Good day, everyone, and welcome to the Cheniere Energy third quarter 2017 earnings call and webcast. At this time, I'd like to turn the conference over to Mr. Randy Bhatia. Please go ahead, sir.
Thank you. Good morning and welcome to Cheniere Energy's third quarter 2017 earnings conference call. The slide presentation and access to the webcast for today's call can be found on our website at cheniere.com. Participating on today's call are Jack Fusco, Cheniere's President and Chief Executive Officer, Anatol Feygin, Executive Vice President and Chief Commercial Officer, and Michael Wortley, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements. 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 of the slide deck. 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, and Cheniere Energy Partners LP Holdings, LLC or CQH. On this call, we do not intend to cover CQP or CQH's results separately from those of Cheniere Energy, Inc. After prepared remarks, we'll open the call for Q&A. As shown on the agenda on slide three, Jack will begin with an overview of the quarter and then give an update on construction and operating progress at our liquefaction projects. Following Jack's comments, we will hear from Anatol on our commercial activities and then from Michael, who will review our financial results.
I will now turn the call over to Jack Fusco, Cheniere's President and CEO.
Thank you, Randy, good morning, everyone. Thanks for joining us this morning as we review Cheniere's results from the third quarter 2017 and provide our outlook on 2018. First, I will speak to our third quarter highlights. As evidenced by our consolidated adjusted EBITDA results, our increase in full-year 2017 guidance, we had a tremendous quarter, especially when considered in light of the challenges we faced from Hurricane Harvey. The storm was in many ways an unprecedented weather event in this region, particularly for Cheniere, as it separately impacted Corpus Christi, our Houston headquarters, and the Sabine Pass area, each in historic fashion. Our facilities and our people displayed tremendous resilience and resolve, we came through the storm as a company with only a few scratches. At Sabine Pass, LNG production continued uninterrupted throughout the storm.
At both Sabine Pass and Corpus Christi, we resumed construction quickly and orderly with no material impact to our schedule. The outpouring of support and assistance from the Cheniere community following the storm is something that can't be reflected in our financial results, was and is an important part of our identity. There are countless stories of employees helping their fellow employees, as well as employees helping total strangers during the worst of the storm and in its aftermath. Without hesitation, the Cheniere community has stepped up in a time of real need. We're proud to be doing our part to help return lives to normal in the areas where we live and work after this devastating storm. Turn now to slide five for an overview of our key operational and financial highlights of the third quarter 2017.
In the third quarter, we generated consolidated revenue of $1.4 billion and $442 million in consolidated adjusted EBITDA. We exported a total of 44 cargoes of LNG from Sabine Pass, of which five were classified as commissioning cargoes from train 4. Growth in all metrics compared to the 2016 period is driven primarily by our continued transition into operations at our Sabine Pass liquefaction project. Subsequent to the end of the quarter, substantial completion was declared on train 4, five months ahead of guaranteed schedule. Over the past 17 months, we and our EPC partner, Bechtel, have declared substantial completion on the first 4 trains at Sabine Pass, with all trains entering service on budget and ahead of schedule. Truly a monumental accomplishment. Our handoff from construction to operations has gone extremely well. I am pleased and proud of our accomplishments.
Year to date, we've exported 135 cargoes of LNG from Sabine Pass, of which 12 were commissioning cargoes. We recently reached another significant operational milestone with the export of the 200th LNG cargo from Sabine Pass in October. Thus far, LNG from Sabine Pass has reached 25 of the 40 LNG importing countries around the world. Our product is reaching LNG demand centers the world over, our demonstrated operating capability continues to be a competitive advantage as we progress our efforts to commercialize new capacity with term offtake. Anatol will provide you some color on the market for LNG cargoes during the quarter in a few minutes. Finally, as I've stressed before, we remain steadfast in our commitment to managing our balance sheets throughout our corporate structure. To that end, during the third quarter, CQP issued $1.5 billion in senior notes due 2025.
This was an inaugural bond at CQP, and proceeds were used to refinance a portion of CQP's credit facilities due 2020. Michael will cover this more in a few minutes. Slide six lays out my goals for Cheniere in 2018 on the commercial, financial, operational, and engineering and construction front. From a commercial standpoint, it's become fairly well-known in the investment community at this point that I have a whiteboard in my office with a to-do list on it, and the only thing on that to-do list is to FID Corpus Christi Train 3. To that end, our commercialization efforts continue to gain significant momentum. To date, over 50 cargoes from Sabine Pass have been delivered to Asia. As you will hear from Anatol, this is an extremely important region for Cheniere's future growth. We expect these markets to continue to be active for spot cargoes.
We've executed a short-term contract to deliver cargoes to China this winter. We just received our approval to open an office in Beijing to supplement our regional presence from our Singapore office. This should facilitate more direct communications with potential off-takers in China. As you may have read, I just returned from Beijing, where I signed an MOU with President Zhang from the China National Petroleum Corporation. The execution of this MOU was witnessed by both President Trump and President Xi. We have made considerable progress in China, and this MOU is an important step as we continue to build our relationships in this high-growth market and progress negotiations on long-term contracts. During that visit, I participated in the U.S. Trade Mission to China. I would like to thank the administration, embassy, and especially the Department of Commerce for the opportunity to attend.
As you all know, the LNG market has become increasingly competitive. As such, I will not discuss the MOU or any of our contracts in detail. Executed contracts, however, are reflected in our financial guidance. Our primary financial goal for 2018 is to deliver on our consolidated adjusted EBITDA guidance of $1.9 billion to $2.1 billion and $200 million to $400 million in distributed cash flow. Operationally, my top priority remains the safe, reliable, and efficient production of LNG at Sabine Pass. Finally, for our engineering and construction personnel, 2018 will be a busy year with much to accomplish. First and foremost, we will continue to progress construction efforts on SPL Train 5 and Corpus Christi Trains 1 and 2 on accelerated schedules.
As well, we expect to soon file with FERC to begin some early-stage construction work on Corpus Christi Train 3 in anticipation of completing the remaining steps to reach FID on that project. Early work under a limited notice to proceed will take advantage of synergies with ongoing work at the site and have the Train 3 site fully prepared for when we are ready to begin construction. The above goals are certainly not exhaustive, but they are some of the key goals I've set for 2018 in order for us to maintain the tremendous momentum we've built as a company in 2017 on these four key fronts and continue to leverage our competitive advantages to execute on our growth strategy. Now I turn to slide seven, which I've included to discuss our liquefaction growth opportunities. I think of Cheniere's growth in three phases.
The first is completion of our existing seven-train platform with total liquefaction capacity of 31.5 million tons per annum. SPL Train five is now over 76% complete, and Corpus Trains one and two are over 72% complete. Construction efforts over these last three trains are progressing extremely well. The second phase of Cheniere's growth is two additional trains, Corpus Train three, Sabine Train six, with an additional liquefaction capacity of nine million tons per annum. These trains are fully permitted and ready to move forward on commercialization and financing. As I mentioned, we have made recent progress on the commercial front with regard to Corpus Train three, and we will begin some early-stage construction work in anticipation of a Train three FID. Our third growth phase is liquefaction capacity growth beyond the trains currently under construction and permitted.
We believe we have sufficient land at our existing sites to double our total liquefaction capacity, and we have multiple technological options in our toolkit. As you are aware, we recently began the process of amending our regulatory filings with FERC to incorporate a mid-scale technology solution for Trains four and five at Corpus Christi. We can now approach the market with multiple technology options, and we have the flexibility to deploy the most cost-effective solutions tailored to the demands of the market and our particular sites. Now, Anatol is here to provide an update on our commercial activities during the third quarter
Thanks, Jack, and good morning, everyone. Please turn to slide nine. Despite the reduction in loadings during the channel closing post-Harvey, production at Sabine Pass was strong during the third quarter. The earlier-than-anticipated start-up of production at Train four offset some production loss during the period due to a maintenance outage at Train three. We again can see the broader trends in the global LNG market playing out in the export destinations from Sabine Pass during the quarter. About half a dozen cargoes were delivered into Europe during the quarter, with all of them into the premium Southern European markets, not into the Northwest Europe, even though the major hub prices on TTF in the Netherlands and NBP in the U.K. have been relatively strong. Fewer cargoes were exported into the Middle East and North Africa as that region's demand slumped following its typical high-demand summer season.
Latin America and Asia took the majority of the Sabine-produced cargoes during the quarter. Mexico's pull for U.S. LNG has remained robust and is likely to stay that way until the end of the year at least. Asian demand for Sabine Pass LNG saw an increase quarter-over-quarter, which is in part a function of our long-term contract with KOGAS starting and our customer bringing those cargoes to South Korea. More importantly, Asian demand was stronger than many expected during the third quarter, a theme that I'm going to talk more about in a minute. Turning now to slide 10, from the start of 2017 to the end of the third quarter, nearly 23 million more tons of LNG have been produced than in the comparable 2016 period, with Asia consuming almost 90% of the incremental volume.
As expected, the U.S. and Australia have made up the bulk of the new production, but existing plants have been increasing output, adding more than 5 million tons through the end of September. However, Asian demand for gas and LNG stayed strong during the Northern Hemisphere summer, with only Japan showing a material reduction year-on-year. A combination of strong economic growth, increased manufacturing with some coal-to-gas switching has kept China's overall gas consumption high. Total gas demand in Asia is up around 15% this year, while LNG imports were 60% higher year-over-year in the third quarter. South Korea's LNG imports have continued to outpace expectations, up more than 30% in Q3, with Sabine Pass volume increasingly contributing to the country's gas needs. Iberia and Southern Europe, especially the three markets of Spain, Portugal, and Italy, were unseasonably hot this summer and consumed record amounts of gas.
Spain burned historical levels of gas over the summer with the total demand through September up 9% year-over-year. Combined LNG imports into the three markets during the quarter were up 70%, or almost two and a half million tons. All three countries received cargoes from our Sabine Pass facility. New LNG supply clearing at higher prices underscores the organic incremental growth for gas globally, while the lack of growth in cargoes into the balancing market of Northwest Europe shows the LNG market remained more balanced in Q3 than many were forecasting. Please turn to slide 11 while I'll talk a little more about the demand trends we're seeing in Asia.
We've talked over the past few quarters on these calls about the market underestimating LNG demand, and I wanted to provide more color on this because it has positive implications for our business in both the short and the long term. We looked at what the industry consensus was a year ago and compared it to what actually transpired over the first three quarters of 2017. Back in Q3 and later in Q4 of 2016, two major consultancies said a wave of new LNG supply in 2017 would struggle to find a home and instead be sent to the market of last resort, Northwest Europe, as what happened early this decade. This bearish supply-demand outlook would lead to downward pressure on prices in both the Pacific and Atlantic Basins.
What has actually happened is demand, particularly in Asia, has been there to not only consume the incremental supply, but also clear it at a higher price, implying demand outstripping that incremental supply. Asian LNG demand through the end of September is at least 10 million tons higher than previously forecast. There's been no unsolicited wave of LNG into Europe. In fact, Europe has imported about 7 million tons less through three quarters than estimated by those consultancies. As we've discussed, the LNG arriving into Northwest Europe specifically has been well under expectations. In fact, recently, we've seen a return of reloading activity in Europe. All this is taking place while Asian LNG spot prices and European gas hub prices are higher than a year ago.
This emphasizes that there's growing organic demand for LNG and gas in both regions and is setting up for a potentially tight and higher-priced winter season in both basins. This trend is starting to impact the longer-term LNG market, which has been consistently characterized by pundits as oversupplied into next decade as new supply projects come online. What we have seen over the past year is that natural gas is truly an affordable, flexible, reliable, and more sustainable fuel than oil or coal, particularly in power generation. Global gas consumption patterns in 2017 are reflecting this, and LNG buyers are taking notice. The industry has continually misjudged demand to the downside, and we continue to see strong signals that the global LNG market will be more balanced over the coming years than it will be long. Our market view and our origination and commercialization efforts continue to bear fruit.
Jack mentioned the CNPC MOU as an example of a long-term transaction that once in final contract form, could help underwrite new liquefaction capacity. In addition, we've been active placing LNG volumes over the near term with recent transactions signed for the 2018 through 2020 period, covering a portion of the volumes available to our marketing group. These transactions are important not only for the margin they lock in, but also in furthering our long-term contracting efforts as we often sell cargoes in the short term to counterparties with long-term LNG supply needs. Indeed, marketing LNG out of our portfolio furthers long-term contracting efforts by demonstrating our reliability and operating credibility. With that, I'll now turn the call over to Michael, who will review our financial results.
Thanks, Anatol, and good morning, everyone. I'm pleased to review our financial results for the third quarter 2017 and provide an overview of guidance for full year 2018. A summary of third quarter 2017 financial results begins on slide 13. Once again, as a reminder, Cheniere Energy consolidates the results of CQP and CQH. For the third quarter 2017, we reported consolidated revenue of $1.4 billion, compared to $465 million in the third quarter 2016. We exported 44 cargoes from Sabine Pass during the quarter, five of which were commissioning cargoes. Of the 39 operational cargoes, 32 were lifted by our third party SPA customers, and seven were lifted by our marketing function. On a volume basis, during the third quarter, we recognized revenue on approximately 151 TBtu produced at Sabine Pass.
This total consists of 144 TBtu loaded during the current period, less seven TBtu sold on a delivered or DES basis, which was still in transit at the end of the period, plus 14 TBtu loaded during the prior period, which was delivered and recognized during the current period. We also recognized revenues on approximately 45 TBtu related to cargoes sold by our marketing function that were sourced from third parties. Due to the timing of Hurricane Harvey and maintenance on the trains at SPL, we sourced more volume from third parties during the third quarter 2017 than in prior periods, including cargoes to fulfill our obligations under our legacy marketing contracts.
Consolidated adjusted EBITDA for the third quarter 2017 was $442 million, compared to $67 million in the third quarter of 2016, driven primarily by increased sales of LNG due to the higher number of trains in operation at Sabine Pass. We did have some downtime on Train 3 during Q3, but for the most part, 3 trains were in operation in the third quarter 2017, compared to 1 train for the majority of third quarter 2016. Train 2 was placed into service near the end of that period. Total operating costs and expenses increased to $656 million for the third quarter 2017 as compared to the third quarter 2016, primarily as a result of additional trains in operation between the periods. The largest driver of the increase in operating cost was an increase in cost of sales.
We also had increases in operating and maintenance expense and depreciation and amortization expense in the current quarter compared to prior year third quarter, all due to our continued ramp-up of operations at Sabine Pass. SG&A expense increased $5 million in the third quarter 2017 as compared to third quarter 2016. SG&A expense for third quarter 2017 includes share-based compensation expenses of $13 million. Net loss attributable to common stockholders for third quarter 2017 was $289 million, or $1.24 per share, compared to a net loss of $101 million, or $0.44 per share for third quarter 2016. The net loss for the quarter was driven primarily by an increase in net income attributable to non-controlling interest, which increased by $409 million for the third quarter 2017 compared to third quarter 2016.
The majority of the increase, $363 million, is a non-cash item attributable to amortization of the beneficial conversion feature on CQP's Class B units. As the Class B units converted to common units on August 2nd of this year, there will be no further impact to net income or loss attributable to non-controlling interest due to the amortization of the beneficial conversion feature in future periods. Excluding the impact of this item, we would have generated positive net income attributable to common stockholders of approximately $75 million in the third quarter. Finally, with respect to the third quarter, we announced an increase in the common unit distribution at CQP for the first time ever.
Due to the conversion of the Class B units to common and the payment of the LP distribution on the CQP subordinated units, the distribution related to the third quarter will be paid to over 425 million more CQP units than previously. As you can see, our financial results continue to trend positively in conjunction with our transition to operations and consistent with our expectations. Please turn to slide 14 for recent finance highlights and revised full year 2017 guidance. Jack mentioned, in September, CQP issued $1.5 billion principal amount of senior notes due 2025, which priced at par to yield 5.25%. Net proceeds of the notes were used to reduce outstanding term loan borrowings under the CQP credit facilities.
This was our inaugural bond transaction at CQP. We were pleased with the results of pricing and the notes receiving ratings of BB and equivalent from the three major rating agencies. As you know, CQP as an issuer is an important part of our longer-term strategy to de-lever SPL. This was a significant transaction for us. Moving forward, we will continue to be opportunistic in terming out CQP and CCH bank capacity into the bond market, part of our strategy to manage debt maturity profiles across our corporate structure and to maintain investment-grade credit metrics at the project entities and strong BB metrics at the corporate entities. Moving to guidance.
Today, we are raising and tightening full-year 2017 guidance of consolidated adjusted EBITDA of $1.8 billion-$1.9 billion and distributable cash flow to $600 million-$700 million, driven by both higher market prices and more LNG volumes to sell into those prices, as well as greater visibility as we approach year-end. Slide 15 summarizes our 2018 guidance for all three equities. At CEI, consolidated adjusted EBITDA for 2018 is expected to be between $1.9 billion and $2.1 billion, with distributable cash flow of $200 million-$400 million. Continued EBITDA growth next year reflects the full year with four trains in operations. Distributable cash flow next year is expected to be impacted by less volume available to marketing and the roll-off of legacy marketing contracts, offset by an increase in anticipated foundation customer sales, as well as an overall increase in production, with four trains online during 2018.
We have provided a bridge from 2017 to 2018 guidance in the slides. CQP distributions for the full year are expected to be between $2.00 and $2.20 per unit. Finally, dividend guidance at CQH is $2.05-$2.25 per share. Fairly consistent with the CQP distribution for now, which will not be the case once CQH begins making payments under the tax sharing agreement with CEI, which we expect to happen starting in the early 2020s. Thanks for your time today and for your interest in Cheniere. We're turning the call back to the operator. We want to thank Randy and his team, who were recently recognized by both the buy side and the sell side as a top three IR shop in the midstream space in the recent Institutional Investor rankings. We look forward to him getting to number one next year.
Operator, we're now ready to open the line for questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one. We ask that you limit yourself to one question and one follow-up question. Once again, that is star one if you'd like to ask a question, and our first question will come from Jeremy Tonet of J.P. Morgan.
Good morning.
Good morning, Jeremy.
Thanks. Wanted to pick up on the guidance for next year and was wondering if you might be able to provide any more levels of color there. With the $600 million decline in marketing, I was just wondering if you could tell us if that assumes full utilization across the year or the lower shipments at points, or are there lower margins? Any more color you could provide there. Also just the level of procurement cost that's built into that guidance. Is it the full 115%, or is it anything less than that?
Sure, Jeremy. It's Michael. It's really impacted by the legacy sales that were made in 2014, right? We've tried to telegraph that over the past couple of years that 2017 was going to be a really good year. That was 42 cargoes that we sold in 2014. 90% of them probably were delivered in 2017, a couple last year, and I think three next year. That's really driving the impact. We will have less volume next year as the DFCD dates. We have a full year of our offtake from our third-party customers. We'll have less volume, but certainly much lower margins. In our budget range, I think we're assuming of $1.50 to $2 marketing margins on lower volume. In terms of procurement cost, we don't want to be too specific on that. We're doing fine versus the 115% Henry Hub.
Okay. Thanks for that. Just wondering, if marketing margins do turn out to be better than expected, I was just wondering if you could let us know your thoughts as far as how you prioritize that cash, be it paying down debt, maybe buying back shares, or special dividends, or any thoughts you can provide there would be helpful.
It's what we can.
We'll see. A lot of equity in Train 3 is our goal. We've talked about de-levering through growth. If we could achieve, I had talked to analysts today about 50/50 debt equity. If we made a lot of money in the marketing business and became 55% equity, that would be okay, too. Getting some equity in the business and growing it profitably is goal number one. If we can't do that, we're going to have to think about dividends and share buybacks. Absent Train 3, that's probably a decision for the second half of next year as we get through the last three trains of construction.
Jeremy, I would just add, this is Jack. I feel very good about our business going forward. As Michael mentioned, we have these legacy contracts at the CMI level, but down at CQP, we continue to operate well. We continue to produce our cargoes efficiently and effectively. We're seeing higher oil prices, which makes us more competitive. We're seeing higher LNG prices, which gives us a better margin. Overall, I feel like the tailwinds are behind us, and we're just getting started with our core business, which is to make sure we can provide all that LNG to those foundation customers.
That's very helpful. That's it for me. Thank you.
Our next question will come from Neel Mitra of Tudor, Pickering.
Morning.
Morning, Neel.
I just wanted to follow up on the marketing question. I believe you said that the assumption you're using is roughly $1.50-$2 per MMBtu in margin. Could you just talk about how that compares to where international prices are in the forward market right now? It seems to have trended upward in terms of international pricing and just what you're seeing in 2018 and 2019 in the markets at this point.
Neel, I'm going to start, and then I'll hand it over to Michael to give you the exact details. We're seeing LNG prices when they're on the spot market, which I think is what you're talking about on an annual strip. That's where the $1.50-$2 in MMBtu come from. If you're looking at six months forward, 12 months forward, that number is going to be extremely volatile. Early winter to Asia, the number's going to be significantly greater than that. As you get in the shoulder months, it's going to come down into that. You have to look at it from an annualized strip over. What we try to do is try to give guidance to the investment community that they could plug and play into their models and get an accurate number coming out.
If you're looking at spot winter numbers into Asia, you're going to get a number well north of $2 in MMBtu. Again, we're trying to get to run rate numbers and grow our business and with foundation customers that need our product for the long term. Having healthy spot cargoes helps us as we're commissioning new trains.
Yeah, I would just underscore the volatility point. Managing the numbers for the fourth quarter of this year and the first quarter of next year is pretty difficult, right? Our marketing business has the equivalent of 7 million tons per annum in their hands right now. That is a huge amount of volume. They're putting it away very effectively, very efficiently, but we're riding spot prices. Yeah, the first term of the budget, prices were what they were. In the second term, prices were higher, and then they're higher. Certainly a tailwind there. Once we get through the first quarter, I think we'll feel a lot better about next year once Train 4 DFCD happens in March, and then we have a much smaller exposure to the spot market.
Right. Great. Second question, Jack. When you are able to sign new contracts, does that necessarily mean you're going to use them to FID Corpus Christi 3, or would you consider contracting more of your volumes for the existing trains versus having that much spot exposure?
Yes. It depends, right? It depends if we're We have price, we have quantity, we have term, we have counterparty credit. If we can take it to the bank, we'll take it to the bank and use it to FID Train 3. If we can't, we'll use that excess capacity that Michael just mentioned, we'll sell cargoes and we'll lock in spreads. We'll be able to give you all guidance and feel very good about it.
Okay, great. Thank you very much.
Yep.
Our next question will come from Michael Webber of Wells Fargo.
Hey, good morning, guys. How are you?
Good, Michael. How are you?
Good. Jack, I wanted to start off first with your recent trip to China. I know you mentioned you weren't going to field detailed questions on it, but I'll take advantage of the semantic loophole you left there and ask some general questions about it.
Yeah.
You guys have kind of made a point, I guess, to steer clear of putting out releases around MOUs. I know that this was something that was announced by the State Department as opposed to you guys. If I just think about where the process is with CNPC versus maybe as a percentage of completion versus the threshold you would need to get to to actually put something out or release the details on it. How far along are you guys? I'm trying to get a sense. There's an idea that a lot of this is for show or the headline numbers are out there, and there's obviously a political incentive to put the big numbers out there. If you can help us get a sense of where you guys really stand on that process. Yeah, I'll let you go from there.
Michael, first, I was humbled to be part of that U.S. trade mission into China and very appreciative to be able to participate. As you know, we've had over 50 cargoes from SPL actually make it to Asia in the past year and a half, which is pretty phenomenal. I don't think, as Anatol said, any of the consultants saw that type of growth and that demand being pulled from Asia. We have been working with Chinese counterparties for a while now. We've been very successful with selling them spot directly, as well as some of our intermediary companies or foundation companies have been able to offload some of their cargoes to China. We've executed short-term contracts with Chinese counterparties. Those numbers, I'm not going to get into details on them, but they're reflected in our guidance as well as in our actual numbers for you all.
It's just been a process. We feel very good about where we are with CNPC. We want to help them. They have some extremely high growth plans. As you know, in China, I think there's 14 regas terminals that are currently in operations. There's four more that are getting ready with their commissioning phase. There's six more on the drawing board. Just an incredible growth in demand in China. CNPC actually did put out a press release. It's in Chinese. You'll have to translate it. They give a little more detail than what we would if we were to do that. Both counterparties are hoping to bring the negotiations to a head in the first part of next year. We are very far along with them. I'm guardedly optimistic.
Having said all of that, the days where we actually file a contract and not have redacted information in it are probably behind us.
You all should not expect us, because this is a very competitive market, and we view that as commercially sensitive.
Okay. No, that's helpful. I appreciate it.
Yeah.
In terms of maybe not those conversations specifically, but just in terms of where the market is right now, in terms of term pricing. If you think about where we are today versus maybe where we were in the spring around your Investor Day, would you say it's fair to say the market for similar tolling agreements has moved into call it the mid to high twos from where we were in the spring? As an extension to that question, have you noticed any difference on term as opposed to just maybe the insistence on flexible destination and things like that?
No. I'll say that we have the multiple levers, right? You have price, you have term, you have quantity, right? If somebody wants to sign up for a large quantity over a long term, I have more flexibility on price, right? It's all about returns to our investors and how that There's a lot of different levers that we're pulling. I'd say overall, with the higher oil prices, and as you all know, most of the LNG world is indexed to Brent. With the higher demand in natural gas worldwide, we feel very good that things are moving in our favor.
Okay. That's helpful. Just as my follow-up there, just to jump back into the CMI guidance a bit. The clarity was, I guess, relatively helpful. If we think about the 2018, I guess, the guidance from the spring at your Investor Day in terms of, I think it was $800 million of CMI EBITDA over that five-year period. Where would that number stand today, just given the $600 million you guys are putting up in 2017? Would that still hold, or did you come out of the gates faster than you expected, and would we expect that to be revised up?
I'm trying to recall the $800 million number.
It was from your sources and uses in the Investor Day.
Okay. Yeah, that's probably up a little bit. To the extent we run the strip, it's better, certainly better. I think to Jeremy Tonet's point, we'll have a little bit more money there to put away one way or another. Yeah, it's probably marginally favorable.
The five-year EBITDA up despite the bridge to 2018. Okay. That's helpful.
Yeah.
Thanks, guys.
I would mention the 4.1, to me, that's the real prize, the $4.1 billion of EBITDA. We've gone through our budgeting process. We've got a lot of production history under our belt. We feel as good as ever about that number. To me, that's the key one, as well as the $1.7 billion on the top end on distributable cash flow. We feel very good about those numbers.
Perfect. Great. Thanks for the call, guys.
Thanks.
Ladies and gentlemen, as a reminder, dial star one if you'd like to ask a question, and we do ask that you limit yourself to one question and one follow-up question. Our next caller is Faisel Khan of Citi.
Good morning. It's Faisel from Citigroup. Just a question on the marketing and sales LNG margin decline from 2017 to 2018. How much of the $600 million is related to the legacy sales contracts? How much is just your expectation of lower margin next year versus what you did in 2017?
Yeah. Faisel, I don't have that breakout in front of me. We'll do about 50 cargoes in CMI next year, you can compare that to what we can add up what we did this year. I don't have that number in front of me. The legacy margins, as I said, they were sold in 2014, you can look at LNG prices and kind of figure out what our margins were there. With the $1.50-$2, I think you can figure all that out.
Faisel, this is Anatol. If you're really in the mood to sharpen your pencil, you can look at the Japanese import numbers for U.S. LNG in 2017.
Okay. Understood. Just a follow-up on the China comment. Did you guys state in your prepared remarks that you executed some short-term agreements with China for LNG sales for this quarter, for the fourth quarter?
Yes, we did.
Okay. Is that related at all to the MOU?
Again, we view our ability to actually deliver physical LNG today as a competitive advantage over some folks that maybe want to be in the U.S. LNG business. We're happy to help out different counterparties that we want to establish a long-term relationship with. Yeah, it was all part of our marketing strategy to get ourselves embedded into the different Asian markets.
Okay, great. That exhausts my two questions. I'll go back in the queue. Thanks.
Thanks.
Our next question will come from Craig Shere of Tuohy Brothers.
Good morning.
Good morning.
I understand the one subject on the whiteboard is Corpus Christi Train 3 FID. To a degree, that's understandable given its cost, some existing contracting, and the cost of capital at the parent. At the high splits, funding the Train 6 at Sabine Pass might be a little more economically challenging. Wonder if you've taken a look at this kind of strategic co-op concept where you just sell off pieces of an integrated chain and keep for free some meaningful equity exposure in the facility. Could that help with further build-out at the MLP level?
You're right, Craig. It's Michael. We have a GP, I think, issue ultimately, where we're in the 50-50 split. That's got to be solved one way or another. I don't think a radical shift in our business model is required to fix that. I guess I'd just leave it at that.
Okay. Sounds like just dealing with the IDRs long term rather than adjusting the business model is the preference.
Yes.
Okay. Can you handicap prospects or give an update about the ability to potentially get the Chilean contract firmed up in time for Corpus Train 3?
Hey Craig, it's Anatol. We're working diligently. As you know, the PPA there is still money good, we have the fully permitted power plant, we're trying to use all of our levers to capture value there. The probability that that is a meaningful contribution to Corpus Train 3 is de minimis.
Okay, thank you.
Our next question will come from Danilo Giovanni of BMO Capital.
Thank you, and good morning. Just one question from me. Jack, I think you made comments earlier in your prepared remarks that you're starting early construction of Train 3 at Corpus in anticipation of an FID for Train 3. Just thinking about 2018 and Train 3 being your goal, what level of confidence do you have that that will in fact be commercialized next year?
I'm very optimistic. I think we need to prepare ourselves for that, which is why we're happy to release Bechtel to do some engineering and procurement and lock in those prices. I'm very optimistic that the market's headed in our direction.
As an extension of that, what type of cost per ton are you thinking you'll be able to achieve on this train?
We're still at the $500-$600 a ton that we laid out in April.
That's unlevered?
Unlevered.
Okay.
All in, by the way.
All in meaning-
Unlevered-
including financing?
No. Unlevered including contingency and owner's cost.
Gotcha. Those are my questions. Thank you.
Our next question will come from Matthew Phillips of Guggenheim.
Morning, guys. A question on Corpus Train 3. With the ongoing negotiations in Asia, in China in particular, is there more of an appetite of these partners to be an equity partner in a train versus just being a commercial partner?
It's been all over the map with our discussions, you can't generalize who wants to hold equity and who doesn't want to hold equity. One size doesn't fit all. It just depends. You can say that about just a lot of different things, whether it's FOB or DES or equity or no equity. Most of the customers that we're talking to are very large utilities that need the LNG. Price is much more important to them.
In the past, Mike had stated that you prefer not to have equity partners. Is that still the expectation we should have?
Yeah, I was going to say, we talked about this on a previous call. Our preference would be to go it alone. Again, if it's a very large strategic buyer, we would make an exception. I'll just stick with that.
Okay. Thank you.
Our next question will come from Steve Fleishman of Wolfe Research.
Hi, good morning. Sorry, another question on Corpus 3. Just from an expectation standpoint, how much is the focus of moving forward on finalizing something with CNPC or is there kind of an array of opportunities that you're still looking at for this? If we see for some reason-
Yes
that something doesn't work out there, are there other options?
Yes, Steve, thanks for that. I can assure you that the commercial team is extremely busy right now with a lot of different opportunities around the world. Our focus right now on Asia and CNPC is because it could be a real game changer for the company as a whole. While we keep talking about Corpus 3, the demand forecast in Asia and specifically in China can double the size of our business. We're happy taking smaller steps with Asian counterparties to get them comfortable with us and our ability. The end goal for us is to radically transform our business. Ramsay, Anatol, and the team right now are extremely busy.
Great. Then just one follow-up on the new contracts, kind of shorter term, 2018 to 2020 marketing contracts. Can you give us a sense of the size of those?
Yes, Steve, this is Anatol. As you know, as we've discussed on this call, we have a fairly sizable portfolio in CMI's hands over the short and medium term. Part of that is commissioning volumes as we get Train 5 and then the two trains at Corpus up and running. We're looking at the market opportunities that are on the screen today and are putting away some of those volumes, capturing those margins and taking that risk off the table. We're not going to go into the specifics of volumes and cargo counts.
Okay. Thank you.
Thanks, Steve.
Our next question will come from Jean Ann Salisbury with Bernstein.
Good morning. I was just wondering if you could share what you're assuming for the Train 4 DFCD timing in your guidance and whether you've heard any preferences from customers on timing within the first half.
March 1st, DFCD. That's our assumption. That's what it'll be. I think we set that window, that's where it'll be set.
Okay. As a follow-up, I just wanted to touch on Anatol's comments that LNG demand in Asia has continued to surprise. Can you just give your view of what factors have led to that? As someone with a good presence on the ground, what you're hearing about the next year or two?
Yeah, sure. It's really an all of the above. I mean, the summary of the story is that attractively priced, reliable LNG is available in the market, that is causing a number of countries to revisit their portfolios and their demand projections. There are long-term implications of that as long-term plans, power demand, et cetera, starts to shift more towards gas. You of course know China, India both have coincidentally kind of 6% or so of gas in their primary energy portfolio, the goal is to move that to about 15%. You're seeing the early moves along those dimensions. It's the availability and the attractiveness of this supply that's causing the current demand and is sowing the seeds for future attractive growth in those markets.
I'll add, in China specifically, their 10-year electrification plan and their Blue Sky Initiative, this is all publicly available. The Blue Sky Initiative is to have over 200 days where they could see the sun in Beijing. This is actually a mandate from their government. It's causing them to shut down their coal generation and burn more natural gas. They structurally are in a process of building combined cycle natural gas power plants throughout the major metropolitan areas in China to meet those initiatives, both their electrification plan, as Anatol mentioned, taking natural gas-fired power from 6% to 15% in a very short period of time of the overall power generation needs in China, as well as being able to breathe.
Got it. Thanks.
Our next question will come from Sunil Sibal of Seaport Global Securities.
Yeah. Hi, good morning, guys, and thanks for all the clarity on the call. I just had one question with regard to the CQP results that you released this morning. When I look at the EBITDA at CQP of about $298 million and considering that about 150 TBtu was shipped through Sabine Pass, I get to a margin of around $2 per MMBtu. I was wondering, how do you compare that with the contracted price on that capacity? Were there any other kind of one-time items which might have impacted that number?
No. There's a lot of CMI volume flowing through SPL and CQP, first of all. Those are at spot margins. The third quarter is our weakest, really, pricing quarter usually. That's probably bringing the number down. Then we had some downtime really with Hurricane Harvey and the Train 3 maintenance that probably impacted that number a bit too. Yeah, a lot going on in the quarter.
Okay, got it. As things progress and you get to all the contracted volumes on Sabine Pass, is it fair to assume that number will basically trend back to the kind of contracted $ per MMBtu price?
Yeah, that's right. 87% contracted, that other 13% will move around to the extent spot prices move. Yeah, it should be very stable.
Got it, guys. Thank you.
Next question will come from Pavel Molchanov of Raymond James.
Thanks, guys. Just one question from me, kind of broad perspective. Clearly, you're inching closer to reaching FID on your subsequent train phases. I'm curious if you think that some of the positive demand dynamics you've referenced will spur other players, 60 BCF a day in North America in the pipeline. Obviously, other geographies as well have early-stage projects. Do you anticipate that any of them will take advantage of the current conditions and move forward with their projects just as you guys are inching as well?
I don't know. Quite honestly, we don't have time to worry about them. We're very busy ourselves trying to grow our business. We think we offer a very competitive, a very reliable product. I think our reliability shown through during Hurricane Harvey. With all the redundancy that we've built into our sites. I think that redundancy is going to be extremely expensive for other greenfield players to match, if at all. I think it's going to be valued, and we will continue to differentiate ourselves from the pack.
All right. Appreciate it.
Our next question will come from Fotis Giannakoulis of Morgan Stanley.
Yes. Hi, guys. We have seen activity for SPAs increasing there since late summer. Most of them are, of course, are oil-linked. With the price of oil moving higher, do you see the U.S. volume becoming more competitive? And if you can quantify the opportunity for the new round of liquefaction projects for U.S. producers, and also talk about the possibility and the prospects of Sabine Pass 6.
Fotis, I think we're going to have to dissect that. That one question sounded like three to me. We'll take the first one. With higher oil prices, Anatol, are you seeing people coming back towards Henry Hub-based products?
Thanks, Jack, and thanks, Fotis. As Jack said, it's another one of the big tailwinds that we're seeing. The market is in the process of digesting what will be almost 30% Henry Hub in the portfolio, in the aggregate, once all the U.S. projects are online. With a stable and low Henry Hub and now a relatively firm Brent price, that is another component that helps. The passage of time helps too. With lots of questions asked about the world and other projects, and as Jack said, we are a reliable low-cost and are bringing these plants and these volumes online quickly and are supporting our customers. That, in combination with those other two factors, makes our product offering that is Henry Hub linked relatively more attractive.
The one thing that we can say about projects and supply is that early next decade, no liquefaction is going to come to market because nothing of any consequence has been FID'd over the last couple of years. All of that is affecting the backdrop that Jack referenced, which is the level of activity that we're experiencing today.
Thank you. As a follow-up, it seems that the market is moving to your own direction, but there are still some people have a doubt about one of your contracts with GAIL. Is there any update that you can give there or any contingency plan that you have made in order to mitigate any potential risk?
No, I think Michael Wortley said it. We expect to DFCD the contract with GAIL in March of next year. That's the plan, and they understand their contractual obligations. I think they've said it multiple times that they understand that they're contractually obligated to buy the LNG from us. We're going to move forward with that strategy. It is what it is.
Thank you very much, Jack Fusco.
Our last question will come from Faisel Khan of Citi.
Thanks, guys. Just one follow-up. I just want to make sure I understand this. Over the summer, we were looking at sort of depressed spot pricing, and I think the prospects of signing sort of a 20-year contract for new capacity seemed in the distant future. Are you saying the market has changed dramatically in the last few months to where a 20-year contract could be visible? Are we still aiming to get that NPV neutral outcome on Corpus Christi train 3 to FID? I'm trying to understand where we are in the bid-ask of these type of contracts that you guys are talking about.
Okay. Faisel, we have to start step way back because you're mixing commodity language that typically we don't mix. There's a huge difference between spot market and a utility that needs a reliable source of fuel for their power plants. There aren't many utilities in the world, and having sold to utilities for almost 40 years, that would rely entirely on spot cargoes to provide fuel to new power plants that they're building with 40-year long-lived asset lives. If we implied that the spot price of LNG was an indicator for term price of LNG, I apologize for that. There is a big difference between the spot market and the liquidity in the spot markets, which doesn't really exist other than Cheniere and long-term contracting for reliable LNG prices. The team has been busy.
We're busier today, partly due to the rise in oil, in oil indexation prices throughout the world. I think when you see the economic growth that's going on worldwide, coupled with higher priced commodities and inflation, and the fact that the U.S. continues to find more and more natural gas, so the gas curve is relatively flat. You get more and more comfort with counterparties that we can procure the fuel, we can transport it, we can clean it, we can refrigerate it, we can load it on ships, and we can get it to your dock. I think that's what you're hearing from us.
Okay, fair enough. Thanks, Jack.
At this time, I'll turn the conference back over to our speakers for any additional or closing remarks.
I just want to thank all of you for your support and your patience with us. We'll hopefully talk to you soon. Thanks.
That does conclude today's teleconference. Thank you all for your participation.