Company Reports

We think AI and data center demand offers a potentially sizable growth opportunity across our US E&P and US & Canadian midstream coverage list. We consider Chart Industries, Energy Transfer, Enbridge, Kinder Morgan, and TC Energy as undervalued ways to play this trend. Cheniere Energy and Williams are more fairly valued, while Antero, Range, and likely EQT (not covered) are obvious direct opportunities and appear expensive.

We see no reason to change our $52 fair value estimate or wide moat rating for Cheniere Energy Partners after reviewing first-quarter results. Management reaffirmed the full-year distribution payout at a midpoint of $3.25 per unit, made up of a base-level payout of $3.10 per unit and the remainder a variable payout. In 2023, the base-level payout was the same, but the variable component was $1.04 per unit, compared with the current run rate of $0.14 per unit. The sharp decline in the variable payout is due to the need to fund the upcoming capital spending for the new Sabine Pass liquefied natural gas terminal expansion, so we see this as smart capital allocation. The project could cost $10 billion-plus, and we could see a final investment decision in 2026.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity online in 2022, 55 million tons in 2026, and 58 million tons in 2028. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere Energy Partners’ results for the fourth quarter and full year met our expectations, though we expect to trim our 2024 forecast to reflect weaker marketing spreads. Initially, we expect to maintain our $52 fair value estimate and wide moat rating.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year of LNG capacity online in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

The Biden administration has announced that it has paused all new LNG project approvals, likely until after the election in November 2024. We expect the approvals will impact projects under consideration by the Federal Energy Regulatory Commission, or FERC, and the U.S. Department of Energy, or DOE. The announcement does not affect existing efforts already approved, meaning that U.S. LNG capacity is already on track to effectively double in the next few years considering projects under construction.

Cheniere Energy Partners' third-quarter results met our expectations. After updating our model, our $52 fair value estimate and wide moat rating are unchanged. Our near-term EBITDA estimate fell slightly to $3.9 billion in 2023 EBITDA compared with the past quarter as we refreshed it for current market spreads. Cheniere Energy Partners also maintained its midpoint of about $4.12 in 2023 distribution payouts. This distribution is made up of a base distribution of $0.775 and a variable distribution of $0.255 per unit per quarter. The 2024 distribution will be reevaluated in February 2024 after discussions with Brookfield, Blackstone, and the board of directors. However, management suggested that the distribution could be increased to closer to $5 per unit over time as new Sabine Pass expansions obtain final investment decisions.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year, or mtpa, LNG capacity online in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

While the REPowerEU plan laid out numerous goals across multiple end markets for eliminating the use of Russian pipeline gas, the European Union has no such plan for Russian liquefied natural gas, which we think will come as a surprise to investors. The EU has reduced Russian pipeline gas imports by over 80% in a very short time, but Russian LNG imports have surged recently and now make up 50% of overall Russian gas imports to the EU. Continuing to increase the use of Russian LNG threatens to undermine the gains and goals achieved via the REPowerEU plan in reducing the use of Russian pipeline gas imports.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year, or mtpa, LNG capacity online in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere Partners' second-quarter results were solid, in our view. With parent Cheniere Energy expecting greater marketing contributions leading to higher-than-expected EBITDA for 2023, we expect a similar level of outperformance to accrue to Cheniere Partners. Our revised 2023 EBITDA forecast for Cheniere Partners stands at $4.2 billion. After updating our model, we will maintain our $52 per unit fair value estimate and wide moat rating. The base/variable distribution was also reaffirmed by management at a midpoint of $4.12 for 2023.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year, or mtpa, LNG capacity online in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas and therefore LNG supply significantly.

Cheniere Partners’ first-quarter earnings were predictably strong, but weaker marketing spreads are expected to damper future quarters this year, thanks to lower gas prices. Still, as this is already incorporated into our model, we will leave our $52 per share fair value estimate unchanged, and our wide moat rating intact. Cheniere Partners, by design, will see less of an impact than parent Cheniere Energy, as it only sees a fraction of the marketing profits that its parent does by a contract that ensures the majority of LNG marketing spreads in a high price environment flow to Cheniere Energy. Thus, we expect Cheniere Partners’ guidance of a $4 to $4.25 per unit distribution payout for 2023 is realistic, though we currently expect a distribution toward the low end. However, for 2024, we would not be surprised to see the base (currently $0.775 per unit quarterly) and bonus ($0.255 per unit) parts of the distribution change, with the base potentially increasing while the bonus portion is diminished.

The U.S. gas price outlook looks weak in the short run, in our view, but the outlook should begin to improve in late 2023 and 2024. From a stock perspective, though, we think 2023 will present a potentially very good opportunity to acquire high-quality names leveraged to gas demand at a discount. We favor companies such as Kinder Morgan, Williams, Cheniere, and TC Energy.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas—and therefore LNG supply—significantly.

Cheniere Energy Partners’ fourth-quarter results were very strong. Full-year 2022 EBITDA exceeded our expectations at $5.1 billion, compared with our expected $4.8 billion, but weaker marketing spreads caused us to trim our 2023 forecast. Our 2023 EBITDA forecast declines to $4.1 billion from $4.8 billion. The forecast remains well above more normalized levels of long-run EBITDA of $3.7 billion, by our estimates. After updating our forecast, which does not include the Sabine Pass expansion, our fair value estimate of $52 per unit is unchanged, as is our wide moat rating.

Cheniere is well positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. We expect Cheniere to have about 45 million metric tons per year LNG capacity on line in 2022 and 58 million tons in 2026. We expect the bulk of China's LNG demand growth to be met by U.S. gas supply, given the United States' ability to increase gas—and therefore LNG supply—significantly.

Natural gas prices have collapsed more than 50% off recent highs amid very mild weather in the EU and the U.S. In the U.S., prices are now below $4 per million cubic feet (mcf)—below where they were before the outbreak of hostilities between Russia and Ukraine. Prices are also much closer to our $3.30 midcycle forecast for Henry Hub versus the almost $10 per mcf they traded at in August. EU power prices are EUR 76 euros per megawatt hour (MWH), compared with August levels of closer to EUR 350 per MWH.

One of the more pressing near-term challenges for the EU is addressing the large gap between gas supply and demand in 2023, left by the uncertainty over continuing Russian gas imports to the EU. In a recent report, the International Energy Agency, or IEA, outlined a 57 billion cubic meter, or bcm, gap in 2023, whereas our estimates put the gap at closer to 70 bcm. We expect the EU to close the gap, and how it does so will inform how well it is positioned for 2024 and the expected humanitarian and economic cost.