Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheniere Energy, Inc. Third Quarter 2016 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you, Mr. Randy Bhatia, Director of Finance and Investor Relations, you may begin your conference.
Good morning, everyone, and welcome to Cheniere Energy's third quarter 2016 earnings conference call. The slide presentation and access to the webcast for today's call can be found on our website located at cheniere.com. Participating on the call this morning 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 adjusted EBITDA, net loss as adjusted, and net loss per share as adjusted.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measure can be found in the appendix of the slide deck. As part of our discussion on 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 or CQH. On this call, we do not intend to cover CQP or CQH's results separately from those of Cheniere Energy. After prepared remarks from each of the participating executives, we will 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 the market and then from Michael, who will review financial results.
I will now turn the call over to Jack.
Thank you, Randy, and good morning, everyone. I'm pleased to be here today for Cheniere's third quarter 2016 earnings call. I've been CEO of Cheniere now for approximately six months, and since our inaugural call in August, my confidence has only grown in Cheniere as a platform for long-term shareholder value creation. During the quarter, we achieved some operational and financial milestones, and we implemented some internal initiatives that not only demonstrate our ability to execute, but also position us for long-term success on multiple fronts. We will cover a number of these items during today's call. Turn to slide five for an overview of some operational highlights for the third quarter 2016. The third quarter continued to see Cheniere's transition to commercial operations as we took over care, custody, and control of train 2 at Sabine Pass during the quarter.
Lessons learned in the commissionings of train 1 were applied and resulted in improved and streamlined commissioning process on train 2. A total of three commissioning cargoes were produced and exported from train 2 prior to the declaration of substantial completion. Train 2 substantial completion was achieved on September 15th, ahead of contractual schedule and on budget. I'd like to take this opportunity to again recognize the efforts of Cheniere employees and our EPC partner, Bechtel, on the achievement of this milestone and look forward to our continued success as we have begun the commissioning process for train 3. Consistent with what we highlighted for the second quarter, slide five once again highlights revenue, adjusted EBITDA, and volumes lifted as metrics which are important to watch as we track the business going forward. Revenues for the third quarter were $466 million and $712 million year to date.
Train 1 was in operations nearly the entire quarter. Train 2 achieved substantial completion near the end of the quarter and just ahead of our scheduled maintenance, so that the vast majority of the LNG sales from that train took place during commissioning and therefore were not recognized as revenues during the quarter. Michael will cover this and other details of our financial results later on this call. Adjusted EBITDA was $67.3 million for the quarter and $19.4 million year to date. The adjusted EBITDA results for 3Q are a significant tangible result of Cheniere's continued transition into operations. Including the three commissioning cargoes from train 2 I mentioned earlier, during the third quarter, a total of 18 cargoes were produced and exported from Sabine Pass.
To date, we have exported a total of 36 cargoes from the terminal, and they continue to be delivered to markets all over the world. Anatol will provide an update on the global LNG market in a few minutes. Also during the quarter, we continued to execute on our balance sheet strategy of managing our debt maturity profile by turning out bank loan borrowings and capacity into the bond market. We issued $1.5 billion of bonds at our Sabine Pass liquefaction entity during the quarter. The process during 3Q was highlighted by SPL's upgrade to an investment-grade credit rating by Standard & Poor's. The investment-grade credit rating is an important milestone for the project, which we expect to yield significant long-term benefits. Slide six provides an update on the construction progress at our LNG projects at Sabine Pass and Corpus Christi.
We remain very pleased with the overall progress of construction at Corpus Christi and construction and operations at Sabine Pass. As I mentioned on the last call, our number 1 priority at the sites is to execute on the construction at our LNG platform safely, on time, and on budget. Highlighting the third quarter, once again, was the achievement of substantial completion of train 2 on September 15th, after 49 months of construction and commissioning. During the quarter, commissioning activities commenced on train 3, and we expect that train to reach substantial completion in mid-year 2017. On all trains, Bechtel continues to progress construction efforts against the contractual scheduled dates, and we at Cheniere Energy remain focused on transitioning the trains from construction management to operations management safely, efficiently, and effectively.
Subsequent to the end of the quarter, we completed the required work to the process flares that was discussed on our second quarter call that resulted in approximately a 4-week outage at Sabine Pass. The scheduled maintenance outage was completed on schedule and budget. Bechtel completed the flare modification safely and slightly ahead of schedule, and planned maintenance was completed on trains 1 and 2 during the outage. Planned maintenance included preventive maintenance on equipment, planned maintenance on our gas turbines, and warranty work, and both trains have returned to full production. With the resumption of commercial operations at trains 1 and 2, we expect to commence BG/Shell's 20-year contract later this month. Turning to slide seven, you'll see the near-term goals that were laid out on the second quarter call.
There have been a number of announcements we've made over the last few months, many of them addressing our progress on achieving these goals. While we don't intend to review these goals each quarter, we made a tremendous amount of progress during this quarter. I would like to review a few key successes here, which demonstrate our commitment to achieving these goals. Operationally, I've already discussed the success we experienced at Sabine Pass during the quarter with the achievement of substantial completion at train 2. We look forward to continuing to apply lessons learned as we commission future trains at our projects. With regard to production, we continue to be encouraged by the performance of the trains thus far, though it remains too early to adjust any expectations with regard to run rate production, as we are continuing our performance testing and tuning.
Financially, ratings momentum continued at SPL as we achieved our first investment-grade rating during the quarter. On the heels of that, we were able to refinance a portion of the SPL credit facility at attractive rates. As well, we are pursuing a proposed corporate structure simplification by offering LNG shares in a stock-for-stock exchange with CQH for those shares of CQH that we do not already own. We have completed the company's first zero-based budgeting process with a focus on financial discipline, and Michael will share with you some of the initial results of that undertaking. On the commercial front, we continue to successfully monetize commissioning cargoes and pursue incremental long-term contracts necessary to support the financing of our next trains, Corpus Christi train 3 and Sabine Pass train 6.
From a higher level, we are also pursuing a number of initiatives along the LNG value chain, leveraging our core capabilities on the LNG platform, which I'll touch on in a moment, and Anatol will provide some additional context on that in his comments. Finally, during the quarter, we implemented some organizational changes highlighted by our new executive leadership team in defining our mission, vision, and values. These changes represent a natural evolution for the company as we continue to move into operations. Our organizational structure should not be thought of as static. Rather, we will continuously look for ways to best align our organizational structure and philosophy with those of our shareholders. As a result of some of these changes implemented during the third quarter, we expect more cross-functional communication between the groups, and importantly, there is now a more direct reporting line between me and our liquefaction projects.
These changes and any future changes we may consider over time will be driven by our vision to be recognized as a premier global LNG company. Turning to slide eight, I'd like to point out a few strategic initiatives that are underway at the company. I've been clear in my communications that we won't stray from our core competencies in LNG when it comes to project development, and I'd like to touch on two initiatives underway that leverage those core competencies and we think will enable us to compete and win incremental business along the LNG value chain. At the core of these development initiatives is our belief in the long-term demand growth profile for energy and specifically LNG.
At a recent conference of global LNG players, international consulting firm McKinsey forecasted an over 20% growth in primary energy demand between 2013 and 2035, with the power and industry sectors, those where LNG can play a significant role, expected to account for nearly 75% of the total growth. Over a similar period of time, LNG demand growth is expected to far outpace competing fuels such as gas, oil, and coal, as you can see from the graphic on the right side. The compounded annual growth rate for LNG worldwide is forecast to be over 4.5% over the next 15 years. Against this backdrop of long-term energy demand growth, which supports sustained LNG market penetration, we remain extremely bullish on the need for incremental liquefaction capacity and on our position on the cost curve to compete and win. First, we have made a commitment to evaluating a mid-scale LNG solution.
We have recently completed a competitive bidding process and have awarded a FEED contract to a consortium comprised of KBR, Siemens, and Chart Industries. We are evaluating the true opportunities from smaller-scale LNG plants with regard to their commercial, regulatory, and logistical feasibility, and of course, cost. As the market leader in U.S. LNG, we expect to be able to consistently deliver a competitively priced product to our customers. Corpus Christi Train 3 and Sabine Pass Train 6 are expected to be cost-competitive as they will leverage significant in-place infrastructure, but we are evaluating this opportunity for our growth beyond those two brownfield projects. While we aren't able to provide a significant amount of detail on the project development at this stage, we expect to be able to determine whether to pursue mid-scale as a strategy sometime in the middle of 2017.
Next, as we have discussed, we're willing to make investments in infrastructure along the LNG value chain to the extent it supports our core LNG business. Downstream of liquefaction, you are all aware of El Campesino, our project development in Chile, which I covered on the second quarter call. In addition to the downstream opportunity, we are pursuing a project upstream of the site as well, a domestic pipeline project called Midship, that, if built, will support long-term gas supply efforts for both Sabine Pass and Corpus Christi by debottlenecking an otherwise takeaway capacity-constrained resource in the Anadarko Basin by connecting it to some of our existing long-term pipeline transport capacity. Cheniere has a demonstrated track record in pipeline development at both projects, and our liquefaction terminals provide an attractive demand source for gas producers.
Finally, we indicated on our last call that we would host an analyst investor day in 2017. It will be held here in Houston, and we are currently targeting April 19th. We will send more information as we get closer to that date, and I look forward to seeing many of you there. With that, I will now turn the call over to Anatol to give an update on the market.
Thanks, Jack. Good morning, everyone. Turning to slide 10, I'd like to provide an update on the current market environment. Through the third quarter, global LNG volumes are up 7% year-over-year, with continued strong demand from India, China, and new consumption from the Middle East and Pakistan, more than offsetting reduced volumes from the established markets of Japan, South Korea, and Brazil. LNG demand from China and India has continued to surprise to the upside. China's LNG imports are up nearly 30% year-over-year through the end of the third quarter. While the uptick is in part due to Chinese buyers absorbing new contractual LNG volumes from Australian plants, the country's overall gas demand has grown by about 8% through the end of August. This gas demand growth rate is outpacing China's 6.5%-7% GDP growth for the year, a turnaround from last year.
Indian LNG buyers, through the end of September, reached the highest quarterly total on record. Indian LNG buyers, both existing and new importers, have been buying short-term volumes to supplement their long-term purchases. Competitive LNG prices, declining domestic supply, and the government's focus on stimulating gas use in the power sector have underpinned the 35% increase in LNG imports. While global pricing remains off the highs seen several years ago, LNG markets tightened modestly through the quarter with strong summer demand in the northern hemisphere at a time of production shortages driven by force majeure in Nigeria and declining legacy production in Trinidad and Tobago. Increased supply from Australia and the U.S. has been absorbed by the market, with LNG imports into Europe up about 8% through the end of September. Total gas demand in Europe is expected to grow by roughly 6% this year.
Against that backdrop, commissioning volumes, namely cargoes made available on very short notice from Sabine Pass Train Two, were sold at premium netbacks to prevailing European pricing, with cargoes delivered to India and South America. As we highlighted last quarter, we believe there is a secular shift to cleaner-burning natural gas and power generation. And in places like the U.K., the combination of a carbon price floor and an almost doubling of coal prices has driven coal almost entirely out of the merit order to natural gas's advantage. For 2 days in May this year, the U.K. did not use coal in power generation for the first time since the Industrial Revolution. Current coal use is lowest in the U.K. since at least 1860.
We've seen initial signs that the same theme will play out in continental Europe, with gas demand continuing to grow in places like Germany and France. In the third quarter, German and French combined gas demand in the power sector more than doubled year-over-year. Importantly, we believe this fuel switching is sticky, and once shut down, older coal plants are unlikely to return to service. Please turn to slide 11. Over the longer term, we expect these trends to structurally impact demand as supply reliability, availability, and increasing liquidity in the LNG market stimulate price-elastic demand and attract new importers. Currently under construction, liquefaction capacity supports the demand outlook until early next decade, after which point a potential supply-demand gap emerges.
The strong demand from China and India we're currently witnessing is expected to continue, as well as additional demand coming from 30 new markets currently evaluating LNG import options. During this past quarter, 5 new markets were enabled by floating infrastructure: Ghana, Jamaica, Colombia, Malta, and Abu Dhabi. Abu Dhabi started importing during the quarter, with the others expected to follow this year or early 2017. Abu Dhabi is the second LNG import terminal operating in the United Arab Emirates, driven by its push to displace liquids and power generation. The continued swift emergence of new importers could tighten the market sooner than expected. Moving to slide 12. Based on historical cyclicality of the LNG market over the past dozen or so years, the slowdown in the number of final investment decisions on new liquefaction capacity has been followed by a tightening of supply.
We've started to see a pullback in the number of LNG trains being sanctioned over the past 2 years, with only one expansion train officially moving forward so far in 2016. This is clearly setting up a scenario where the LNG market will tighten dramatically by the end of the decade. If customers need supply for early next decade, given the lead time even for our fully permitted brownfield expansion trains, a final investment decision on new liquefaction capacity would need to come in 2017. With 2 fully permitted brownfield expansion trains as well as mid-scale modular solutions that we'll discuss in a minute under evaluation and the experience to efficiently manage U.S. gas supply needs, Cheniere has the speed and competitiveness to be the next LNG to market. Now turn to slide 13. As Jack mentioned earlier, we have 2 new strategic initiatives to discuss with you.
First, we're evaluating the merits of building smaller modular liquefaction trains and have awarded a FEED contract to a consortium comprised of KBR, Siemens, and Chart. The FEED process will help us to assess the cost benefits, if any, of building liquefaction trains using a modular and more standardized approach to drive capital costs lower through off-site controlled environment manufacture of significant components. We expect to be in a position to share more information on this modular liquefaction initiative with you sometime in the middle of 2017. Second, we're developing an approximately 340-mile residue gas pipeline from central Oklahoma to northeast Texas, designed to provide up to 1.4 BCF a day of takeaway capacity from the prolific and low-cost STACK and SCOOP plays in the Anadarko Basin.
The pipeline will help to serve the gas needs of both the Sabine Pass and Corpus Christi LNG terminals by connecting the STACK and SCOOP basins into existing Sabine and Corpus Christi contracted and owned pipeline infrastructure. Cheniere would manage both construction and operations of the pipeline project, we're targeting approximately $750 million a day of 10-year take-or-pay shipper capacity commitments prior to launching a binding open season. These growth projects leverage our core competencies in LNG and pipeline project development. As we continue to move through the development process, we'll update the market with additional information. We'd also like to provide you with an update on our Chilean LNG to power project. This project encompasses a new LNG receiving terminal, floating storage and regasification unit, associated pipeline, and approximately 600-megawatt gas-fired combined cycle power plant.
The plant is underpinned by 15-year power purchase agreements with Chilean public distribution companies. The PPAs were awarded in the Chilean public energy auctions. The power plant will purchase LNG from Cheniere Marketing International through a 15-year take-or-pay LNG sale and purchase agreement. The LNG will be delivered to the terminal, regasified, and then transported to the power plant. The power plant has contracted for about 25% of the regas terminal's capacity, with the remaining balance available for incremental commercial opportunities. We're currently a 50% owner of the receiving terminal, and at FID, we will own 10% of the integrated project, including the power plant. The appeal periods pertaining to the environmental permits for the power plant and the terminal ended last month.
Cheniere, along with its Chilean partner and EDF, is in the process of finalizing the financing with the expectation of reaching FID on this project in the fourth quarter. With that, I will now turn the call over to Michael to review financial results.
Thanks, Anatol Feygin, and good morning, everyone. I'm pleased to announce our financial results for the third quarter of 2016, a summary of which can be found on slide 15. Train 1 was in commercial operations for almost the entire third quarter. It was brought down for the flare work near the end of the quarter, and therefore, we saw significant progress in our financial results. It's exciting and rewarding to begin to see our financial results transition as Sabine Pass is entering commercial service. We're also excited about moving the company forward and articulating our financial strategy with a long-term goal of value creation through a disciplined capital allocation philosophy. As a reminder, Cheniere Energy consolidates the results of Cheniere Energy Partners, CQP, and Cheniere Partners Holdings, CQH. For the third quarter 2016, we report a consolidated revenue of $466 million compared to $67 million in the corresponding 2015 period.
Revenue recognized from LNG sales for the second quarter 2016 was approximately $400 million. Before moving on, I'd like to once again provide some information about our cargo sales during the third quarter as it relates to revenue recognition. During the third quarter, we loaded and exported 18 cargoes and sold nearly $350 million worth of LNG produced at Sabine Pass Liquefaction, or SPL. Three of the 18 cargoes were loaded prior to substantial completion of Train 2. As a reminder, proceeds from the sale of commissioning cargoes are not reflected on the income statement. Rather, they are recorded as an offset to construction in process on the balance sheet because these amounts were earned prior to our taking over care, custody, and control of Train 2. LNG cargoes on future trains will be treated in the same manner.
It may be difficult to model our revenue accurately and tie out our reported revenue to production in the upcoming quarters as we continue to commission trains at Sabine Pass. In addition, we can recognize revenue on the income statement without corresponding production from SPL, as Cheniere Marketing can sell cargoes purchased from other supply sources. We loaded 15 cargoes at SPL during the third quarter, which are reflected on the income statement. Those commercial cargoes were lifted primarily by BG/Shell under their contract that gives them access to early volumes produced prior to DSCD at the contract price of 115% of Henry Hub plus 225, and by CMI. Similar to the second quarter, since Train 2 reached substantial completion during the third quarter, several other line items in addition to revenue were impacted as a result.
Certain operating expense line items previously capitalized during construction have begun to be expensed. Depreciation and amortization expense increased during the period as we began depreciating assets related to Train 2 upon reaching substantial completion. In addition, SG&A expense decreased by approximately 37% compared to the third quarter 2015, driven primarily by roll-off of certain stock-based compensation expense, restructuring efforts initiated in late 2015, and a reduction in certain professional service fees. Furthermore, included in the SG&A line item are aggregate share-based compensation expenses for the three and nine months ended September 30th, 2016 of approximately $7.5 million and $31.2 million, respectively. Amounts remaining under these legacy grants will be recognized over the next approximately year and a half, and thereafter, we expect more normalized run rate levels to prevail.
As you may have noticed, for the third quarter, we have recombined marketing expense with G&A and present Selling, General and Administrative Expense. This change was made so that the presentation of these expenses was consistent with how we view the business. Expenses associated with our marketing effort are a necessity of our core business rather than an independent or standalone entity. During the third quarter, we recognized about $25 million in restructuring expenses. These expenses are primarily related to share-based compensation, severance, and employee-related costs under restructuring and operational efficiency initiatives initiated in late 2015. These initiatives are ongoing and are expected to be substantially completed by the end of the year. While we won't be introducing new run rate guidance across the board on this call, I can say that our recently completed zero-based budgeting process has given us some increased visibility into our projected run rate SG&A.
The process was focused on financial discipline and coincided with some of the organizational realignments Jack spoke about a few minutes ago. Those processes enabled us to identify and eliminate some areas of inefficient or redundant spending, and the result will be a reduction in our run rate SG&A guidance from $300 million to approximately $200 million, in both cases, excluding stock compensation expense. We expect to give more comprehensive guidance at our Analyst Day in April. Net loss attributable to common stockholders was $100.4 million, or $0.44 per share, compared to the corresponding 2015 period of $297.8 million, or $1.31 per share. Impacting earnings during the third quarter were significant items totaling approximately $7 million.
These significant items related to derivative gains, primarily due to changes in LIBOR over the period, loss on early extinguishment of debt related to the SPL refinancing, changes in fair value of our commodity derivatives, restructuring expense, and amortization of the beneficial conversion feature related to the Class B Units issued by CQP in 2012. The management of our consolidated balance sheet continued to drive much of the impact to EPS, and investors should expect EPS results to continue to be influenced by such financing-related items for the foreseeable future. As such, we also report adjusted EBITDA and net income as adjusted, which excludes these items. Additional detail on the impact of these items can be found in the reconciliation tables in the appendix of the slide deck.
Adjusted EBITDA for the three and nine months ended September 30, 2016, was $67.3 million and $19.4 million, compared to a loss of $51.5 million and $138 million for the comparable 2015 period. With regard to liquidity, as of September 30, 2016, we had unrestricted cash and cash equivalents at Cheniere of approximately $1 billion. On slide 16, I'd like to discuss some highlights from the third quarter on key finance initiatives that are underway. These have all been touched on already, but I'd like to provide a bit more insight into each. First, during the third quarter, SPL received its first investment-grade credit rating when S&P upgraded the entity to BBB- from BB+. This is significant for a number of reasons.
First and foremost, perhaps most obviously, we expect investment-grade ratings to give SPL access to the investment-grade market, which features significantly more depth in the high yield market and fixed income products and tenors, which can better match the tenor of our long-term foundation customer LNG contracts. This is important as we formulate a long-term deleveraging strategy at SPL. Second, perhaps less obvious, are the operational benefits of investment-grade ratings we expect to realize. Currently, a majority of the $1.2 billion of working capital facility we have at SPL is reserved for letters of credit related to gas procurement activities at the terminal and third-party transport infrastructure. With investment-grade ratings, we expect a significant reduction in these LC postings. We are in active dialogue with the rating agencies and look forward to the achievement of a second IG rating over the coming months.
We have structured our project financings with investment-grade credit metrics and look forward to achieving further investment-grade ratings at both Sabine Pass and Corpus Christi over time. Shortly after S&P upgraded SPL to BBB-, we launched a bond offering at SPL, where we were able to place $1.5 billion aggregate principal amount of senior secured notes due 2027, which priced at par to yield 5%, our lowest coupon at SPL thus far. Pro forma for that issuance, there's approximately $2 billion left on the SPL term loan. To date, we have issued $11.5 billion of bonds at SPL with a weighted average coupon of approximately 5.65%. We will continue to be opportunistic in terming out the bank facilities at both projects to better align our maturity profile with projected annual EBITDA levels. A summary of our current consolidated debt maturity profile can be found in the appendix.
Pro forma for the repayment of the SPLNG bonds later this month, with proceeds from the CQP bank facility, there will be no maturities in the Cheniere complex until 2020. For a few quarters now, we've discussed our openness to exploring opportunities to simplify our corporate structure to reduce complexity for debt and equity investors, to the extent it makes economic sense for our shareholders. As previously reported, during the third quarter, we made an offer to the board of CQH for those shares of CQH that we do not already own in a stock-for-stock exchange. We believe this proposed transaction is beneficial to shareholders of both LNG and CQH. You'll appreciate that we cannot get into more detail than what we have previously reported publicly on this subject, as we are in ongoing negotiations with the conflicts committee of the CQH board.
There can be no assurance that such discussions will result in a transaction. As I mentioned earlier, the zero-based budgeting process we recently concluded has given increased visibility into a lower projected run rate SG&A level. This process was focused on financial discipline, not specifically cost-cutting, and we were able to identify and eliminate some redundant or inefficient costs as we align our spending with a streamlined organization. We're focused on growth initiatives discussed earlier and look forward to achieving our long-term goals while remaining disciplined in our spending. With that, we'd like to thank you for your time today and your interest in Cheniere, and we look forward to updating you on our next call. Operator, we're now ready to open the line for questions.
At this time, I would remind our participants that if they have a question, they may press star followed by the number 1 on their telephone keypad. Your first question comes from the line of Bhavesh Lodaya from Credit Suisse. Your line is open. Please go ahead.
Hi. Good morning.
Good morning.
Hi. Good morning. First of all, on this mid-scale liquefaction project, congrats on the announcement. Could you give us more color on what kind of contract structures and % of marketing of spot volumes you expect on these trains? Also, how is the permitting process for these? Can you use your existing Sabine Pass T6 and Corpus T3 approvals for these plants?
Hi. Thanks for the question, this is Anatol. One thing that we'd like to take this opportunity to discuss is kind of the separation between the marketing of LNG and ensuring that we have the best cost structure possible to supply those opportunities. What we're doing here today is, as Jack mentioned, beyond our efforts with the Train 3 and potentially Train 6 that are fully permitted, and we believe will offer some of the lowest-cost opportunities for incremental LNG supply. At this point, we're cautiously optimistic that this mid-scale effort will yield a similar or perhaps an improved cost structure. We will be very disciplined in how we prosecute incremental liquefaction facilities.
We will continue to have term contracts and offtakes, given the modular design and the smaller minimum efficiency scale of these plants, it is possible that we have additional degrees of freedom in how we finance them. It's too early to tell. We'll know more once we move through the process of really running this opportunity through its paces. As we mentioned a couple times, we'll know a lot more by the time middle of 2017 rolls around, we expect that the contract structures will be somewhat more flexible, we're not going to have a meaningful amount of merchant exposure regardless of what technology we pursue.
Thanks. Is it fair to assume this mid-scale liquefaction and the midstream, both these projects as of now are at the LNG level?
That's correct.
Okay. Maybe my final point or question on Midship is, could you maybe talk about what are the returns or targeted return profile you're expecting from the Midship project, and also, were there any other areas in the U.S. midstream you were considering before you decided on the Midship project?
Yes. Maybe, this is Anatol again, maybe just to take a step back. This is a potential component in our supply portfolio. As you're well aware, we're going to be a very large buyer of molecules to feed both facilities. We already have a very large portfolio of firm capacity delivering into both facilities. This will augment that and will give us a potentially increased diversification and degrees of freedom of where to source molecules. Right now, we have, again, a large portfolio already in place. This moves us
Towards the west, if you will, in terms of shifting our center of mass for where these molecules come from. Right now we think that this is incrementally one of the most attractive residue gas opportunities in the country. As you are well aware, the basin's economics are driven primarily by liquids with a very large residue gas cut. We like the durability of this resource and the ability to access it and feed it into infrastructure that we currently own and control. We're constantly on the lookout. We talk to literally every major producer in the country, and as new opportunities present themselves to debottleneck and move more molecules to the plants, given the volumes that we will be purchasing, we'll continue to evaluate such options.
Go ahead.
Michael, you have anything to add?
Yeah. In terms of returns, as we think about financing this project, I'm really comfortable with our liquidity position right now as it relates to the seven trains we have under construction, we're fully financed in that regard. As we look at incremental projects, I think it's too early for us to start allocating some of that liquidity to growth. We'll be looking to really third-party finance this project, and we kicked off a private equity process many months ago. This week we got a round of indications, I think there's a huge bid for this kind of product, infrastructure underpinned by long-term capacity contracts. I'd say from a rate of return basis, I think the market's finding it pretty attractive. We'll be relatively capital light on this project, at least this one. Not large capital commitments really until 2018.
For now, that's our position.
Okay. Great. Thank you, guys.
Thank you.
Your next question comes from the line of Faisel Khan from Citigroup. Your line is open. Please go ahead.
Yeah, good morning. It's Faisel Khan from Citigroup. I just wanted to understand, on CQH, I know you can't talk about some of the details around the transaction, but is there a shareholder vote that's needed to complete that transaction?
Yeah. The LLC agreement calls for a shareholder vote. Yes.
Okay. Is your 80% that you own part of that vote, or is it just the 20% of minority holders?
The former.
Okay. It's the entire ownership position that votes, if it's more than 50%, that's it.
That's right.
Okay. Understood. In terms of the priority of cash flows as they come through, as each train ramps up, have you guys thought about exactly how you're going to balance the need to pay down debt, I guess and how much capital return to shareholders versus, I guess now you're thinking about building a pipeline. How is that sort of thought process evolving and where should we think about the priority of cash flows?
Yeah. As I said, right now the priority of cash flows is We have, I guess, early cash flows go back into the projects, right? That's how we finance them from day one. Train 1, 2, 3 cash flow is really directed to finishing Trains 4 and 5, right? That was a source of cash, like I said, from day one. That's $2 billion, $2.5 billion. That's going to be the first priority. Then we have another $1 billion we have to put into Corpus, right? All of that is set up right now with the liquidity and cash flows that we foresee. That's where we're going to be for the next year or two.
We don't really have much to think about in terms of incremental capital allocation, We don't have any debt coming due for a long time in any case. As it relates to dividends and investing in Midship, really, I think, as I said earlier, that capital is really spoken for now.
Okay. Michael, what do you think is the right sort of debt to EBITDA ratio for the company in the long run? As I look at your sort of cash flows ramp up and they mature, how should I look at the balance sheet over the long run on a debt to EBITDA basis? Sorry.
Well, we start with the project. The metric that matters to us and to the rating agencies, because we have two very large projects, is debt service coverage ratio over the life of the contracts. That's the key metric they care about. Debt to EBITDA is then a derivative of managing the DSCR. Our projects are in the 1.6 neighborhood, which is deeply into investment-grade land. That's why we always say our projects were financed investment-grade, just a matter of time before they get there, and we saw that with SPL. We target 1.5, 1.6 at the project, and that turns into a consolidated leverage ratio of, what, Zach? Six or seven times, which looks high, but it isn't, right? Because you got to really focus. Because of our long-dated contracts, you got to focus on that fully amortizing DSCR.
Six or seven on a consolidated basis is where we'll be for a while.
Okay. Makes sense. Then on the modular LNG FEED contract that you guys are saying, how many dollars are you going to allocate to this FEED study and contract?
It's not much. It's singles of millions of dollars for the FEED.
Okay. Then in terms of marketing Train 6 at Sabine and Train 3 at Corpus Christi, is there a marketing team in place? I know there's been some departures within the management team over the last several months. I just want to understand, what's the process in terms of going out and marketing those volumes to new customers?
Thanks, Michael. It's Anatol. No, absolutely. We have a full origination team in place really all over the globe. We've staffed up in Asia. We have tremendous resources in London, Houston, and some in Latin America. We feel very good about our ability to cover the globe and the opportunity set with the team in place. As with any evolution, as we've discussed, as we transition from the development to operation, there's some optimization involved. We have not cut into any muscle and have the right people in place to capture the opportunities.
Okay. In terms of the Trains 1 and 2 are ramped up now, how are you guys looking at the future nominations? I believe your customers have to sort of give you those nominations a few months ahead of time. How are you guys looking at the what is the future demand in terms of overall capacity for Trains 1 and 2, given your current nominations?
I'm not really sure I understand that question. Can you-
Sure. I guess each train is 4.5 million tonnes per annum, and I believe your customers have to tell you ahead of time how much gas they need to load out of each one of those facilities. I was just trying to understand is, over the next few months, what % of that capacity is going to be utilized.
Okay. That information is competitive information. The customers have filed their ADP schedules with us. We know when their ships are coming and what the expectation is for loading. We haven't given out any other forecast information of what we may do with the excess cargoes, if that's what you're asking.
Okay. Got it.
Okay. If I could, I'm sorry, I need to move on.
Asking too many questions? I'll go back in the queue.
Yeah.
That's fine. Thanks, Jack.
Yeah.
As a reminder, ladies and gentlemen, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. Please limit your questions to one and one follow-up to allow other participants time for questions. If you require any further follow-up, you may press star 1 again to rejoin the queue. Your next question comes from the line of Christine Cho with Barclays. Your line is now open.
Hi, everyone. I actually wanted to go back to this pipeline. Would you go forward with just the 750 that you have contracted or you would really like to see other contracts on it? Given that there are a number of midstream players who have talked about wanting to build residue gas pipes out of the STACK/SCOOP. I know, Michael, you talked about private equity being interested. Should we think that you're open to either doing like a JV with another midstream partner or selling interest in yours?
Hey, Christine, it's Anatol, and perhaps Michael will chime in as well. Again, we approach all of these gas supply decisions in a robust fashion. We evaluate buy versus build opportunities. The 750, to answer the first part of your question, is the amount that we would need to go to a binding open season. The project would be scaled at that point for attractive jurisdictional returns. That is something, as Michael said, that there is a tremendous interest in for a number of reasons. We, as well as our partners, would like to see a larger pipeline built pointed at Texas and our supply portfolio there. We think there's very good opportunity for capturing additional commitments, and we think that pointing those SCOOP and STACK volumes in the southeast direction is really optimal for the producers to reach the growing market in the Gulf Coast.
We're very optimistic. Again, the 750, we think is just the starting point and is something that we think both producers and the market will find attractive. Before we embarked on this process, which we've been at it for the better part of a year, we did evaluate dozens of other opportunities. Again, this is something that we are very comfortable with and confident is the right solution to be dialed in. Again, as Michael said, we have tremendous interest from sponsors that will minimize our financial commitment and will allow us to get the molecules into the right market for us.
Okay, great. Then the modular stuff that you're looking at, you guys said nine and a half MTPA, but I was just curious, how large is each modular train? If successful, would you kind of build them one by one, so it's not necessarily like you need a big portion of that nine and a half day one to move forward with one train? How should we be thinking about that?
Yeah. Thanks, Christine. Again, this is a modular design. We're still early in evaluating. Again, the minimum efficiency scale here is something between one and one and a half million tons. The attractiveness here is we'll be able to dispatch them as we successfully commercialize them, right? That's the whole idea behind this. The nine and a half happens to be a number that matches well with lots of other components in how we think about
How we grow the business beyond Train 3 and Train 6.
Okay. There was some news about one of your neighbors experiencing some sizable delays on their LNG project due to the flooding. It sounded like it was an issue that was specific to them, but can you just verify that there is no impact to Bechtel facilities and workforce as well as your facility from similar issues?
That's right, Christine. We have no impact for Bechtel or for our facilities like they did at one of the competitor's facilities. We're very pleased with our relationship with Bechtel. We're pleased that Bechtel's built a majority of these liquefaction facilities around the world. We intend to meet all of our commitments and get these trains on budget, on schedule, et cetera.
Thank you.
Our next question comes from the line of Ted Durbin with Goldman Sachs. Your line is now open.
Thanks. Can you tell us how many marketing cargoes or how much marketing volume you lifted this quarter, and were they all liquefied at Sabine Pass?
The cargoes that were lifted as part of the commissioning process by Cheniere Marketing, which as Michael said, effectively are not reflected in our revenues. We had three of those before commercial operations. In terms of other commercial activity by Cheniere Marketing, it's not something that we want to give any additional detail on at this time.
Okay. I was a little bit unclear on the El Campesino moving to FID. Do you have full regulatory approval for that project or not?
We do. We have permits issued both for the terminal as well as the power plant.
What's next then in terms of FID? You're comfortable with the returns and other things. What's left then?
Absolutely. Well, what's left is reams and reams of documents and agreements and, of course, most importantly, the financing.
Okay. Got it. Then if I could just do one more. On the CapEx itself for all the trains, can you just give us an update on where you are in terms of the change orders? I know you said you're on time, on budget. Have you reserved enough, versus where you're tracking? Then if you could give us a sense of the actual CapEx spend as you look into 2017 and 2018, if you could put a dollar number on that.
Sure. On the contingency side, we're still very comfortable. We don't really give that number out month to month or quarter to quarter, but it's substantial at SPL and it's really substantial at Corpus still. Really close to what we started with. We're 40% into that project or so. We're feeling good about contingency. In terms of CapEx next year, it's a couple billion dollars, if you include IDC and financing costs, for SPL next year. Corpus will be a little north of two, closer to $2.4 billion. $4.4 billion next year at CapEx. It starts to roll off a bit. 2018 looks more like $3 billion in total.
That's perfect. Thank you very much.
Bye, Ted. Thank you.
Our next question comes from the line of James Carreker with U.S. Capital Advisors. Your line is now open.
Hi. Most of my questions have been answered. Thank you.
Bye, James.
Our next question comes from the line of Jeremy Tonet with JPMorgan. Your line is now open.
Good morning.
Hi, Jeremy.
Jack, you've made some swift progress here in terms of wringing out some efficiencies. I'm just wondering if you could expand a bit more as far as other opportunities that you've been seeing here and how we should think about that as we head forward.
Thanks, Jeremy. First off, it's been a fantastic opportunity for me personally these past six months. It's been rewarding, interesting. Getting to know the Cheniere professionals has been fantastic. We've had a lot of irons in the hopper. We've been pulling on a lot of different levers. I'm looking forward to stabilizing the organization and really seeing what this team is capable of. I'm very excited about our future going forward, and I'm extremely excited to be working with this group of professionals because we all seem to be communicating very well, and we're all focused, I think, on the right things, which is building the existing trains, operating the existing trains, growing this business. Thanks for the recognition. This group's been working really hard these past few months.
Great. Building on one of the earlier questions, one of your competitors announced construction delays. How do you see this impacting you as far as, do you see opportunities for Cheniere that arise from this development, whether it be marketing or attracting new business or in any other way?
Well, first, Jeremy, thank you. I guess I just give a shout-out. If they need help with some LNG, Cheniere is ready and willing and able to provide themselves or the customers with a few tank loads of LNG if they need it. Other than that, I'm not sure we need
There's anything I could say, or it's not what we're experiencing ourselves.
Fair enough. Thanks for that. I'll step back in the queue and give other people a chance. Thanks.
Okay, thanks.
Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Your line is now open.
Yes. Good morning, gentlemen. Thank you. I would like to ask you about the recent development in LNG prices. The $7 per MMBtu is significantly higher what we saw this year. What do you think is driving that, and how sustainable it is? If you can also discuss whether prices can affect the FID of Train 6 of Sabine Pass or even the mid-scale, whether you can take FIDs without offtakes just by hedging the gas prices right now that they have moved much higher than earlier this year.
Hey, Fotis. It's Anatol. Yeah, thanks for the question. Yeah, the pricing has been very robust. I'll give a shout-out to the teams on both sides of the plant that have sourced gas very efficiently and effectively and have marketed those volumes, as you guys can see from the DOE reports, effectively as well. I will say, you and I have discussed this in the past, and anybody who thinks that price-elastic supply and price-elastic demand takes a decade to rebalance, I just disagree with, and I think that's a large part of what we're seeing here. We're seeing it in the coal market, right? We're seeing it in the LNG market. We've had a dramatic increase in imports, increased utilization of existing infrastructure, and this is coming at a time when we're delivering volumes into the market.
On our math, almost two-thirds of this wave of Australian LNG has come online. Now, you can say that the trains aren't in aggregate running at capacity, which is fair, but the market has very effectively absorbed these volumes. I don't think you had a lot of people a year ago prognosticating this rally in European gas prices. As you said, the NBP minus 115% of Henry Hub is bopping up around $4 now, and that is certainly good for our business and continues to position Henry Hub as a supply source very attractively. Now, your next question of, is it hedgeable for term, and is it something that we would use to underwrite our expansion opportunities? The answer on that is no. We would need term contracts with creditworthy counterparties.
If there's a large portfolio player that is emboldened enough to go into the market and attempt to lock in this spread, which as you know as well as anyone, isn't all that liquid beyond a relatively short period, we'll be happy to supply into that contracted capacity. We would need term and credit in order to FID incremental liquefaction.
Thank you, Anatol. Just one follow-up. What would be the minimum amount that you would need to get an offtake for the mid-scale opportunity that you are discussing?
Well, Fotis, thanks. Again, it's early to tell because we are still kicking the tires, of course, and evaluating with our partners what the size and cost structure is. To the extent that we're right and that this minimum efficiency scale number is somewhere in the 1 to 1.5 million tons range, and we can opportunistically add this capacity in smaller increments. I would say as a guidepost, you could think about a two-thirds to three-quarters of that capacity being committed under term sales in order for us to move forward. I think we would say that we don't need the 90% contracted capacity for 20 years as we did on the current projects, but substantially firmed up with a majority sold under long-term agreements is our current posture.
Thank you very much, Anatol.
Our next question comes from the line of Craig Shere with Tuohy Brothers. Your line is now open.
Good morning. Thanks for letting me in. As a follow-up to Ted's question about the quarters cargoes, is there any color about foundation customer interest in tapping their early cargo rights?
Hey, how are you, Craig? It's Anatol again. Foundation customers as you know, both BG/Shell as well as Gas Natural, have agreements for pre-commercial cargoes. They're the only two that have those agreements. The Cheniere Marketing organization has been transacting with the entire portfolio of LNG buyers, and those foundation customers are among them. I guess the answer to your question is yes on both. Both the pre-commercial cargoes as well as incremental volumes have been sold to foundation customers.
That. The original higher margin contracted position a year and a half plus ago, I think it was 150 million MMBtu through 2018. Are those cargos ones that you have flexibility on timing of filling, or should they roll out methodically over time through 2018?
all of those sales are at times certain periods, if that's part of your question. As you said, that margin will flow through our financials over the next year and a half or so.
I guess I'm asking is how lumpy is it or is it pretty methodical?
It's substantially in 2017 with some volumes into 2018.
Last question. There was some comment about being very comfortable with the budgeted contingencies at this point. Can you handicap at this point, combined with prospects for maybe not using all SPL contingencies and also with debt financing costs to this point about maybe coming on the inside of that $2 billion-$2.5 billion back end equity funding target?
No. I think our assumption right now, conservatively, is that the contingency gets spent. Train 5 is still way out, and Corpus is still relatively early days. Very comfortable with contingency, but we're not taking a victory lap just yet.
Fair enough. Thank you.
Our last question comes from the line of Alex Kania with Wolfe Research. Your line is now open.
Thanks. Good morning. Just I want to go back to the SG&A commentary. Again, I just want to verify that you said in the past that you'd see a long-term run rate at the kind of LNG Cheniere level of $300 million, and now you're saying it's going to be closer to $200 million. Is that a fair way to think about it?
That's right.
Okay. Does it take any additional time to get there, or do you feel like that a lot of the steps you need to make have already been made?
Yeah, if you strip out stock comp out of our current run rate, we're not that far from the low 200s right now. I think we're going to generally arrest the growth of future G&A. There'll be some growth, but there'll be some other areas where we'll be more efficient, and the net will be kind of a flattish run rate.
Great. Thank you very much.
No other questions at this time. I'll turn the call back over to presenters for closing comments.
Yeah. This is Jack. I just want to say thank you very much for all of your support of Cheniere and of me over these last six months, and I look forward to working together over the next coming years. Thank you again. Bye-bye.
This concludes today's conference call. You may now disconnect.