John Mackay: That’s great. I appreciate the time today. Thank you.
Operator: Thank you. We’ll go next to Jeremy Tonet with JPMorgan.
Jeremy Tonet: Hi. Good morning.
Jack Fusco: Good morning, Jeremy.
Jeremy Tonet: I just wanted to kind of unpack a little bit more on your earlier comments there. When you talked about beating the midpoint at the prior guidance range, I don’t know if it’s a $0.5 billion or so. Just wondering, what type of quantum of optimization Cheniere has been able to realize because of volatility in the market, both upstream and downstream operations? What’s that number look like?
Zach Davis: It’s been in the hundreds of millions of dollars, Jeremy, in terms of the optimization. And I’d say hundreds of millions of dollars, both in the upstream and downstream side. Mind you, Henry Hub was significantly up in 2022, moderated a bit last year and it’s even further down today. So we’ll see how much can be there. And then on the other side, yeah, we have a ton of IPM deals, DES deals. So we’ll optimize those as we see fit and subcharter out any of our length in our shipping portfolio, which in the past has added hundreds of millions of dollars. Mind you, even that market has moderated as well in terms of the volatility. But when you add those two things together, it would really take, yeah, great execution and some opportunistic moments throughout the year for us to get to the high end of the range.
Jeremy Tonet: Got it. So just to be clear there, then, hundreds of millions of dollars of synergies or optimization, rather, upstream and downstream, both we’ve seen historically. And that’s not really baked into the guidance as we see it today, because the guidance really just locks in what you’ve already locked down. Is that the right way to think about things?
Zach Davis: Yeah. That’s right. We were pretty clear for quite some time now, as we thought about this year, it’d be the closest we would be to the run rate and considering how proactive we were going into this year, and now that we’re only down to 15 TBtu, we’re still above the midpoint of the run rate range for 9 trains and we don’t even have the TUA from Chevron anymore. So this is — where we expected it to be, it was baked into the 2020 Vision and the $20-plus-billion of cash flow through 2026 and we’ll see how things play out on the optimization side, but it’s not baked into this guidance today.
Jeremy Tonet: Got it. Very helpful. So a lot of upside potential, but not baked into the guide. Very clear there. Thank you very much.
Jack Fusco: Thanks, Jeremy.
Operator: We’ll go next to Brian Reynolds with UBS.
Brian Reynolds: Hi. Good morning, everyone. Maybe to talk about just the distribution cut on the variable side, if you could just help talk about sizing and timing of that, and ultimately, how it relates to translating into the 15 MTPA expansion, assuming like an 850 build. So it seems like there’s still a little bit of variable component in the guidance above that 3.1 kind of run rate. So just kind of curious how you came to that number and how we should think about pre-funding, just given it could be $10 billion to $15 billion for the SPL expansion? Thanks.
Zach Davis: Sure. So as we thought about the variable adjustment, I would say, over the last two years, we were incredibly efficient with our cash inside the CQP. And with the distributions, including the variable being over $4 both years, we probably distributed out almost $700 million more than even the run rate DCF per unit guidance that we give. So now it’s time, as we’re getting closer to officially filing with the FERC for the Sabine expansion and are targeting that 2026 FID, that we’re going to start retaining some of the cash and bringing down the variable. We’re saving around, let’s say, $700 million. And a large portion of that will actually just go into paying down a bit of debt that’s coming due, giving us this flexibility financially to add leverage capacity once we FID the project, stay with that, let’s say, 50-50 debt-to-equity during construction and maintain the base distribution throughout while still being investment grade at Sabine and CQP.
So we’re trying to thread a needle there, and to do that, we need to start planning now. Mind you, some of the cash that’s retained is also going into development of supporting the feed and getting Sabine expansion ready for FID and there’s even $100 million or so baked in there for debottlenecking purposes. We think we’ve found some ways to get to the higher end of the 4.9 to 5.1 range on the first exchange that hopefully can pay dividends to us in the coming years. So there’s a few things in there, but it is mainly debt pay down in the near-term to add leverage capacity and flexibility in the long-term. Mind you, it’s still $2 billion of distributions coming out of CQP this year with $1.2 billion of that going to CEI. But if we can pull all this off and build this project and get to that over $5 DPU, we’re talking about almost $2 billion of consolidated EBITDA and we’re talking about almost a $1 billion of DCF to CEI.
So it’s a win-win for all parties.
Brian Reynolds: Right. Makes sense. Appreciate all that. My second question just around maybe further optimization. I know for the SPL expansion, it seems like there’s some capital efficiency and optimization opportunities with boil-off gas and some other things. But as we think about existing asset base, I think, you talked about 45 MTPA being a good run rate. It seems like 2023 was above that. As we look ahead to 2024, have we squeezed out all the optimization on the existing asset base or are there some new technologies or engines that could help further drive efficiencies and optimization on the existing asset base going forward? Thanks.
Jack Fusco: Brian, this is Jack. While we’re not going to guide upwards of the 45 million tons today, I’m always amazed at what my operations folks can deliver. So whether it’s optimizing the trains or our maintenance schedule, we — they have just constantly outperformed. So we’re looking now, as Zach mentioned, at $100 or so million for debottlenecking. One of the things I find really promising is, we’re looking at a new technology of our fin fans. Those are the fans that we use to cool the refrigerant that liquefy the natural gas and we think there’s a big opportunity there. So we’ll be trying that out in earnest this year and I hope to have more news for you on later calls.
Brian Reynolds: Great. Appreciate it. Have a great rest of your morning.
Operator: Thank you. We’ll go next to Theresa Chen with Barclays.
Theresa Chen: Good morning. Going back to Jack’s comments on the evolving regulatory backdrop, with respect to the DOE pause, I’m just curious how this impacted conversations with customers, both within the context of commercializing your expansion projects, but also in relation to the broader commitment that the U.S. Government has to LNG exports and the perception of your global customers and the credibility and competitiveness of the U.S. LNG industry. Any salient commercial color you can provide would be great?
Jack Fusco: Theresa, I think, I’m going to just start with some overall comments, and then I’ll turn it over to Anatol. But I have to say this isn’t really new. We’ve been through multiple administrations here at Cheniere. We’ve been through multiple studies on the public interest in exporting America’s natural gas. What is shocking and new is over the last eight years, I think, Cheniere has proven all the benefits to America and to our allies over exporting U.S. LNG. And I find it appalling that we need scientists to tell us theoretically, using theories and hypotheses, of the benefits or not. But as you know, we know that there are — those benefits are factual, they’re proven, they were witnessed by the world.
So I really look forward to seeing this studies report. I look forward to the comment period so we can get the record straight and accurate. I’m hopeful that cooler heads ultimately prevail and that the facts will be evident and this pause will be a distant memory. But with that, I’ll turn it over to Anatol. He can tell you a little bit about what our conversations have been with our customers.
Anatol Feygin: Yeah. Thanks, Jack. And thanks, Theresa. Just to pick up where Jack left off, this is the third time the DOE is doing this study. And I would say, to Jack’s point, the first two are a distant memory as the U.S. goes from kind of mid-90s of millions tons per annum of capacity today to close to 200 million tons per annum. We still think — really believe that the U.S. will be the market’s first 200-million-ton exporter and we will navigate this with the DOE. A lot of the things that we have been doing for the last four years or five years on our LCA and on our environmental science and tracking the emissions profiles, providing the cargo emission tags, are all things that are new in the equation. And then, of course, just the quantum of LNG exports from the U.S. and gas dedicated to LNG exports is a new component in this equation.
So we — to Jack’s point, we look forward to DOE’s methodical kind of science-based review and updating its profile. But we are confident and we relay the same answer to our customers in our commercial engagements, that we are confident that Cheniere will be able to navigate whatever comes out of the DOE and continue to prosecute expansions on our timeline. So this is not new. Every time there is a pivot, whether that is a modest pivot or a more major pivot, we have these discussions, but we’ve navigated them for a decade plus and are confident we’ll continue to do so and that’s exactly the message that we give to our customers and we obviously firmly believe that.
Theresa Chen: Thank you. And Anatol, going back to your comments related to the elasticity benefits in the market currently, as price-sensitive buyers increase interest. Can you elaborate on that and what do you think the magnitude of that demand can be if prices remain low?
Anatol Feygin: Yeah. Look, the market — it’s hard to say that these are kind of unprecedented dynamics in the sense that the amount of infrastructure that has been brought online over the last three years to five years is unprecedented over that period. So we talk about the amount of liquefaction capacity that’s coming online in the back half of this decade, but again, not a month goes by that there’s not a new regas terminal Europe added five, Southeast Asia has added four, Europe will now add Alexandroupolis in Greece in the coming days or weeks. So the ability to consume this volume is enormous and we’re approaching a scale now relative to the current 400 million tons of exports, which obviously will grow of almost 1300 million tons per annum of import capacity.
So markets like India, which have rebounded strongly as prices moderate, are now in a position to import more than twice as much volume as it imported in 2023. That was not a position that India was in in early 2020, when prices were low and it was a price elastic consumer. So I think you’ll see that price elastic demand function really surprised to the upside as Philippines, Thailand, Vietnam, India, et cetera, are all in a position to take meaningful incremental volumes. So quite optimistic on that front and I think we all see these liquefaction numbers coming. And again, historically, they have surprised to the downside in terms of schedule and utilization. So we’ll see how the world rebalances, but it certainly has the capacity to consume essentially whatever number you think will be added to the supply side.
