% of Brent at the beginning of the year to the lower end of the five-year range as of April. Strong supply growth has softened the market and pushed down spot prices.
We expect lower benchmark gas prices to stimulate a positive LNG demand response in due time. To conclude, solid supply growth over the fourth quarter of 2018 and the first quarter of this year exerted some downward pricing pressure on the spot market as it coincided with mild winter temperatures and lower import needs from key Asian buyers. We expect supply to continue to trend upward this year and anticipate Europe will absorb a significant portion of that supply growth. However, we expect the recent softening in spot LNG prices to generate a demand response and incentivize gas and LNG demand growth in Europe and Asia when storage levels normalize. I'll now turn the call over to Michael to review our financial results.
Thanks, Anatol, and good morning, everyone. Turn now to slide 11. For the first quarter, we generated net income of $141 million, consolidated adjusted EBITDA of $650 million, and distributable cash flow of over $200 million. We exported 310 TBTU of LNG from our liquefaction projects during the first quarter, of which 25 TBTU were commissioning volumes. Total volumes exported were 25 TBTU higher than exports in the fourth quarter of 2018 due to additional commissioning and post-completion production volumes from Sabine Pass Train 5 and Corpus Christi Train 1, partially offset by the planned maintenance turnaround of Trains 1 and 2 at Sabine Pass, which began in March, and a small impact from seasonal fog.
For the first quarter, we recognized in income 282 TBTU of LNG produced at our liquefaction projects, consisting of 284 TBTU loaded during the quarter, plus 25 TBTU or seven cargoes loaded in the prior quarter but delivered and recognized in the current quarter, less 27 TBTU or seven cargoes on a delivered basis that were in transit as of the end of the first quarter. We also recognized in income 18 TBTU or five cargoes of LNG that was sourced from third parties. Approximately 80% of the 300 TBTU recognized in income during the quarter, or 239 TBTU, were sold under long-term SPAs, and the remaining 61 TBTU were sold by our marketing function under short- and medium-term contracts. Volumes sold under long-term SPAs increased from the prior quarter, primarily due to increased volumes under certain SPAs held by our marketing affiliates.
Short-term marketing volumes also increased due to increased production volumes, primarily driven by Sabine Pass Train 5 and Corpus Christi Train 1. Eight commissioning cargoes from Sabine Pass Train 5 and Corpus Christi Train 1, totaling 28 TBTU of LNG, were recognized on our balance sheet as an offset of $202 million to LNG terminal construction in process during the first quarter. Operating income for the first quarter was $606 million, an increase of approximately $90 million compared to the fourth quarter of 2018.
The increase in operating income was driven primarily by increased net gain from changes in the fair value of commodity derivatives, lower pricing of natural gas feedstock and third-party sourced LNG, and an increase in LNG volume sold, partially offset by increased volume of natural gas feedstock, lower LNG market pricing, and increased total operating costs and expenses as a result of additional trains and operation, and increased service and maintenance costs from certain maintenance and related activities at Sabine Pass. Net income attributable to common stockholders for the first quarter was $141 million, or $0.54 per share on a diluted basis, an increase of more than $70 million compared to the fourth quarter of 2018. The increase in net income was primarily due to increased operating income and decreased derivative loss related to interest rate swaps, partially offset by increases in interest expense and net attributable to non-controlling interests.
Turn now to slide 12. Jack mentioned earlier our first quarter financial results were in line with our expectations. Today we are reconfirming our full-year consolidated adjusted EBITDA guidance of $2.9 billion-$3.2 billion, attributable cash flow guidance of $0.6 billion-$0.8 billion. As we look toward the remainder of the year, as Anatol discussed, we're seeing lower prices in the market. That is expected to impact our margins. That impact is mitigated by an increase in our production forecast for the remainder of the year as a result of maintenance optimization and better-than-expected performance.
As Jack mentioned earlier, we have previously discussed developing and communicating a capital allocation framework within the first half of this year, an effort that has been underway since late 2018 and continues to remain a high priority for myself and the Cheniere team. We're also focused on finalizing the financing for Sabine Pass Train 6 and the continued development and commercialization of Corpus Christi Stage 3. We plan to finalize the capital allocation framework in the coming weeks. We'll be hosting some investor meetings in early June to provide more information regarding capital allocation, Sabine Pass Train 6, Corpus Christi Stage 3, and how these items impact our run rate guidance. We'll have more detail for you regarding those meetings in the very near future. 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.
Yes. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question. If you have more questions, you may queue again and get back in the queue line. Again, press start one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Jeremy Tonet with JPMorgan. Please go ahead.
Good morning. There's been a lot of news out there with regards to China trade with the U.S., I was just wondering if this uncertainty, does this impact the timing that you guys have had with your communication of the capital allocation policy or the SPL6 FID? If China trade issues lead to the LNG market being at a point where it doesn't make sense to FID CCL3 in the near term, what would you do with your extra cash at that point?
Jeremy, thanks. Thanks for the question. I think if I continue to look forward to a resolution of the current trade tensions between the two countries. I think the trade tensions and the tariffs are unproductive and create some added cost to our Chinese consumers. As a company, we're relatively insulated from the current future tariffs, and we don't expect any material impacts. It has had no impact on us at all on FID-ing of Train 6 or on capital allocation or any of that. As you know, out of the 18 foundation customers, we were blessed to have PetroChina as one of them, but they're 1.2 million tons, so it's relatively small in the portfolio, and we continue to deliver to that customer, and they continue to pay us. It hasn't had an impact on us.
I don't expect it to have an impact on us either today or going forward.
That's helpful. Thanks for that. Just a quick one with regards to the CMI sensitivity that you guys have provided before. Is that still accurate, that $130 million number? Or as the years progress, that number is smaller? Is 2020 a similar level of sensitivity, or is it smaller because you have greater contracted capacity at that point?
Hey, Jeremy, it's Michael. With regard to that, obviously, margin has been a pretty significant headwind for us this year. If you recall, in November, we said we had about $5 of margin in our plan for 2019. On our last call, we said that had come down to probably $3. Today, it's come down a little bit more. It's probably more like $2 with Q2 and Q3 below that number and Q4 probably above that number, but averaging out at about $2. That's the headwind. As I mentioned in the remarks, we've had a pretty significant tailwind on the production side. We don't control margin. We couldn't really pre-sell these volumes because they were a lot tied to trains coming online, which has been uncertain.
We do control production, we said we had about 6 million tons in the CMI book this year. It looks like that number is probably more like 8.5, given where our production forecast has gone for the balance of the year. That's really coming from 4 areas. Within Corpus Christi, the first one, Corpus Christi Train 2, is looking like it's going to come in a little bit earlier relative to what we had in our plan that we laid out in November. Still a second half event, but a little bit earlier. That's driving some production. Second are a couple de-bottlenecking things. We told you one was nameplate capacity.
Now feel like that there's some nameplate gains that are going to be above 100% that we've put in the plan for the balance of this year. The third bucket driving production is maintenance optimization, which has been one of our pieces of de-bottlenecking we've talked about. Made some pretty significant strides in that area in terms of how we operate the plant, which has taken out a lot of downtime days for the balance of the year and for the rest of the life of the plant.
That's driving increased production. Finally, we've seen, as the fourth piece, better ramp up at the two trains that came on earlier this year. Train 5 at Sabine and train 1 at Corpus. Have both really hit their stride sooner than we thought. Those four things are driving a big production tailwind for us, which is made up for a lot of the margin erosion, not all of it, that's allowed us to stay within our guidance range. Really back to your question that we said a dollar move is $130 million. I would've expected that to erode over the year as we produced. Since we've added so much production, for the balance of the year, that number is still about the same, maybe even a little bit higher given the production we've added.
We're busily putting those volumes away in the market right now. Expect that to erode from here on out. It's still about, for every dollar move from here, probably ±$140 million against EBITDA. You asked about 2020. I don't have that sensitivity in front of me. I would expect volumes, of course, at the marketing business to be significantly lower given DFCDs on trains 1 and 5 this year and train 2 next year. We could probably get you that number later.
Wow, that's great. Thank you.
We'll take our next question from Christine Cho with Barclays.
Good morning, everyone. I wanted to start on the capital allocation policy. I know you're going to give some more color on the specifics, from a high level, can you talk about how your thoughts on the priorities of reinvestment, stock buyback, debt pay down, and dividends have changed with kind of how shareholder preferences have changed, the weaker spot market, the number of projects that have FIDed in the U.S. and abroad versus what you may have thought a year ago?
Christine, I'll start that. This is Jack, thank you and good morning. The capital allocation process, as you know our first and foremost is to fund our growth. We think we have some excellent growth opportunities, we need to fund that growth near time, hopefully, we can continue to fund the growth for the long term. Growth is always our number 1 priority. The next one would be our balance sheet. I think it's imperative that we strengthen our balance sheet throughout the capital structure. Our last priority would be capital return. We don't intend to hold the money. We intend to give it back to our shareholders in the most tax-efficient and effective way that we can. We're going to talk a lot more about our capital allocation strategy going forward in early June.
I'll turn it over to Michael to see if he has anything to add.
I guess the other part of your question, not only market conditions have really changed our thoughts around this over the past year. As Jack said, growth is number one. We have stage 3 in our model. It's happening sometime next year. I think Jeremy asked what happens if it doesn't happen next year, what are you going to do with the money? I think that's a decision for next year. Right now, our plan is to continue investing growth.
Okay, great. We saw a period of time where the spot LNG prices actually didn't maybe cover the variable costs of picking up LNG from the U.S. In the event that we have short periods of this kind of volatility over the near term, can you just remind us how much in advance a customer has to let you know whether or not they're coming to pick up a cargo, and what kind of penalties there are if they decide to cancel something that was scheduled?
Just for clarity, there hasn't been any spot cargoes that haven't cleared the U.S. and made a margin. I just want to help alleviate that fear, if that was a fear that you all have had. The spot prices have been extremely volatile. To answer the question about the customers and the SPAs, it's a 60-day notice period. We don't anticipate ever having to use that option, especially where our feed gas and our long-term forecast for natural gas here in America seems to be fairly range-bound in the mid to high twos.
Okay. Just to clarify, you haven't seen any customers say, not pick up cargoes or do any cancellations in the first quarter?
Not at all.
Year to date. Okay, perfect.
No, we wouldn't expect that at all with where the current gas prices are here in America.
Okay. Last one from me. Can you give us an idea of how much of the marketing portfolio is hedged over the next couple of years? Maybe how we should think about the cadence or a multi-year average. Michael, I think you talked about this with Jeremy's question, but just to confirm, we shouldn't think that any of the early cargoes are hedged, right?
Well, what do you mean by early cargoes? You should talk about the DFCD.
The cargoes that you guys are producing after it's been commissioned, but before the customer contract starts.
Yeah. Right. As I said, those are hard to pre-sell, right? Because you're never exactly sure when the plant is going to come online. We don't want to get caught really short in a rising market. Yeah, those are more driving our spot book right now. We're putting those away now. We actually had made a lot of progress on that. Then we added a lot of production given the four things I talked about earlier. We're back in a long position. I think as I've said in the past, I think we generally want to shy away from getting into the status of our book. I'll always give you guys sensitivities at eye level, but certainly not in the current year. On the multi-year, it's always CMI's goal to ultimately term up and then regrow that book and term up.
I guess that's all I'd say on that.
Is there maybe a target that you would like to be in?
In terms of what? Contracted?
Like percentage. Yeah, percentage contracted.
We've said in the past 5%-20% in the marketing book, just given where we are on construction and DFCDs and all of that. I think we'll continue to be in that range over time.
Great. Thank you.
Yeah. Christine, I think we've been extremely successful at using those early marketing volumes to sign up long-term contracts. Right? That led to seven and a half million tons of long-term contractual deals last year. You should expect us to continue to do that, and lock in those margins. I would expect it's going to be a little rocky as far as the CMI volumes, just because of the DFCDs that are starting up. The fact that our construction team has done such a great job and has brought these trains in so early that we've had all these cargoes to dispose of in the market. That's not the long-term strategy for the company.
Right. Thank you.
We'll take our next question from Michael Webber with Wells Fargo.
Hey, good morning, guys. How are you?
Hi, Michael.
Jack, I wanted to start first on kind of China trade and tariff and maybe kind of combining your answer to the first question with something Michael referenced a bit earlier. It seems like the existing portfolio, Sabine Pass six capital returns all obviously insulated from what's happening in China. If anything, it seems like you probably have some businesses probably on the goal line ready to go once that gets resumed. If we think about what it could impact, and just to be specific, if I think about Corpus stage 3, and then Michael, your answer about it being in your model for some time next year. Is it realistic to think that do you have enough non-Chinese based business that you could realistically green-light stage 3 next year?
If the current scenario just kind of sits through for the next 24 months, we kind of stay with the status quo.
Michael, I'll start first. China's demand for natural gas and for LNG continues to grow significantly year-over-year. They haven't even begun to pierce the power generation side of natural gas. As you and I talked about when we were in Shanghai, and I saw you on the hallway there, their demand is going to continue to grow. It's going to get filled by somebody, right? Preferably it's coming from the U.S., if not, it's going to come somewhere else. There's a whole other opportunity if that LNG flows away from the rest of Asia and Europe for us to continue to commercialize. I think we have the best commercial team in the industry, and it's not going to slow us down on commercializing our stage 3. I don't know, Anatol, if you have anything else to add.
Sure, Jack. Well, thanks. Clearly, we've said before that China is a focus for us. It is, as Jack said, a rapidly growing market and a market that is learning every day that its legacy Brent-linked contracts are less attractive than its potential Henry Hub-linked contracts. We're not shying away from the opportunity that is China. We'll continue to pursue that, as you know. As Jack said, we have a robust level of engagement, and we are comfortable that stage 3 is a 2020 event with or without China.
Gotcha. That's helpful. Just to remind us around stage 3, just given that it's inherently going to be a bit more flexible, I guess, than some of the previous trains in terms of parcel size, if you will. What's the first realistic commercialization hurdle you have for green-lighting, I guess, part of stage 3? Would you just need to do it all at once?
We could do it in stages. In fact, we're currently working with a couple of different EPC contractors to see what the options are, ultimately. The permit is for the entire project, or at least the regulatory filings are for the entire project, which is around 9.5 million tons.
Gotcha. How should we think about, I guess, the first realistic commercialization hurdle, even if it's just kind of a ballpark figure? Is it three? Is it five and a half, six, something a bit larger?
Yeah, Michael, it's Michael. Still working through that. It's probably not one seventh. It's probably more like half.
Fair. Okay.
Yeah.
Okay. That's fair. Just one more from me, if you will, just on the broader industry. At least within the U.S., it seems like there's a bit of a bifurcated market, at least for the last couple of years, where you've had some buyers maybe kind of entertaining cheap or extremely low-cost gas almost as kind of optionality. You've got buyers kind of willing to pay more for investment-grade quality, if you will. I'm just curious, when you look at your mix of buyers over the last three to six months, have you noticed any shifts with maybe not a flight to quality, but maybe a bit of a shift from buyers that were willing to entertain that kind of extremely cheap optionality starting to dig in a bit deeper with you all or more established options?
Well, okay. We had a shift in our strategy that I don't think many people picked up, and that was that we started delivering directly to end-use consumers.
We noticed that the international utilities weren't being served directly, and that's what led to CNPC or PetroChina deal. It's what led to CPC in Taiwan. It's what led to PGNiG in Poland, is our ability to be a full-service provider to those utilities' needs. That's opened up a whole another opportunity for us as far as creditworthy customer base that are looking for long-term, reliable, affordable supply. Every U.S. LNG, well, there's not many of us in operations, but every one that's being proposed has a different business model. Our business model is to be flexible with what the customer's needs are and to get close to the customer and deliver whatever aspect they want. In most cases here recently, it's been the full-service provider. I don't know, Anatol, if you have anything to add to that, if you're seeing a shift.
Well, just to build a little bit on what Jack said. Porter, back in 1980, said there are only three ways to compete in the commodity market, that's low cost, differentiation, and niche. Niche is too small. Low cost is a business that at this point we're not pursuing, as Jack said, every one of our deals last year was differentiated. You didn't see us do the same plain vanilla FOB deal. More than half had bridging volumes, which we spoke to earlier out of the CMI portfolio. More than half were on a delivered basis, as Jack said. They all had components that the team came up with that optimally met the customer's needs, and those are offerings that today nobody else can come to the table with.
That has proved a very successful formula last year, we'll continue to innovate and be commercially creative as we continue to grow.
Got you. That's helpful. I'll save my Indian Pakistan questions for after the call. Appreciate it, guys.
Thanks, Michael.
As a reminder, it is one question and one follow-up question. Please limit yourself to one question and one follow-up question. We'll now take our next question from Shneur Gershuni with UBS. Please go ahead.
Hi. Good morning, everyone. A lot of my questions have been asked and answered, but just a few questions here. With respect to CMI, a lot of focus seems to be on LNG pricing. Anatol, you gave a lot of great color about the market and so forth. It sort of seems that a lot of investor focus is there. Should we not be thinking about it from a netback perspective? I was wondering if you can sort of talk about how the netbacks have changed relative to headline LNG pricing globally.
Sure. It's Michael. My comments earlier were all netback-based. Yeah, the $5 that we had in our plan for this year in November was a netback that was reflective of much higher LNG prices, high single digits, probably $10 in the winters. That netback's moved down for us the balance of the year to probably more like $2, which as I said, is lower than that in the summer months and likely to be higher than that in the winter months. That's the terminology we use also.
Can you sort of discuss how it's changed relative to the headline price? Like has it been shrinking faster than the headline price or expanding faster during different seasonal changes? Just wondering if is it a one-for-one change percentage-wise, or have you seen different changes?
No. Thanks, Shneur. It's Anatol. The big component is shipping. As you probably know, shipping went to 200,000 a day over the winter. That was driven in part by the steep contango we saw in the fall and over 30 vessels that were used short-term as floating storage that delivered their cargo and then came back to the market. In the shoulder, we saw shipping rates drop down into the 30,000 range, and they've moved up somewhat from that point. As Michael said, winters on the forward curve are firmer, as is shipping in the winter. Those are the two big components, and add them up, add a little bit of noise, and that gives you the netback.
Right. Fair enough.
Henry Hub has been relatively flat.
Right. Okay. That makes sense.
Yep.
Just in terms of your O&M performance, obviously, that was related to the de-bottlenecking and some of the turnarounds and so forth. Do you have a sense of a schedule for turnarounds? Is it something that should happen every 18 months, 36 months? Just kind of wondering how we should be thinking about them on a go-forward basis.
Yeah, go ahead.
Yeah. This is Michael. They're planned many months, if not years, in advance. There was some commentary around us taking down one and two opportunistically. That wasn't the case. That turnaround had been planned when it happened for a long period of time. They're in varying degrees over time. I think the majors are more like 6 years. We're obviously not there yet. The ones we just had are a little bit more significant, but not a major turnaround relative to the six-year schedule. Yeah, they're scheduled long in advance and
I don't think we'll get specific on when the plants are going to be going down. We'll just build that into our guidance for you.
Great. Just one final question. There's likely going to be a large energy company exiting the S&P 500 this year due to an acquisition. In your opinion, do you feel that LNG hits all the metrics that S&P requires for index inclusion?
Go ahead, Randy.
Hey, Shneur, this is Randy. Yeah, as we interpret the requirements for inclusion, we do meet them all. In our view, it's a matter of when, not if, but we don't control the timing. It'll be up to the committee that makes those determinations.
Great. Thank you very much, guys. Really appreciate the color today.
Thanks.
We'll take our next question from Craig Shere with Tuohy Brothers.
Good morning. Congratulations on the great quarter and the great color that you're providing so far. Michael, how does the better operating results this year feed into the planned upsizing of legacy trains and the $300 a ton cost to make that happen? Can you specifically comment on what additional benefits we might see going into 2020 and maybe the timing of that spend?
Sure. We're out with a 4.4-4.9 range for the trains. I think on the last call, Jack Fusco said we were aiming for the high end of that range. I think the results today and what we talked about earlier show progress to the top end of that range. We won't be there this year, obviously. We're making good progress and would look to update this whole thing for you when we come out in June. As I said earlier, the two best parts of the de-bottlenecking are getting more out of the plant on a nameplate basis. That's happening, as I said, costs no money. Just running the plant more, which is what's really driving the upgraded numbers for this year. Finally, as I said, the third one involves capital.
We have not seen results from that yet. We're getting some pretty good planning now for that to start to have an impact over the next year or two. Yeah, I think the number you quoted is still a good number for the investment side of it, which will help us to climb higher and higher in that 4.4-4.9. That's what I'd say now. I think in a few weeks when we're out, we'll put some more meat on that bone for you.
Wonderful color. Michael, one more for you. If I'm doing the numbers right, all the foundation customers were obviously at SPL, we can kind of back into $19 million of Corpus Christi equity cargo sales hitting the income statement in the quarter. LNG C- Corp operating cash flow, excluding CQP and working capital changes, was a positive $100 million. Mind you, that's the first positive number versus negative numbers 2Q to 4Q last year. If I do the math, that's five and a quarter and a M in margin, just dividing 100 by the 19. It just seems implausible that equity cargo margins off Corpus Christi are explaining that robust cash flow at the C Corp. I guess I'm thinking there's two other possible explanations, which includes those third-party sourced volumes you mentioned, or possibly advantaged feedstock pricing in Southeast Texas.
Can you provide any more color?
You lost me on some of those numbers. I think I can confirm it's none of those three things, right? Clearly, we didn't make five and a quarter at Corpus, though we did have some hedges on and all that, but we did not make those kind of margins. Third party wouldn't have done it either, and I think Anatol can talk about our sourcing margins, but we didn't have any blowouts there on the positive. I think we'll have to get on the phone with Randy afterwards and figure that out for you.
Fair enough. No other thoughts about the sourcing?
Yeah. We keep going back and forth on this. There's nothing meaningfully different from our run rate. We buy from over 100 producers. We don't have spec pipeline capacity. We're pretty good about having a lot of resources. We have a great team that balances the plants every day. As you know, that is done at the project level and at CCL, it was very early days, a lot of volatility. The market is volatile. Production is volatile. That was not a meaningful contribution on the CCL side. We do think that the tremendous effort we have on that side of the plant is a financial and a very important strategic advantage for us going forward. No, we're not getting our hands on $9 and the whole Waha molecules.
Understood. Thanks, Anatol. Congrats to the team.
Thanks, Craig.
We'll take our next question from Jean Ann Salisbury with Bernstein. Please go ahead.
Hi. Good morning. It seems like of recently FID-ed LNG projects, I'm kind of thinking Golden Pass and LNG Canada, less has been definitively sold to real downstream buyers and more to portfolios or not yet sold. I think that's raising some concerns among investors I've talked to, that that's could drive LNG overbuild in the next wave. Is that something that concerns you, or do you think it's too early to say that that's a trend?
Well, I think it's too early to say that's a trend. Those are very specific sites and projects that have been either working on or in the hopper for an extremely long period of time. LNG Canada actually has off-takers, equity off-takers that are really utilities associated with it. There's a sliver there that Shell is hanging onto, which is a portfolio sliver, but not much of it. Golden Pass with the Qataris and Exxon, they can basically do whatever they want to do, but that's a relatively small project at 14 or 15 million tons in the grand scheme of things in the whole LNG market worldwide. Anatol, I don't know if you have anything to add.
Well, Jack, we're concerned that it's a very competitive market. As Wood Mackenzie says, this LNG market isn't getting any easier. That's why we continue to innovate, continue to come up with solutions that allow us to maintain this very highly contracted posture. We will not invest or grow our platform without it. We think we will have it, and we'll continue to grow on that basis. We're not competing in the merchant LNG space anytime soon.
That makes sense. As a follow-up, it seems like Midship Pipeline has been successful so far. Would Cheniere have any interest in building or operating a pipe connecting the Permian to Gulf Coast LNG demand, or is the return on that just not competitive versus Cheniere's other options?
Yeah. It's Michael. We always look at that kind of stuff. We have an active pipeline group, but when there are 20 other people trying to do it, we'll just focus on our core business, which is liquefaction. Midship was a unique opportunity and is a great project and is well underway, but we didn't see that same kind of opportunity coming out of the Permian. We make a build or buy decision on all these things, and right now it's much easier for us to just contract with the Kinders of the world who do a fine job on that.
Makes sense. That's all for me. Thank you.
Thanks.
We'll take our next question from Danilo Juvane with BMO Capital Markets.
Good morning. Thank you. One quick one from me with respect to capital allocation. I appreciate that there are 3 buckets that you're considering. Did I hear correctly that capital efficiency is what you're going to prioritize for the capital return bucket?
I think we said we're going to prioritize growth. Yeah.
No, I get that. Within the capital return component, was capital efficiency paramount with respect to the options confined to just shareholder returns?
I'm not sure I understand that.
I'm sorry. Was tax efficiency-
Oh, tax efficiency. Yeah. Tax efficiency in regards to giving back to our shareholders on the shareholder return? Absolutely.
That's my only question. Thank you.
Yeah.
We'll take our next question from Michael Lapides with Goldman Sachs.
Hey, guys. Thanks for taking my question. Just a follow-up on capital allocation. I went back and looked at your proxy, the reality is you guys probably don't really have true peers. If you look at the peer groups in your proxy, it's got a mix of purely regulated utilities to pipeline companies that have gone through multiple years of quasi-forced de-leveraging. How should investors, as we walk into the June meeting, think about how you and how the board are looking around and saying, what are your real true peers from a leverage standpoint, from a potential cash flow generating standpoint, and from just a broader business structure standpoint?
Yeah. Michael, that's a good question. The frustration that I have is there's a couple of different peer groups. ISS uses one peer group that is heavily loaded with regulated utilities. Glass, Lewis & Co. uses a different peer group, then we have our own peer group. In our peer group, in our proxy, we try to get a lot of the regulated utilities out of there, because those aren't the folks we're competing with day in and day out, and it's not the way we compare ourselves to it. There aren't many true peers that have our long-term contracts with creditworthy entities. When you look at midstream, that's not quite a good fit with us in most cases. We tend to lean towards larger energy companies that we compete with day in and day out as our peer.
I don't know, Michael, you have anything to add?
No. It is difficult. We're not in anybody else's peer group, by the way. It is something we struggle with. The agencies are going to compare us to very high-quality midstream and infrastructure companies.
Got it. Thank you, guys. Much appreciated.
Okay. Thanks, Michael.
We'll take our next question from Fotis Giannakoulis with Morgan Stanley.
Yes. Hello, and thank you for taking my question. I would like to ask you about the competitive landscape, particularly here in the U.S. We've been hearing that some of the Asian buyers, they might be over-contracted Henry Hub volume, and we see at the same time some of the newcomers in the space trying to position themselves offering index-linked volume or Brent-linked volume. Can you give us a comment about potential interest in taking this type of contracts and if you can hedge these contracts. What kind of difficulty these parties, that they offer these contracts which are not linked to Henry Hub, they might have in getting financing for their projects?
I'll just tell you, Fotis, I'll start, and then I'll hand it over to Anatol. I was in Asia the last 2 weeks and traveling around Asia, visiting with real customers, real utilities. I got to tell you, it was pretty clear, like Anatol said in his comments, that they appreciate now what the Henry Hub linked contract can deliver to them. How gas prices in America, and Henry Hub in particular, are very flat and stable and can be hedged out for over 10 years in a very liquid market. They're feeling the shock, the oil shock and the oil-linked shock of LNG. I've got a warm reception that just the opposite of what you said, that a lot of the Asian buyers now are looking for Henry Hub linked product, not the other way around.
I'll let Anatol handle the other indexes and what he sees in the marketplace.
Thanks, Fotis. We've always said that we're sort of the Henry Ford. You can have our LNG very commercially, creatively, but it's always Henry Hub. We've also said that we're working on ways to change that. The challenge is, as you know, is nobody can hedge both sides of that in size for term. You need to come up with a way to source based on the same index that you are then selling on. That's the challenge. Of course, we're all well aware of the transactions that have been announced, potential transactions that have been announced, we'll see if there's a path to find the other side of that.
A follow-up for me. I would like to ask you about your volume that you have already pre-sold. I noticed that you reported 236 TBTU of long-term agreements, which is quite higher than the SPAs, the 20-year SPAs that you have announced in detail. Can you give us some more color about your portfolio of contracts beyond the 20-year SPAs?
Well, as Michael said, we do have a strategy to manage the risk that we're walking into for the year or two ahead. As you know, 2019 is an exceptional year. We always knew it would be an exceptional year with three trains starting up. We've talked a lot about what a great job the team did at bringing them online early. That fed the CMI portfolio, and Michael gave you the numbers of that incremental volume in the portfolio. Whatever percentage we thought we had laid off going into the year, clearly was much lower in reality because of the volumetric outperformance. We do have some midterm volumes, and we do have some bridging volumes that are not part of the long-term deals, and those are starting to feed into the book that is outside of the long-term SPAs.
Yes, there are other components in there, but they will be relatively lumpy and opportunistic. Again, as we've mentioned before, more than half of our long-term deals last year included these bridging volumes.
Thank you very much, Anatol.
Thanks, Fotis.
We'll take our last question from Julien Dumoulin-Smith with Bank of America.
Hey, good morning, everyone.
Hi, Julien.
Hey. Just following up a couple details real quickly. I know you already elaborated to a good extent on CMI marketing volumes for the year. With respect to 2Q, just perhaps give a little bit of the puts and takes, if you will. I know you affirmed 2019, but just what should we be expecting here, particularly given the depressed JKM and global trends that we're talking about? Maybe if I can throw the second question in, just for the sake of time, very quickly. Jack, you alluded to investment-grade counterparties. What kind of metrics are they looking for from you now in turn, as you shift your contracting focus here? If you can elaborate a little bit.
First, Julien, as you know, we give you an annual number, we give you our run rate numbers with our contracted portfolio, as strong as it is. We're not going to give you quarterly numbers. You all can do the math on a quarterly basis for guidance. Lastly, as you know, we're investment grade at Sabine Pass. We feel very comfortable that at Corpus, with train 2, that hopefully we'll get to investment grade relatively quickly. That's where a lot of our trading happens, either our long-term contracting with the SPAs or our gas supply is done at that level.
I do think, though, it's imperative that we look forward as part of our capital allocation strategy, we look to strengthen our balance sheet throughout the rest of our capital structure, that's what Michael intends to talk in detail about in June.
That's a great place to end it. Thank you.
Thanks, Julien.
At this time, I'd like to turn the conference back over to our management for any additional or closing remarks.
Look, everybody, I'm very appreciative of all the support that you've given Cheniere, and thanks for your interest, and we look forward to talking to you again in early June.
This concludes today's call. Thank you for your participation. You may now disconnect.