Cheniere’s Q4 Is Another Blowout

Cheniere’s LNG fourth-quarter results were well above expectations, as it captured the last few months of extremely wide spreads before the market weakened during 2023. Full-year EBITDA of $11.6 billion was more than double expectations entering 2022, as it captured huge marketing spreads given the significant increase in demand from the EU. Resetting 2023 expectations to market levels, where gas prices and LNG spreads have declined over the past few months, lowers our 2023 EBITDA forecast by about 17% to $8.4 billion. Outstanding capacity is about 50 trillion British thermal units, or Tbtu, representing less than $500 million in EBITDA once under contract. The uncontracted capacity helps explain the difference between the low and high end of Cheniere’s guided range of $8 billion-$8.5 billion in 2023 EBITDA. These results still imply wider-than-normalized spread levels, as our long-run EBITDA forecast is about $7.1 billion.

Despite the lower near-term forecast, the combination of higher cash already earned in the fourth quarter, plus adding Midscale 8-9 trains to our model, increases our fair value estimate for Cheniere Energy. Our fair value estimate is now $161 per share from $143, while our wide moat rating is unchanged. The Midscale trains with about 3 million tons capacity add about $400 million in annual EBITDA to our longer-term estimates beginning in 2027. While the trains are still in the pre-filing review process with the Federal Energy Regulatory Commission, Cheniere already has about 3 million tons of capacity under contract beyond its existing capacity and construction plans. Thus, we see the two trains as already an easy decision to move forward.

Cheniere also announced a massive 20 million-ton expansion at its Sabine Pass complex, where ownership is shared between Cheniere Energy Partners (49.4% ownership) and Cheniere Energy (50.6%). We do not include this expansion in our fair value estimate because of the uncertainty over whether it will move forward.