Liquefied natural gas (LNG) demand faced massive contraction in Q2 and Q3 2020 causing significant loss for Cheniere Energy, mainly due to cancellation of cargoes and decrease of export volume into Europe, Asia, and South America. However, LNG exports recovered substantially in August and September due to the unexpected increase in demand from Europe and Asia. The company’s LNG exports are expected to exceed pre-pandemic levels by December.
Cheniere Energy is optimistic about the growth of LNG demand in the future, mainly in Asia and Europe. The company is confident about the long-term outlook of LNG demand in Asia due to the fast-growing economy in most countries, coupled with several focused policies to increase regasification capacity, mainly in China and India. Cheniere Energy’s future portfolio will be highly dependent on its ability to materialise such opportunity in Asia and the company has been expanding its effort to market its LNG contract to various parties in Asia.
Fig 1 – Policy Initiatives Fuelling Asian LNG Infrastructure
Cheniere Energy also recognises a growing shift towards a low-carbon future, especially in the European market, and plans to position itself to serve as a bridge towards this future scenario. Some of the company’s most elaborate effort goes into CO₂ management solutions and integrating clean power in its LNG liquefaction operations, as well as monitoring producer and pipeline emissions standards. European natural gas demand has declined significantly throughout H1 2020, as reflected by TTF Gas Price, which reduced the competitiveness of US LNG exports due to a reduced differential from Henry Hub gas prices. Although natural gas demand started to recover in Q3 2020, the increase in Henry Hub prices may lead to a smaller profit margin for Cheniere Energy in the short term until natural gas production starts to increase again and price falls.
Fig 2 – Henry Hub with Decreased Competitiveness in European Market
However, Cheniere Energy retains its outlook in overall demand of LNG and the company remains on track with its terminal expansion project. The company is expected to increase its capacity by approximately 27% of the current capacity of approximately 31.5 million tonnes per annum (mtpa). In Q1 2021, the company is expected to complete its commissioning of Train 3 of Corpus Christi, which will be adding another 4.5 mtpa of liquefaction capacity to the current capacity of 9 mtpa. The company is also currently operating five trains in Sabine Pass, with Train 6 having achieved Final Investment Decision (FID) in May 2019 and expected to be completed in H2 2020. This will add 4.5 mtpa to its current 22.5 mtpa capacity.
Fig 3 – Exxon Greenhouse Gas (GHG) Emission Normalised, CO₂ Equivalent
(tonnes per 100 tonnes of production)
Cheniere Energy has also improved its operational efficiency throughout the years by increasing its run-rate production capacity per train, which will help to drive incremental value from its existing infrastructure. Furthermore, Cheniere Energy expansion plan is coming to an end in 2022, which will reduce its capital commitments and leave room for significant free cash flow generation.