Cheniere Energy Inc

NYSE:LNG

Earnings Call Transcript 2018-Q1

[Operator]

Good day and welcome to the Cheniere Energy, Inc. First Quarter 2018 Earnings Call and Webcast. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Randy Bhatia, VP of Investor Relations.

[Randy Bhatia, Cheniere Energy, Inc.]

Thanks, operator. Good morning and welcome to Cheniere Energy's first quarter 2018 earnings conference call. A slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me for 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 our listeners that our remarks, including answers to your questions, may contain forward-looking statements and actual results could differ materially from what is described in these statements. Slide 2 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 presentation. As part of our discussion of Cheniere Energy, Inc.'s result, 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. We do not intend to cover CQP or CQH's results separately from those of Cheniere Energy, Inc.

The call agenda is shown on slide 3. Jack will begin with an overview of the quarter and give an update on construction and operating progress at our liquefaction projects. Following Jack's comments, we'll hear from Anatol on our commercial activities, and then from Michael who will review our financial results. After prepared remarks, we will open the call for Q&A.

I'll now turn the call over to Jack Fusco, Cheniere's President and CEO.

[Jack A. Fusco, Cheniere Energy, Inc.]

Thank you, Randy, and good morning, everyone. Thanks for joining us as we review Cheniere's record results from the first quarter of 2018 and our improved full-year 2018 financial guidance. We picked up in 2018 right where we left off in 2017, achieving superb execution throughout the Cheniere platform, which culminated in the financial results we announced this morning. We generated over $2.2 billion in consolidated revenue, over $900 million in consolidated adjusted EBITDA, and over $250 million in distributable cash flow for the first quarter, results which have led us to increase our full-year 2018 consolidated adjusted EBITDA guidance, which Michael will detail in a few minutes.

Our record results in the first quarter were driven by strong LNG market pricing and solid production at Sabine Pass. The first quarter demonstrates the power of our market-leading LNG platform and represents the tangible results of superior execution at all stages of our business. We constantly strive for superior execution, driven by how we want to be viewed in the market by our customers, competitors, and our stakeholders. During both the fourth quarter of 2017 and the first quarter of 2018, our integrated marketing function had access to a meaningful amount of LNG production due to Train 4 at Sabine Pass being completed significantly ahead of the guaranteed construction schedule, as well as a seasonal production benefit from cooler winter weather.

In addition to benefiting from the strong LNG market and robust production, access to significant volumes also enabled us to demonstrate our capabilities in effectively managing a substantial LNG portfolio, which is critical as we prove ourselves as reliable operators to the global LNG market. Our commercial operations team did an outstanding job of not only placing such a large amount of volume into the market, much of it on a short-term basis, but also managing all the required logistics such as gas supply, shipping, and marine operations.

Proving our capabilities is critical as we view our portfolio volumes as a strategic competitive advantage both operationally and commercially. We expect our portfolio volumes to increase again starting in early 2019 as Train 5 at Sabine Pass and the first two trains at Corpus Christi remain well ahead of their respective guaranteed schedules and longer term as we expect to manage a top five global LNG portfolio. We continued to make progress on Corpus Christi Train 3 and our expected timeline for a positive FID on the project does not change. We recently announced the bank group arranging the project financing and are working diligently on the process with them in anticipation of being able to make FID in the next few weeks.

Turn to slide 6 for an update on our LNG projects at Sabine Pass and Corpus Christi. At Sabine Pass, highlight in the first quarter of 2018 was the commencement of our foundation customer SPA with GAIL, which we celebrated with a ceremony aboard a GAIL-chartered vessel during its first lifting at the terminal. We have now commenced the primary foundation customer SPAs related to each of the first four trains at Sabine Pass, which are expected to provide over $2 billion in aggregate fixed fee revenue annually. Trains under construction at both sites remain ahead of guaranteed schedule and on budget. On Train 5 at Sabine Pass, construction efforts continue to progress against accelerated schedules, and during the quarter, Bechtel brought forward the expected substantial completion date for Train 5 by two months.

At our Corpus Christi project site, project completion for Trains 1 and 2 is about 86% with construction focused on pipe completion, testing and critical path systems. As of the end of March, construction has turned almost a hundred systems over to the commissioning and startup teams. And the Corpus Christi Pipeline is mechanically complete. The Corpus construction team achieved a milestone accomplishment recently as it reached 10 million man hours' work without a lost time incident over a one-year period. I recognize and applaud the construction team in our EPC partner, Bechtel, on this achievement. Safety is a core value at Cheniere, and we are proud to have that value on display at our Corpus Christi project site.

Sabine Pass 5 and Corpus Christi Trains 1 and 2 are tracking ahead of their guaranteed schedules and well ahead of the DFCD dates. If we maintain the current construction schedule, I'm optimistic our marketing function will have access to meaningful volumes as those trains enter service next year. During the quarter, Bechtel continued Corpus Christi Train 3 construction under a limited notice to proceed and achieved the first concrete pour in early March. As I mentioned earlier, we're on track to make an FID on Train 3 over the coming weeks after which we should issue back to our full notice to proceed.

Turn now to slide 7, where I'll give you some insights into what we view as a very constructive LNG macro backdrop. One we view as supportive of economic commercial activity. Anatol will go into additional details in his remarks, but I wanted to point out some key data points present in the market today, which reinforce my belief in our long-term growth prospects. Positive LNG market fundamentals are firmly in place from LNG supply and demand dynamics, shipping and a broad recovery commodity prices.

On the supply and demand front, demand growth continues to outpace new supply as evidenced by the higher prices and netbacks in the spot market year-on-year. LNG demand growth is supported by gas continuing to emerge as a fuel of choice as well as accelerating GDP growth rates. We are witnessing a key existing and growing LNG demand centers. Demand growth is most pronounced in Asia with China being the largest consumer of incremental LNG supply, having absorbed nearly 40% of the market supply growth in 2017, and already in the first quarter of 2018, absorbing over half of all the supply growth, increasing imports in the first quarter this year by 60% compared to last year.

I won't steal Anatol's thunder on the LNG market, but China isn't the only end market seeing significant demand growth. Along the LNG value chain, shipping is an important component for both us as we manage our portfolio volumes as well as to our current and prospective foundation customers who buy LNG from us on an FOB basis. A well-supplied and liquid LNG shipping market is important for us and our customers, and that's exactly what we have today. Current day rates for short-term vessel charters are roughly half of their winter peak, and new-build economics continued to improve and significant advances in shipping technology have resulted in meaningful efficiency gains.

At the bottom of the slide, I've included a recent picture of the Panama Canal's MOX on the Pacific side. This picture is significant because if you look closely, you'll see there are three LNG vessels, transiting the MOX in succession, a first in the Panama Canal history. All three of the vessels were en route to Sabine Pass. The Panama Canal is an important piece of infrastructure for both Cheniere and our customers, and our ability to utilize it efficiently is important, especially as a preferred route to growing demand centers in Asia. We work closely with the Panama Canal Authority, and it has demonstrated significant cooperation and support for increasing the LNG vessel capacity as demand increases for transits from LNG carriers.

Finally, commodity prices, specifically crude oil, have rallied to multiyear highs, resulting in benefits for LNG pricing. Both Brent crude and spot LNG prices are approximately 40% higher year-on-year, and in the case of LNG, despite the supply growth of approximately 30 million tonnes. We are currently in what is traditionally called a shoulder month for LNG as peak winter demand from Asia moderates, where we have seen prices come off of the winter highs. Today, we are still seeing healthy netbacks from Sabine Pass for this summer, and pricing for next winter is already near double digits as utilities buy forward for late 2018 and early 2019. The rally in crude prices has a levered benefit to Cheniere as it incentivizes increased domestic crude production, which means incremental associated gas, reinforcing the relative economics of a Henry Hub index gas within the global market.

As I mentioned on our last call, I'm more excited about Cheniere's growth prospects than any time since joining the company and my confidence has only grown since then with our execution and our operating credibility, an infrastructure platform that is the envy of the industry and a macro LNG backdrop that is constructive on multiple fronts.

I'll now turn the call over to Anatol who will give you some more detailed insights into what we see in the LNG market today.

[Anatol Feygin, Cheniere Energy, Inc.]

Thanks, Jack, and good morning, everyone. Please turn to slide 9. LNG ushered in 2018 with strong demand following on a robust fourth quarter of 2017. The net global call on LNG in Q1 2018 was about 7 million tonnes greater than in Q1 2017, largely driven by continued demand growth from Asia. The region grew by more than 9 million tonnes year-over-year in Q1, 28% greater than the growth in global supply during the same period. With Asian demand growth running well ahead of new supply, it was no surprise that we saw a strong spot LNG prices and an increased spread between Asian and European prices over that period. This resulted in an increased volume of reloads from Europe into the Asian market to take advantage of the price spread.

Reloads almost doubled year-on-year in Q1 to just under 2 million tonnes. The seasonal tightness occurred against the backdrop of significant long-term supply expansion. The market has added about 45 million tonnes of incremental LNG in 2016 and 2017, growth of more than 15% overall with a 10% increase in 2017 alone. Despite this robust supply growth, spot prices into Asia over the first quarter averaged $10.55 per MMBtu, some $2 per MMBtu higher than last year's $8.55.

Notably, price has sustained a level beyond oil parity or 16% of crude oil price on average for the quarter, similar to the previous two years. This indicates to us that winter market tightness was at a similar level this year as the two previous years, demonstrating the market's ability to efficiently absorb this new supply. The incremental supply in the market helped improve availability of supplies during the harsh winter, especially in Asia where just over half of the volumes from Sabine Pass were delivered and helped prevent LNG prices from becoming expensive relative to crude, which could ultimately result in LNG demand destruction over time.

Sabine Pass was the second-largest contributor to LNG supply growth for the first quarter of 2018 as compared to a year ago, increasing more than 35% year-over-year to approximately 4.25 million tonnes for the first quarter. U.S. LNG has added flexible and spot volumes to a growing market in need of such supply, helping maintain the global competitiveness of LNG relative to other fuels in demand growth centers such as Asia.

Demand from China was a key factor leading the growth in Asia, though countries such as Pakistan, India, South Korea, and Taiwan all exhibited growth year-on-year, as we'll see in the next page. The Asian market was the main driver of global LNG demand growth during the quarter, and the region consumed about 80% of the global LNG in Q1 2018. Unlike previous years, however, demand growth was no longer solely propelled by the traditional Asian markets of Japan, Korea, and Taiwan, or JKT. In aggregate, Asia consumed an additional 9.1 million tonnes in Q1 2018 as compared to Q1 2017, with only 29% of that growth attributed to the traditional JKT markets. More than 4.5 million incremental tonnes came from China, and about 1.8 million from India and Pakistan.

India's LNG imports climbed 26% year-on-year in the first quarter as the country's hydro reservoir levels were down and temperatures were up in March. Also in March, the country received the first LNG cargo from Sabine Pass terminal under the long-term agreement with GAIL India. Equally however, Pakistan's demand for LNG was just as impressive, soaring 60% year-on-year amid a ban on fuel oil imports, and as the newly operational FSRUs enabled the country to address pent-up gas generation demand.

The more traditional demand centers in Asia have also registered gains year-on-year. LNG demand in Japan and Korea was buoyed by the power sector as LNG had to offset the material drop in nuclear generation as a result of considerable outages. In Japan, the restart of nuclear reactors has been far from smooth but demand growth may taper off going forward as additional nuclear reactors restart over time. China, the region's demand growth engine has maintained very strong levels of imports in Q1, growing 63% on the year or 4.9 million tonnes to a total of 12.6 million tonnes imported in the quarter.

Robust economic performance, weather patterns, and an accelerated push for coal to gas switching continue to support high growth rates in LNG consumption. China has become Sabine Pass' third largest LNG delivery destination, while the U.S. became China's third largest LNG supplier over the period. Our SPAs with CNPC will reinforce this dynamic and as Jack spoke to earlier, these agreements mark the start of a new long-term mutually beneficial relationship as with all our other customers.

Turning now to slide 11, our customers are our highest priority and we strive to serve their LNG needs in the most effective manner. A key part of that is managing the gas supply to our plant to ensure we are responsive and efficient LNG provider. As illustrated in the top chart, routine planned maintenance and operating conditions can entail variability in daily gas supply requirements at Sabine Pass. These include, but are not limited to, shifts in ambient temperature, maintenance schedules, and even optimization of upstream gas supply routes.

Over the course of the past two years of operation, our teams have adapted to these conditions and many more such as Hurricane Harvey and other severe weather events. As we continue to grow our platform, these skills will become even more important as the commercial impact of these operations will continue to grow, and we expect these capabilities to further distinguish Cheniere from our competition. By 2020, data from Wood Mackenzie show that Cheniere could be the second largest operator of LNG plants in the world. We are committed to continue the safe, reliable, and efficient operations of our plants.

And now, I'll turn the call over to Michael, who'll review our financial results.

[Michael J. Wortley, Cheniere Energy, Inc.]

Thanks, Anatol, and good morning, everyone. This morning, I'll discuss some highlights from our record first quarter financial results, as well as revised 2018 guidance, and then give an update on our recent financing activity.

Turn now to slide 13. As Jack mentioned earlier, the first quarter was exceptional for Cheniere. For the first quarter, we reported consolidated revenue of over $2.2 billion, consolidated adjusted EBITDA of over $900 million, and distributable cash flow of over $250 million. These results were driven by strong margins on cargoes sold by our marketing function, which had access to a significant amount of volumes from Sabine Pass for the first two months of the quarter prior to DFCD of the foundation customer SPA with GAIL in March, as well as a pickup from the 12 cargoes in transit as of the end of 2017 which were delivered and recognized on our income statement in Q1.

We exported 244 TBtu of LNG from Sabine Pass during the quarter, none of which were commissioning volumes. These volumes were materially consistent with fourth quarter 2017 exported volumes of approximately 250 TBtu. Approximately 70% of the volumes exported during the first quarter, 165 TBtu, were listed by our third-party SPA customers, and the remaining volumes were listed by our marketing function.

As I mentioned earlier, our marketing function had access to substantial volumes during the first quarter due to the early completion of Train 4 in 2017. As the primary foundation customer SPAs on all four trains in operation have now commenced, we expect our marketing function to have access to a smaller amount of volumes until Sabine Train 5 and Corpus Trains 1 and 2 are completed, currently anticipated in 2019. The long term foundation customer SPAs which have commenced are expected to provide over $2 billion of fixed fee revenue annually.

During the first quarter, we recognized in income 273 TBtu of LNG produced at Sabine Pass, consisting of 241 TBtu loaded during the quarter, plus 43 TBtu or 12 cargoes loaded in the prior quarter but delivered and recognized in the current quarter, less 11 TBtu or 3 cargoes sold on a delivered basis that were in transit as of the end of the first quarter. We also recognized the income statement impact of 11 TBtu or three cargoes of LNG sold by our marketing function that were sourced from third parties. While prior quarter cargoes on the water had a significant impact on our financial results for the first quarter, we expect the impact of in-transit cargoes to be muted on a quarter-over-quarter basis until Sabine Train 5 and Corpus Trains 1 and 2 are completed.

Net income attributable to common stockholders for the first quarter was $357 million or $1.50 per share on a diluted basis, an increase of $230 million compared to fourth quarter 2017. The increase in net income as compared to prior quarter was primarily driven by increased income from operations, partially offset by increased income allocated in non-controlling interest.

Turn now to slide 14. I'd like to address a revised 2018 guidance and recent financing activity. Today, we are increasing our full-year 2018 guidance from $2.3 billion to $2.5 billion of consolidated adjusted EBITDA and $350 million to $550 million of distributable cash flow, driven primarily by incorporating record results from the first quarter and by stronger margins on marketing volumes than originally forecast. You may recall when we released the initial 2018 guidance, we anticipated margins for the year for marketing volumes to be in the $1.50 to $2 range. Since that time, we have seen the market strengthened, not only for pricing of marketing volumes realized year-to-date, but also in the price curve for the remainder of the year. And our team was ready to capitalize on that opportunity.

Due to the commencement of our foundation customer SPAs and the fact that our marketing functions volume from Sabine Pass should be fairly flat for the remainder of the year, we would anticipate EBITDA in Q2 through Q4 to be fairly ratable. We're also increasing our CQP distribution guidance to $2.20 to $2.30 per unit for 2018 and our CQH dividend guidance to $2.25 to $2.35 per share for 2018.

As we recently announced, we have engaged a bank group to assist in arranging an amendment and upsize of our Corpus credit facility to include the debt financing portion of Train 3 at Corpus in addition to Trains 1 and 2 in the Corpus Christi Pipeline and related facilities. We have received signed commitment letters from the bank and anticipate increasing the available commitments under the facility from $4.6 billion up to a maximum of $6.4 billion. We are pleased by the response we have received for this pending transaction, and we appreciate the continued support of our bank group which has been critical to the achievement of significant milestones on the CCL Project since financing the first two trains in 2015.

We expect the amended Corpus credit facilities to close within the next few weeks, which should allow us to make a positive final investment decision and issue back to a full notice to proceed for Train 3 comfortably within the first half of this year. As we discussed on our last call, we will refresh eight-train run rate guidance incorporating Corpus Train 3 subsequent to an FID announcement.

Before we turn the call over to Q&A, I'd like to briefly re-emphasize some of the points Jack and Anatol discussed, points which support my confidence in our ability to grow and deliver incremental long-term value to shareholders.

Turn now to slide 15. We have laid out the Cheniere investment thesis before, and the fundamentals of that thesis have not changed. Over the past few years, we have spent a considerable amount of time and effort battling micro and macro headwinds as the LNG market softened and long-term contracting slowed. We stayed focused, worked hard to get four trains on line and established ourselves as a reliable operator in the global LNG space, while continuing to pursue additional long-term contracts to support incremental liquefaction capacity.

The results of those efforts are reflected in the financials we just discussed and provide significant tailwinds and clear competitive advantages at a time when the end market is as healthy as it has been in years. Our demonstrated execution capabilities, expansive asset footprint, financial wherewithal, and ability to deliver flexible solutions to customers put us in an ideal position to capture growth opportunities present in the market today. We are leveraging our operating, financial, and commercial competencies together with our advantage position from the global LNG cost curve to deliver growth projects with attractive returns, starting with Train 3 at Corpus Christi which we expect to FID in the coming weeks.

That concludes our prepared remarks. Thank you for your time and your interest in Cheniere. Operator, we're ready to open the line for questions.

[Operator]

Thank you. We'll go first to Ted Durbin at Goldman Sachs.

[Theodore Durbin, Goldman Sachs & Co. LLC]

Thanks. Maybe just starting out with – that you have the SPAs you announced earlier this year, and clearly you're working on, you say, commercializing the next Sabine train. Can you just give us a flavor for how those conversations are going, whether it's on the term? Are we still looking at the sort of 15- to 25-year SPAs that you signed earlier this year? Size, volume, around a 1 million tonnes, it seems like it's where the market is. And then any color on pricing would be great.

[Jack A. Fusco, Cheniere Energy, Inc.]

All right. Hey, Ted. This is Jack. And thanks for being on the call and thanks for the support. I'll turn it over to Anatol, but I can tell you, our origination staff led by Ramsey (27:04) have been busier than ever. The demand for the product as there's a – worldwide, there's just an entire secular shift to natural gas as a preferred fuel, and we're seeing the results of that in our discussions.

I think the point that we don't want you all to lose is this one; it's that our customers are demanding more of a full-service product. So they want us to buy the gas. They don't want to figure out how to buy gas in America. They want us to liquefy. They want us to load it up on our ships, and they want us to deliver it to their re-gas terminals. And that's where I really see our competitive advantage in our discussions, and that's why you see the longer term contracts are coming Cheniere's way is because of that full service model and most of our counterparties now happen to be utilities that need it, and they depend on it. But with that, I'll turn it over to Anatol.

[Anatol Feygin, Cheniere Energy, Inc.]

Thanks, Ted, and thanks, Jack. Yeah, to answer your questions, we see a range of tenders. We have never been in the camp that long term contracts are over, and we certainly as Jack said have a very healthy pipeline today. As you can imagine over the last few years as the market has absorbed these volumes and Henry Hub has stayed flat and in fact, the forward curve is as low as it has ever been and is flat as it's ever been, and that is certainly reinforcing the advantages of Henry Hub. And we have a range of long term contracts that we are discussing, and we're very, very proud of what the team has achieved with the terms that you've seen from us that in recent history have ranged from 15 to 25 years.

And in a lot of these discussions as Jack said, one of the key issues that the customers were looking for was performance. They wanted to make sure that the gas quality was correct. They wanted to make sure that our systems work. They want to make sure that our shipping function could efficiently deliver these volumes all over the world, and we've checked that box over the last two years over and over. And that combined with all of the other tailwinds that we've discussed is leading to a very robust level of activity.

[Theodore Durbin, Goldman Sachs & Co. LLC]

Okay, great. And then as we think about – and you sort of alluded to this – the obviously very strong earnings you put up this quarter and thinking ahead to 2019, can you give us a sense of, as you're modeling it out, how much spot market exposure you might have relative to higher tracking on completion of both Train 5 and then the two Corpus trains relative to the date of the first commercial delivery? And if you could also couple that with – this is a long question – some of the hedging that you disclosed last quarter and when you might have the exposure there.

[Michael J. Wortley, Cheniere Energy, Inc.]

Hey, Ted. It's Michael. I think you put it right in your note the other day that there's a lot of uncertainty in your model for next year, and there's a lot uncertainty in our model, honestly. I think what we're likely to see is something like we just saw over this winter. I mean, we're going to have another huge hump of volumes starting when Bechtel is done. That could be a first half of next year or a little earlier, and we'll just have to see how it plays out. So, yeah, we'll be exposed to those volumes. And in terms of hedging, it's tough to do anything with them when you don't know if they're going to come or not. So, we'll just be back exposed to the spot price, and there'll be a lot of uncertainty until we get past that time.

[Theodore Durbin, Goldman Sachs & Co. LLC]

All right. I think that's my two questions. Thank you.

[Operator]

We'll go next to Jeremy Tonet at JPMorgan.

[Jeremy Bryan Tonet, JPMorgan Securities LLC]

Good morning. I think you touched on it a bit...

[Jack A. Fusco, Cheniere Energy, Inc.]

Good morning, Jeremy.

[Jeremy Bryan Tonet, JPMorgan Securities LLC]

Thank you. I think you touched on it a bit already, but as far as the guide increase here, just wondering how much of this is based on what you've already captured versus what you see kind of over the balance of the year as far as EBITDA uplift. And with the capacity that you guys have opened over the balance of the year, could you just refresh us on how much you might like to lock in versus keep open in case market opportunities arise?

[Michael J. Wortley, Cheniere Energy, Inc.]

Hey, Jeremy. It's Michael again. Yeah, most of it was attributable to Q1. 50% of CMI's volume occurred in this quarter. As we look through the balance of the year, it's going to be pretty ratable, two or three cargoes a month. We don't want to get into the position of our book. But we like prices so we've been putting a lot of that away. So, I wouldn't expect a whole lot of volatility for the balance of the year.

[Jeremy Bryan Tonet, JPMorgan Securities LLC]

Great. Thanks. And then, with CQH, there was some announcement there and I was just wondering if you could refresh us as far as how you think about that vehicle, given your current level of ownership in rights that you guys have owning over 90%.

[Michael J. Wortley, Cheniere Energy, Inc.]

Yeah. I guess I'll just stick to the facts. I mean, we've been very patient in CQH and waiting for deals that we think made sense for our shareholders. We got an offer a few days ago that led to several others and we were able to trade in size 21.5 million CQH shares and we did those deals at market at an exchange ratio that we thought made a lot of sense for our shareholders. So, that puts us at 92%. Again, just factually, I mean, we have a call right if we own more than 90% at either the highest price we paid over the past 90 days or market, the higher of those two. As we've been saying for two years, we have a preference to simplify. But anything beyond that, we would never comment on right now.

[Jeremy Bryan Tonet, JPMorgan Securities LLC]

And so just procedurally, there's nothing stopping you at this point, though?

[Michael J. Wortley, Cheniere Energy, Inc.]

Well, I guess, that depends. So, I wouldn't have any comment.

[Jeremy Bryan Tonet, JPMorgan Securities LLC]

I'll stop there. Thank you very much.

[Operator]

We'll take our next question from Christine Cho with Barclays.

[Christine Cho, Barclays Capital, Inc.]

I just wanted to make sure I understand some of accounting that went on (33:33) last year. I know it's different versus the (33:37) LNG split, from the consolidated LNG perspective, the C gas where (33:44) the 43 TBtu was booked last quarter as a cost without any corresponding revenue, and the revenue was booked this quarter. Is that right?

[Jack A. Fusco, Cheniere Energy, Inc.]

Right. We were carrying, on a consolidated basis, inventory at the end of the quarter which you would see, and that was just inventory on boats headed to their destinations.

[Christine Cho, Barclays Capital, Inc.]

And then when we think about marketing and how you're signing up the contracts there, are the contracts always priced off of Henry Hub or are you selling any contracts that are indexed (34:20)

[Anatol Feygin, Cheniere Energy, Inc.]

Hey, Christine, it's Anatol. Any term deals we would do are Henry Hub-linked.

[Christine Cho, Barclays Capital, Inc.]

Thank you.

[Operator]

We'll take our next question from Matthew Phillips at Guggenheim.

[Matthew Phillips, Guggenheim Securities LLC]

Good morning, guys. Follow-up on an earlier question on CMI in 2019, obviously a lot of potential cargoes there. You have some other projects starting up both in the U.S. and elsewhere. I mean what has been the general tenor of commercial discussions there in terms of buyers' willingness? I mean are they taking a wait-and-see attitude for 2019, especially from U.S. cargoes, or do you think that folks are pretty keen to go ahead and secure supply?

[Anatol Feygin, Cheniere Energy, Inc.]

Go ahead.

[Jack A. Fusco, Cheniere Energy, Inc.]

No. I would say, Matt, in our prepared remarks, I think we gave you some indication that the winter of 2019 is pretty active, and trading quite a bit. I mean, supplies around the world are down. There's a lot of maintenance activity up in Europe and in other places. And I think the – and, as you know, quite a few of the projects that were expected to come online in early 2019 have announced that they're not. So I think it will be a good year for Cheniere. I'll now turn it over to Anatol.

[Anatol Feygin, Cheniere Energy, Inc.]

Thanks, Matt. Thanks, Jack. Yeah, we say internally that if you go back a couple of years, kind of, A, the glut that never came; and B, in the second quarter of 2016, the spreads were pretty tight. And then winter finally showed up. The 2016, 2017 winter showed up in November and kind of never looked back. And then last year winter showed up in August. And this year winter showed up in Q2.

So to Jack's point, with the rapid rebalancing that has been Asia demand-driven and supply/demand-driven, we're seeing a very healthy environment. But as Michael said a couple times, 2019, given the fact that on the operating plants the SPAs have commenced, and we do have a fair amount of uncertainty about the timing of our and Bechtel's ultimate successes on the three remaining trains, terming up those volumes is not a business that we want to get into.

[Matthew Phillips, Guggenheim Securities LLC]

Understood. And since you signed the CNPC deal, there's been a lot of market commentary about rising trade tensions with China. I mean is this something that you're seeing reflected at all in your discussions with buyers over there?

[Jack A. Fusco, Cheniere Energy, Inc.]

Matt, this is Jack. And we're on the right side of those discussions because we're the solution, right, as far as the trade imbalance goes. And so far, over 45 cargoes from Sabine Pass have made it to China. In Q1, I think we had nine that made it to China, and we would expect that to continue pretty robustly.

[Matthew Phillips, Guggenheim Securities LLC]

Understood. Thank you.

[Anatol Feygin, Cheniere Energy, Inc.]

Thanks.

[Operator]

Our next question comes from Michael Webber at Wells Fargo Securities.

[Michael Webber, Wells Fargo Securities LLC]

Hey. Good morning, guys. How are you?

[Jack A. Fusco, Cheniere Energy, Inc.]

Good morning. Good.

[Michael J. Wortley, Cheniere Energy, Inc.]

Good morning.

[Michael Webber, Wells Fargo Securities LLC]

Jack, just wanted to follow up on a couple of the commercial questions. Just if you look at the active buyer pool and kind of the conversations you're having, and it seems like globally there's a decent amount of maybe redundancy or bluster and a lot of maybe buyers that might not be serious this window, but might be looking kind of those 20, 25. But obviously a lot of buyers that are serious. If you kind of narrow down those conversations to guys that you would view as legit buyers that have a realistic view of signing SPAs in the next six to 12 months, basically, guys that are ready to swing the bat, how big is that pool right now just in terms of number of players and in terms of number of tonnes?

[Jack A. Fusco, Cheniere Energy, Inc.]

Yeah. I'm not going to go there with you, Michael, because as you know, it's a very competitive market. And I can tell you, though, we don't differentiate...

[Michael Webber, Wells Fargo Securities LLC]

Just a vague range.

[Jack A. Fusco, Cheniere Energy, Inc.]

We don't differentiate the market the way you have as far as those that are serious and those that aren't. We're trying to make sure we're touching as many of the prospective customers (39:03). And as you know, there's 40 countries that have the capability to import LNG that we possibly can, and we're trying to design solutions for them both shorter term, longer term, medium term. If they want it oil-based, we'll give it to them oil-based, if we could hedge it out that far, so we're not taking undue risk. So we're trying to be helpful and creative with our marketing products. I do think there's enough of a demand pool right now to help Cheniere grow significantly in the early days. So I don't think – if you're asking me, do I think Corpus 3 is the next and only train, I don't think so. I think there's a...

[Michael Webber, Wells Fargo Securities LLC]

No.

[Jack A. Fusco, Cheniere Energy, Inc.]

...there's plenty of demand.

[Michael Webber, Wells Fargo Securities LLC]

No. It would seem that way certainly for Sabine 6 and beyond, and I think maybe legitimacy is the wrong term. Maybe urgency would be like a better framework for just how big the pool of buyers is in the next – around something that could get done in the next year. But I can follow up offline.

[Jack A. Fusco, Cheniere Energy, Inc.]

Okay.

[Michael Webber, Wells Fargo Securities LLC]

Okay. And then I guess as a follow-up, and this is for I guess maybe you or even Michael. Just given the fact that, I know you've got a bigger prop percentage associated with CC-3 at least today than other trains. It just seems like global prop books in general are going to start inching up, especially as some new projects come online, it's going to become a bigger part of the market and the global story. I'm curious, when you're looking at those on a long-term basis, and I guess Michael, on a long-term budgeting basis, certainly on a financing basis, where is your head at right now in terms of where you think kind of long-term throughput or utilization should be on per tonne maybe on a prop book. I know it's a difficult question, but it's just becoming more and more relevant I think as we look at some of the economics long term.

[Jack A. Fusco, Cheniere Energy, Inc.]

So, Michael, just so I'm clear on your question. You're asking about how much exposure we want for the spot market off of a train or...

[Michael Webber, Wells Fargo Securities LLC]

Yeah. If you're looking at these like on a 30-year basis, when you're budgeting, are you budgeting in 80% utilization on your on your prop book? I mean it's both a function of, I guess, what you would want and then what you could get, right. If I think back to a couple years (41:28) we'd have a different view of your prop book than we do today. So I'm just curious how you think about that from a long-term budgeting perspective.

[Michael J. Wortley, Cheniere Energy, Inc.]

Well, yeah, from an investment perspective, I mean we have seven or eight boxes we're trying to check before we go to our board with a project, and one of them is derisking some level of return on a contracted basis. So we're not trying to sell X percent on a train. We're really trying to just make a minimum level of money on a contracted basis irrespective of throughput, right, because we get paid. And that turned out on Train 3 to end up at a 1.5 million tonnes open.

What do we think our utilization on that's going to be? High. In this market, 100%, 105%. And to the extent we can contract out on a long-term basis and de-risk it, then they really don't care about throughput. But given where Henry is and worldwide LNG prices are and our competitors cost to build, this thing ought to run at very high rates for a long period of time. But we don't rely on that from an investment decision, okay.

[Michael Webber, Wells Fargo Securities LLC]

Sure. I guess...

[Michael J. Wortley, Cheniere Energy, Inc.]

Distinguish that.

[Michael Webber, Wells Fargo Securities LLC]

Yeah. No, sure. I guess the question is have you had enough time to kind of evolve kind of a longer-term view of where that utilization rate would be.

[Anatol Feygin, Cheniere Energy, Inc.]

Mike, I guess – this is Anatol. From my vantage point, as Michael said, there have been discussions about the U.S. market being the global capacitor for LNG on the water, and we simply don't see that. We think that Henry is going to be so advantaged that we will be fully dispatched and we'll have the ability to capture margin on anything that the plants can produce.

[Michael Webber, Wells Fargo Securities LLC]

Got you. Okay. That's helpful. Thanks, guys.

[Jack A. Fusco, Cheniere Energy, Inc.]

Thanks.

[Operator]

We'll go next to Craig Shere at Tuohy Brothers.

[Craig K. Shere, Tuohy Brothers Investment Research, Inc.]

Good morning, and congratulations on a great quarter. Do you see potential for completing the CQH buy-in helping to tee up discussions around the CQP IDR? And given your improving LNG level and even CQP level cash flow outlook with $3 liquefaction and the money now even in the shoulder seasons, do you see increased flexibility around contracting the tenure of Sabine Train 6?

[Michael J. Wortley, Cheniere Energy, Inc.]

It's Michael. I guess I'll go first on the first part. I guess they're mutually exclusive, right. What we do with CQH has nothing to do with what we might or might not do with the CQP. I mean, they're both simplification opportunities at the right price. The tenure piece? What was the second part of your question, Craig?

[Craig K. Shere, Tuohy Brothers Investment Research, Inc.]

Well, basically, obviously, we've had a lot of discussion in including prepared comments about the widening spot market and improving spreads, pardon me. And given the improving cash flow and market outlook, if you think about contracting out Sabine Train 6, do you see more flexibility on tenure? In other words, we don't need 20, 25-year contracts to be the majority of it.

[Michael J. Wortley, Cheniere Energy, Inc.]

No, I guess they're different. As I've said earlier, look, we're trying to de-risk the project with contracts, and so that kind of happens irrespective of spot market pricing. Now to the extent we do that and we're making a lot of money in the spot market, it allows us to put a lot more equity into the project, which we don't have a problem doing. So I guess those would be kind of independent variables as well.

[Craig K. Shere, Tuohy Brothers Investment Research, Inc.]

Okay. And my last question. Anatol, we've heard about increasing overseas storage investment, particularly in China. Have you noticed this trend, and do you think that that could lead to higher shoulder season pricing but more controlled winter time spikes?

[Anatol Feygin, Cheniere Energy, Inc.]

Good question, Craig. So China is clearly investing in underground storage. It is on track to have somewhere between 0.4 TCF and 0.5 TCF of working gas, which is really not a very big number. One of the shots across the bow for the China infrastructure, in general, was how tight things were as this coal-to-gas shift occurred. And one of the things that they had a tough time with was they actually didn't have the opportunity to refill storage last off-season. So this will help. It will help smooth out utilization across its infrastructure, and can certainly help to mitigate some of the operational challenges that they've had where they've had to resort to running import facilities at 200%-plus of utilization. So I think that will help ultimately to flatten the curve like we have Henry. It takes a lot more storage than, at this point, I think China can economically add.

[Craig K. Shere, Tuohy Brothers Investment Research, Inc.]

Thanks for the color.

[Operator]

We'll go next to Alex Kania at Wolfe Research.

[Alex S. Kania, Wolfe Research LLC]

Hi. Thanks very much. Just maybe a little bit of a follow-up from the previous question. But just given the improved marketing margins that you saw in the first quarter and then a kind of more robust expectations going forward, and in terms of what that means for use of cash. Would it be fair to think that you may want to be maybe leaning towards maybe being a little more equity heavy in financing Corpus 3, or is that maybe more of a general comment for future trains?

[Michael J. Wortley, Cheniere Energy, Inc.]

Yeah. Yeah. Both. Yeah, I mean, to the extent, yeah, we can take – we've targeted 50% debt-to-equity. That's where we'll go to on Train 3. If we could do even a little less on Train 6, I mean, we should. And we have plenty of debt. We're levered at the right level. But if we could come under those targets in periods of strong markets, that's okay too.

[Alex S. Kania, Wolfe Research LLC]

Okay.

[Michael J. Wortley, Cheniere Energy, Inc.]

I mean, the returns are really attractive, so we think it makes sense to put equity into these projects.

[Alex S. Kania, Wolfe Research LLC]

Makes sense. Okay. And then I guess a question for Jack. Just thinking of this more broadly the strategic value of Cheniere's business seems to be getting better. There're a lot of large energy companies that we've been seeing that seem to be pretty interested in the kind of integrated natural gas kind of story. And I was just kind of wondering what your latest thoughts are just with respect to M&A in this environment relative to maybe what you have left to do on your own and the opportunities that you see.

[Jack A. Fusco, Cheniere Energy, Inc.]

That's a good question. I think, overall, globally, it's a very fragmented market, the whole LNG space. There are quite a few owners that don't seem to have our capabilities to monetize because of their business strategy was more of a tolling strategy rather than a full-service strategy. But I don't know. We'll have to see. As you know, the interest rates are going up, access to capital is going to get a lot more difficult, and we'll just have to see if these robust energy prices around the world stay for the long term.

[Alex S. Kania, Wolfe Research LLC]

Great. Thanks so much.

[Operator]

We'll move next to Julien Dumoulin-Smith at Bank of America Merrill Lynch.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Hey. Good morning, team.

[Jack A. Fusco, Cheniere Energy, Inc.]

Good morning, Julien. How are you?

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Good. It's a pleasure. It's been a little bit. So I wanted to cut in if I can coming back to the CMI side and talk about the relationship with SP-6. I mean how much incremental contracting could you be doing out of the CMI side to support the SP-6 effort, right, i.e. providing contracts that start before the in-service of SP-6? Just trying to get a sense of, like, the total opportunity set.

[Jack A. Fusco, Cheniere Energy, Inc.]

Yeah. So, Julien, just for clarity, we're not passing anything up, right. So we're engaged on all fronts and with all customers. So I feel very good at what we've been able to do so far this year with the SPAs that we've signed, and I'm hopeful that we're going to continue to get our market share.

[Anatol Feygin, Cheniere Energy, Inc.]

Yeah. And, Julien, this is Anatol. If your question was along the lines of you guys have the CMI portfolio, you have these trains operating. Does that help you in discussions with customers for term off-take? The fact that we can execute today and provide these early volumes is absolutely a distinguishing factor. I mean, that is one of the reasons why we have had the successes in recent history. So we absolutely will leverage the portfolio we have today to have more term off-take, and as Michael said earlier, and reload the portfolio with more infrastructure that is paid for by those term commitments. So that's absolutely a key leg to the marketing stool.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

And maybe – thank you. That was exactly what I was after. But if I could clarify a little bit, how much of an opportunity is there, i.e. would you expect that through the contracting of SP-6 that you would largely call it "use up" whatever latitude you have in providing more of a term product? And could you quantify the volumetric opportunity there?

[Michael J. Wortley, Cheniere Energy, Inc.]

Well, there have been a couple of questions about the volumetric opportunity globally. And, yeah, I guess our summary statement on that is it's as robust as we've seen it in a couple of years. Remember, a couple years ago as there was relatively little activity, one of the arguments was, hey, there's going to be this glut through the mid-2020s, and our retort was, hey, it's really going to be through the early 2020s and, by the way, it takes four years to build a train. Well, now, we're sitting in the middle of 2018. The glut didn't occur and a lot of the term legacy contracts are rolling off over the coming three to five years.

So the level of activity is very healthy. We have a very large portfolio in CMI today. It'll be even larger obviously. As we get Train 3 done at Corpus that will add volume to the CMI book, if you will. So we have millions of tonnes that we can leverage into many millions of tonnes as we build Train 9 and thereafter. To give you a specific number, that I can't share with you.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Got it. And, Jack, just curious, I mean now taking the helms here, how do you think about looking beyond SP-6 here? I'm just kind of curious as you've checked the – or about to check latest box of CC-3.

[Jack A. Fusco, Cheniere Energy, Inc.]

Julien, I'm about ready to celebrate my two-year anniversary here at Cheniere. So I'm appreciative that you said I've just taken the helm, but it's been a little while. I'm a little seasoned. No, we positioned ourselves to continue to expand at our sites. I mean, when we ran our SWOT analysis, the real weakness we had was real estate, and we've solved that at both sites with additional real estate. So I am very optimistic about our ability to continue to expand our size and leverage the infrastructure that we already have built.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Nothing third-party.

[Jack A. Fusco, Cheniere Energy, Inc.]

Nothing third party? At this point, no.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Excellent. Thank you.

[Jack A. Fusco, Cheniere Energy, Inc.]

Okay.

[Operator]

We'll move next to Ben Nolan at Stifel.

[Benjamin Joel Nolan, Stifel, Nicolaus & Co., Inc.]

Yeah. Thanks. Good quarter, guys. I wanted to follow up on a few things related to Corpus Christi specifically. I know earlier you'd said that currently you're still, in terms of long-term contracts, marketing everything against Henry Hub. But as more and more gas is coming from the Permian and it appears to be at a discount to Henry Hub, have you considered doing any Waha-based contracts? And ultimately along those lines, how much pipeline capacity you have committed or would you envision having committed to be able to access that Permian gas?

[Anatol Feygin, Cheniere Energy, Inc.]

Thanks, Ben. It's Anatol. I'll take that one. So, as you can appreciate, we are today the largest physical sink, if you will, for gas in U.S. and Canada, and we work tirelessly with producers, infrastructure providers, even marketers alike to find the most attractive molecules. And what we offer those producers, in the case of Corpus, is a very large, very ratable, and very transparent NYMEX market, and fully expect a lot of infrastructure and a lot of debottlenecking to point those molecules to this route.

So as you know, Waha is quite volatile and as a basis is a nice point of price discovery. But just for reference, Cal 20, I think, has moved $0.70 over the last month or so. And the infrastructure providers are more than happy to find solutions that are in the $0.50 to $0.70 range to get that gas to a market and we will be that market in size transparently and reliably for all, if you will.

[Benjamin Joel Nolan, Stifel, Nicolaus & Co., Inc.]

Okay. That's helpful. And to that end, as it does seem like there's an awful lot of gas that will be coming from that region, could you maybe update me on where that you stand with respect to the FERC process for the expansion of Corpus Christi and how that's coming?

[Anatol Feygin, Cheniere Energy, Inc.]

You're referring to Stage 3 as we call it in particular...

[Benjamin Joel Nolan, Stifel, Nicolaus & Co., Inc.]

Yeah. Right.

[Anatol Feygin, Cheniere Energy, Inc.]

... (56:01)? Yeah. So, we have pre-filing in place and we were looking for the right solution to update the FERC and have a full filing in front of it.

[Benjamin Joel Nolan, Stifel, Nicolaus & Co., Inc.]

Okay. So, nothing I guess notably or incrementally other than sort of what you've already kind of said and done in that front?

[Anatol Feygin, Cheniere Energy, Inc.]

Correct.

[Benjamin Joel Nolan, Stifel, Nicolaus & Co., Inc.]

Okay. All right. Thanks, guys.

[Operator]

We'll go next to Fotis Giannakoulis at Morgan Stanley.

[Fotis Giannakoulis, Morgan Stanley & Co. LLC]

Yes. Hi, gentlemen, and thank you. I would like to ask you based on your global demand estimates and what you see from different projections. What is the liquefaction capacity that is going to be required by 2025 particularly from the U.S. and how much of this capacity Cheniere is able to provide? You already have a Corpus Christi 3 and Sabine 6 in the midscale. Is this the maximum, this 9 additional million tonnes that you can provide by 2025 or you can expand even further?

[Jack A. Fusco, Cheniere Energy, Inc.]

No. So Fotis, I have to tell you we spent a lot of time looking at the demand side of the global LNG market. And I'll have Anatol fill you in on where we think that demand shortfall is going to be out, and it keeps moving in closer to 2021 or 2022. But no, I don't view having a FERC permit as being a constraint to us in our growth potential. And I don't know if there's anybody that will give you what they think the U.S. LNG market is going to get from the next sliver of demand. I think it's going to be a very competitive market worldwide and there's a lot of expansion opportunities worldwide that are going to make this a very competitive market going forward. So, Anatol, what's the demand number?

[Anatol Feygin, Cheniere Energy, Inc.]

Yeah. Thanks, Fotis. You picked a bit of a tricky year with 2025, right? So let me say this way, by 2030, our math is the world needs about 150 million tonnes of additional supply. As you know, beyond the 10Bs or so that are operating and under construction, there's another 10 that the U.S. has that's fully permitted including of course our trains.

We will be about half of the U.S. capacity. We expect to continue that market share and continue to grow beyond the Corpus expansion. If your question is, can we do more than the 9 million tonnes at Corpus Stage 3, we fully expect that by 2025, we could. And as Jack said, we have the real estate at both sides to continue to follow on that trajectory. So, we think U.S. is dispatched. We think U.S. growth is dispatched and we will compete effectively with a number of other projects globally. But as Jack said, there are a number of projects that we also expect to be in the supply portfolio by the middle of next decade.

[Fotis Giannakoulis, Morgan Stanley & Co. LLC]

Thank you, Anatol. Thank you, Jack. One follow-up, the cost of this additional capacity from the additional real estate that you have secured, do you expect to be compatible to Sabine 6 and Corpus Christi 3 around $500 per tonne or there are going to be additional expenses?

[Anatol Feygin, Cheniere Energy, Inc.]

Yeah, Fotis. I don't think we've guided to that yet, so you're going to have to wait and see. But we will be extremely competitive with the worldwide LNG providers.

[Fotis Giannakoulis, Morgan Stanley & Co. LLC]

Thank you very much, gentlemen.

[Operator]

We'll go to our next question from Ryan Levine at Citi.

[Ryan Levine, Citigroup Global Markets, Inc.]

Good morning. Can you provide color on a timeline to construct a mid-scale train at Corpus 1 would receive FID?

[Jack A. Fusco, Cheniere Energy, Inc.]

A timeline, so far, on all of our discussions with our EPC contractor for the mid-scale opportunity which was KBR, I believe it's 39 to 42 months after FID. So very similar to a large ConocoPhillips train, which is around 42 to 45 months.

[Ryan Levine, Citigroup Global Markets, Inc.]

Okay. Thanks. And then, did any of the recent CQH purchases have a cash component? And if so, what was the highest cash price paid by Cheniere in the last 90 days?

[Anatol Feygin, Cheniere Energy, Inc.]

It was all equity.

[Ryan Levine, Citigroup Global Markets, Inc.]

Okay. So that's not relevant for a data point for CQH buy-in?

[Anatol Feygin, Cheniere Energy, Inc.]

Correct, go ahead.

[Ryan Levine, Citigroup Global Markets, Inc.]

All right. Thank you.

[Operator]

We'll go next to Sunil Sibal at Seaport Global.

[Sunil K. Sibal, Seaport Global Securities LLC]

Hi. Good morning, guys, and congrats on a great quarter and solid progress on the trains under construction. So I just had a quick question regarding some of the news flow about your agreements with U.S. safety regulators, regarding some issue with the LNG tankage at Sabine Pass. Could you tell us where do you stand on that? And I understand you have no operational impact so far, but how should we think about any potential operational impact at Sabine Pass from that? And lastly, how does that incorporated into your SPAs?

[Anatol Feygin, Cheniere Energy, Inc.]

No, well, thank you. And as you may or may not know, at Sabine, since it's a re-gas terminal also, the amount of tank storage is about double of any normal LNG liquefaction facility around the U.S. So there's been no operational impacts to the tank issue that we experienced during freezing temperatures. And we don't expect any going forward. So, unfortunately, the situation got a lot more press in news than it should have. We pride ourselves in running a very safe operation, and there was definitely a misunderstanding between ourselves and the regulators and how we were going to work and work together.

I feel very good that we've worked through those issues. I feel good that in the short term, one of the tanks will be back in service and then longer term, our Tank 3 needs a little bit of repair work. But we're hopeful that within a matter of months that, that one will be back in service also, and we hope that we've learned and the regulators have learned about us, and we can work together going forward.

[Sunil K. Sibal, Seaport Global Securities LLC]

Got it. Thanks for that. And then my follow up was with regard to your operational capacity with a 4.5 Mtpa nameplate. I think last year at the Analyst Day, you had bracketed a range of that. I was just wondering now that you've kind of got one more year of operational experience under your belt, is there kind of an update to that range that you provided us last year?

[Anatol Feygin, Cheniere Energy, Inc.]

We haven't updated it yet. And the range we gave was 4.3 Mtpa to 4.5 Mtpa, but that was an annualized -

[Michael J. Wortley, Cheniere Energy, Inc.]

4.4...

[Anatol Feygin, Cheniere Energy, Inc.]

I'm sorry. The 4.6 Mtpa, and that's an annualized range based over 20 years of operation. So, what we did there was we took our total production over the 20 years with our maintenance cycles and with an unforeseen outage rate, and then back-calculated what the effective rate should be of those trains to help you all with your modeling, and there's going to be a lot of variability in those numbers.

I mean, if you're watching the feed gas rates, you know that we have far exceeded those numbers on most days, but we'll have maintenance that we need to do. So some of the trains will come down for scheduled maintenance, and some will come up, and there will be some variability in that number. But we haven't guided to a new 20-year production number at this point that's different than the 4.3 Mtpa to 4.6 Mtpa.

[Sunil K. Sibal, Seaport Global Securities LLC]

Got it. Thanks, guys.

[Anatol Feygin, Cheniere Energy, Inc.]

Okay.

[Operator]

And we'll take our next question from Pavel Molchanov at Raymond James.

[Pavel S. Molchanov, Raymond James & Associates, Inc.]

Thanks for taking the question. You've covered a lot of ground on the demand side, particularly in marketing. Zeroing in on Argentina and Mexico, specifically, in both of those markets there is a lot of government push for boosting domestic gas supply, and I'm curious if you are seeing any potential softening of LNG imports in either of those geographies.

[Anatol Feygin, Cheniere Energy, Inc.]

Thanks, Pavel. It's Anatol. Two very different dynamics, I would say, in Mexico, which as you know has been our largest market. I fully expect that to moderate. That's not a function of domestic production growth. That is a function of pipeline infrastructure being built and the ultimate demand. And the single-biggest driver of demand growth in Mexico has been domestic gas decline, and that is one that will not go below zero, right? So, that as a demand driver will go away, infrastructure will come up.

Argentina, you know as well as we do what is going on there from a domestic supply push standpoint, a lot of regulatory changes, a lot of activity. But ultimately, I expect (01:07:12) to be productive but have only a marginal impact on Argentina's overall supply demand balance over the next decade.

[Pavel S. Molchanov, Raymond James & Associates, Inc.]

Okay. That's helpful. And any initial thoughts on what the steel and aluminum tariff might have an impact on the cost of whether it's Corpus 3 or any additional trains that you're contemplating?

[Michael J. Wortley, Cheniere Energy, Inc.]

Hey. It's Michael. Yeah. I mean, talking to E&P guys in Bechtel and we don't know the final answer yet. But as we map it out, and in worst case, it's very low single-digit impacts, think 2%, 3%.

[Pavel S. Molchanov, Raymond James & Associates, Inc.]

Okay. Understood. Appreciate it.

[Jack A. Fusco, Cheniere Energy, Inc.]

Well, thank you all. Thanks for your interest in Cheniere and we appreciate all of your support.

[Operator]

And that does conclude today's conference. Again, thank you for your participation.