China’s strong LNG demand
China became the world’s second-largest LNG importer in 2017 and surpassed South Korea. China’s LNG exports increased by 12.6 million tonnes per annum in 2017—compared to 2016. According to Cheniere Energy’s 4Q17 earnings presentation, “China absorbed 42% of the global supply growth, despite the increase in indigenous production.”
According to Jack A. Fusco, Cheniere Energy’s (LNG) CEO, the growth in China’s LNG demand isn’t due to cold winters. The growth is due to China’s urgent need to lower its air pollution. China is taking steps towards improving its air quality through lower coal-fired power production and lower coal-power heating. Under its Blue Sky initiative, Cheniere Energy has positioned itself to leverage China’s growing need for natural gas.
Cheniere Energy’s deal with CNPC
China’s state-run CNPC (China National Petroleum Corporation) signed three SPAs with Cheniere Energy—two long-term SPAs and one medium-term SPA. Under the two long-term SPAs with Corpus Christi Liquefaction and Cheniere Marketing International, CNPC agreed to purchase 1.2 million tonnes per annum of LNG “with a portion of the supply beginning in 2018 and the balance beginning in 2023,” as noted in the related press release. Under the medium-term contract, the company would supply “additional cargoes in 2018 through 2020,” as noted in the 4Q17 earnings call.
The recent SPAs have taken Cheniere Energy closer towards the commercialization and development of Train 3 at Corpus Christi Liquefaction. The company plans to secure financing for the project in 2018, which resulted in the positive final investment decision for the project. Train 3 is expected to add $400 million–$600 million of run-rate adjusted EBITDA.
Next, we’ll discuss Cheniere Energy’s recent market performance and price forecasts.