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Cheniere Energy, Inc

Company type	Public
Traded as	NYSE: LNG
Industry	LNG
Founded	1996
Headquarters	700 Milam Street, Suite 800 Houston, Texas
Area served	Worldwide
Key people	Charif Souki (Chairman of the Board of Directors, CEO & President) Meg Gentle (Senior Vice President and CFO)
Products	Liquified Natural Gas
Revenue	US$ 266.22 million (2013)
Net income	US$ -$345.64 million (2013)
Number of employees	Over 300 (2013)
Website	Cheniere Energy, Inc.

Cheniere Energy, Inc (LNG) is a midstream liquified natural gas company with operations in Texas, Louisiana, and London. It is headquartered in Houston, Texas, in the Pennzoil skyscraper. Cheniere owns and operates the Sabine Pass LNG facility, and other significant business assets such as the Creole Trail Pipeline and the Corpus Christi LNG facility. Cheniere is the only company in the United States that currently possesses all of the various local, state, and federal permits and licenses required to export LNG to non-Free Trade Agreement countries.

Like the rest of the industry, Cheniere's ability to export LNG is governed by the Natural Gas Act of 1938 and its subsequent amendments, particularly the Natural Gas Policy Act of 1978, which made it illegal to export natural gas to nations that the United States doesn't possess a free trade agreement with. Twenty nations currently possess free trade agreements with the U.S. The upcoming negotiations intended to expand the scope of the Trans-Pacific Strategic Economic Partnership free-trade region has the potential to significantly impact Cheniere's client base and the American LNG exporting industry in general.

History

Cheniere was originally incorporated as Bexy Communications, a California-headquartered telecom company. Bexy Communications was reorganized and renamed to Cheniere Energy after a special shareholder's meeting in Encino, California. Cheniere Energy emerged from this meeting as an E&P partnership searching for oil and gas in an unusually large prospective area, the "transition zone" (the five miles closest to the shoreline) of West Cameron Parish, Lousiana. After some success, Cheniere divested itself of its E&P assets in the early 2000s as it began to focus on the construction of the Sabine Pass facility, which was originally envisioned as an LNG receiving terminal.

Cheniere's first CEO was William D. Forster, a former Lehman Brothers energy investment banker who left to found his own private practice focusing on micro-to-small-cap energy companies. Forster began working together with BSR Investments, a Paris-based investment company led at the time by Samyr Souki, father of Charif Souki, in 1994. As of Cheniere's incorporation, both Forster and BSR Investments owned 32% of the company.

Timeline

• 1996: Bexy Communications is reincorporated into Cheniere Energy, Inc.
• 2003: Cheniere Marketing is established.
• March 2005: The Federal Energy Regulatory Commission authorizes construction of the Sabine Pass terminal.
• November 2005: Sabine Pass LNG enters into a TUA with Chevron USA, obligating that the terminal provide berthing for LNG tankers and for the unloading, storage and regasification of LNG.
• 2005: Cheniere Pipeline Company is established.
• April 6, 2005: Construction on the Sabine Pass LNG terminal begins.
• October 4, 2006: The New York Times publishes a landmark article on Cheniere.
• March 21, 2007: Cheniere Energy, Inc. has its initial public offering.
• April 21, 2008: The Sabine Pass LNG facility is officially completed and fully operational.
• 2009 Cheniere reverses direction, controversially pledging to become an LNG exporter rather than an importer.
• October 26, 2011: Cheniere signs a twenty-year long, 4.2 MTPA, LNG purchase agreement with the UK's Group. This was Cheniere's first and largest export agreement, and strongly affirmed the viability of exporting LNG from the United States.
• December 11, 2011: Cheniere signs a twenty-year long, 3.5 MTPA, LNG purchase agreement with GAIL India.
• November 21, 2011: Cheniere signs a twenty-year long, 3.5 MTPA, LNG purchase agreement with Natural Gas Fenosa.
• December 5, 2012: The long-awaited NERA report on LNG exports is released. The report finds that natural gas exports are a net benefit to the U.S. economy, and are unlikely to dramatically increase Henry Hub natural gas prices.
• December 17, 2012: Cheniere signs a twenty-year long, 2.0 MTPA, LNG purchase agreement with TOTAL S.A. of France.
• January 26, 2012: Cheniere and BG Group amend their original SPA agreement. The tonnage of LNG allocated to BG Group increases from 4.2 to 5.5 MTPA, under the same terms.
• January 30, 2012: Cheniere signs a twenty-year long, 3.5 MTPA, LNG purchase agreement with KOGAS, the world's largest LNG importer.
• February 2012: The FERC grants Cheniere the final permit to construct the Sabine Pass LNG export facilities.
• April 17, 2012: The Blackstone Group invests $2 billion in Cheniere's equity (later revised to $1.5 billion).
• August 2012: China Investment Corp and Government of Singapore Investment Corporation each invest $500 million (total of $1 billion) in Cheniere's equity.

• March 25, 2013: Cheniere signs a twenty-year long, 1.75 MTPA, LNG purchase agreement with Centrica.

Operations

Cheniere Energy, Inc., is a holding company that owns some or all of the stock of numerous subsidiary companies and partnerships. Cheniere Energy currently has thirty seven wholly or partially owned subsidiaries.

Aside from its headquarters at the Pennzoil skyscraper in Houston, Cheniere has offices in Bethesda, Maryland, Corpus Christi, Texas, Cameron, Louisiana, and London, England. Cheniere is also considering whether or not to open an office in Brazil. Brazil is a significant natural gas market that Cheniere is already doing business with.

LNG terminals

Cheniere Energy is currently developing two LNG terminals. Both facilities are being developed by Bechtel, the largest construction and engineering company in the United States. Bechtel has successfully constructed several LNG facilities prior to Cheniere's operations. Cheniere has in the past considered other LNG terminals, and may in the future look to construct new ones.

The combined annual LNG export capacity of all of Cheniere's under-construction, planned, and permit-pending facilities amounts to 41.5 million metric tons per year, or 7.987% of American natural gas production in 2012.

Sabine Pass

The Sabine Pass Terminal is owned by Sabine Pass LNG, a master limited partnership that is 100% owned by Cheniere Energy Partners, L.P., which is in turn 89.1% owned by Cheniere Energy, Inc. Cheniere Energy Partners' sole mandate is to operate the Sabine Pass terminal.

The Sabine Pass terminal's import capacity was completed in 2009 at a cost of roughly $1 billion. The first two LNG trains are estimated to be completed in late 2015 at a cost of $5.6 billion. It was originally envisioned as an LNG import facility, but after the market for LNG imports collapsed along with natural gas prices due to the boom in hydraulic fracturing, the economic justification for the terminal weakened severely. Cheniere Energy responded by returning to the markets for additional financing, aiming to take advantage of infrastructure redundancies and upgrade Sabine Pass into the world's first bi-directional LNG terminal.

All seven of the Sabine Pass supply agreements have durations of twenty years. They are based on a sales price to the customer of 115% of Henry Hub natural gas prices plus a $2.25 premium per MMBTU. The additional 15% represents Cheniere's sourcing and transportation costs, thus the $2.25 represents Cheniere's profits in the long-term sales agreements.

The Sabine Pass terminal has six LNG trains that are either planned or currently under construction. Each train has an annual export capacity of 4.5 million metric tons per year. The six trains are being constructed in three phases, with two trains planned for each phase. The Sabine Pass facility's total planned LNG export capacity amounts to 27 MTPA, which is equivalent to 5.2% of 2012 American natural gas production.

Corpus Christi

The Corpus Christi Liquefaction Project is 100% owned by Cheniere Energy, Inc. The facility, which has been fully permitted, is intended to be a mono-directional [LNG] export terminal. The proposed liquefaction project is being designed for three trains capable of producing in aggregate up to 13.5 mmtpa. The terminal is expected to be constructed in phases, with each LNG train commencing operations approximately six to nine months after the previous train. Construction is anticipated to begin in October 2013, with the facility achieving full production by December 2017.

The Corpus Christi Terminal's proposed annual export capacity amounts to 2.79% of American natural gas production in 2012.

Pipelines

Cheniere Pipeline Company (Cheniere Pipeline), a wholly-owned subsidiary of Cheniere Energy, Inc., was formed in 2003 to develop downstream natural gas pipeline solutions and provide access to North American natural gas markets for Cheniere's LNG receiving terminal network.

Creole Trail

The Creole Trail Pipeline is a permitted 153-mile natural gas pipeline, of which the first 94 miles have already been constructed. The pipeline connects the Sabine Pass LNG terminal to numerous interconnection points with existing interstate and intrastate natural gas pipelines in southwest Louisiana. The pipeline was originally built to connect the proposed, but never-constructed, Creole Trail LNG terminal to regional markets. The pipeline has been heavily altered over the years to accommodate the Sabine Pass terminal and its bi-directional natural gas capabilities.

Corpus Christi

The Corpus Christi pipeline is a permitted, but still unbuilt, 24-mile long, 48-inch diameter pipeline that will connect the Corpus Christi LNG facility to regional networks servicing the Eagle Ford shale basin.

Marketing and trading

Cheniere Marketing, which operates out of both the Houston headquarters and the London office, was founded in 2005 in order to monetize portions of Cheniere Energy's LNG import/export capacity that aren't tied up in long-term sale & purchase agreements. The marketing division is also responsible for monetizing spare asset capacity throughout the operations of Cheniere Energy as a whole. The marketing division has been allocated a small portion of the Sabine Pass facility's export capacity, which is sold by Cheniere Marketing at spot prices to international clients. For example, Cheniere Marketing has recently sold an LNG cargo to Brazil's Petroleo Brasileiro SA, netting a much higher profit than that received from Cheniere's long-term sales agreements.

As Cheniere Energy's export capacity comes online in late 2015, the marketing division is likely to significantly expand. In a recent article, Cheniere Chief Executive Charif Souki told The Wall Street Journal "We're going to have start recruiting [traders]. At the peak in winter, [Cheniere's buying] will be close to 3 billion cubic feet a day. We'll be the largest single-point gas buyer in the country."

Finances

LNG sale and purchase agreement structuring

The LNG industry has existed for over fifty years, and has throughout that time existed in a state of tight, state-dominated integration; an industrial schema that has only recently begun to weaken. Due to the firm grip that state-owned and state-sponsored companies have had on the industry, and extremely high barriers to entry, innovation has historically been a second-rate concern in the LNG industry. This situation has only recently begun changing, with Cheniere and other companies beginning to offer services that increase the efficiency and lower the costs for market participants, while reducing the degree of supply chain integration. Cheniere has developed several innovative business practices in its LNG export model, most of which are likely to be copied by the LNG industry as a whole. A few of these are as follows.

• LNG pricing: Cheniere is the first LNG company in the world to sell LNG that is not indexed to a basket of oil prices. Instead, Cheniere's price reference is the Henry Hub price of natural gas. This is a continuation of the yet-ongoing trend of natural gas becoming a distinct, stand-alone commodity market.

• Supply chain disaggregation: Cheniere takes care of all of the upstream sourcing, then loads the LNG onto LNG vessels owned or chartered by the customer, to any destination that the customer desires. Unlike prior generations of LNG exporters, upstream consumers working with Cheniere do not need to be concerned with upstream natural gas sourcing. Cheniere takes care of all of that. In the past, end consumers would take equity stakes in the entire supply chain, from the wellhead to the regasification plant, and the LNG would only be sent to a per-arranged destination.

• Customer flexibility: Traditionally, LNG sales agreements have specified that the product be sold in advance at market value (which was not always easily determined) and then shipped to a pre-determined location. Cheniere deviates from this model in several respects.

• • 1: Instead of selling natural gas in advance at one, pre-determined price which was a derivation of oil prices, Cheniere sells LNG at FOB prices. 115% of Henry Hub prices plus a $2.25 premium. The 100% is the cost that Cheniere shoulders in acquiring the rights to the gas, the 15% represents the cost of transporting, storing, and liquifying the gas, and the $2.25 represents Cheniere's profit. This benefits the customer because if there is poor weather, slack consumer demand, etc, the customer can opt out of taking physical delivery of the gas and only pay the $2.25 premium. The profit to Cheniere is the same regardless of the customer's decision, and it gives the customer a greater set of options in case of unforeseen events.

• • 2: Before Cheniere introduced this business practice, if a company opted out of receiving an LNG shipment for whatever reason, it would still have to pay cash for the entire supply chain value of the LNG; not just the profit going to the terminal operator, but the rest of the upstream LNG cost as well. This inflexible practice heavily disincentivized opting out of LNG shipments, no matter the circumstances.

• Broader implications: In summary, Cheniere Energy is a leader in the movement towards disaggregating the LNG supply chain. It is even beginning to trade LNG cargoes at spot prices, and to speculators - both of which are nearly unprecedented. The innovations in Cheniere's business model represent a large step towards transforming natural gas into a truly exchange traded, globally transported energy commodity on the level of crude oil. The trend towards supply chain disaggregation is likely to lead towards a more diverse and liberalized market that is more willing to trade natural gas on the basis of master sale and purchase agreements, and is less beholden to cumbersome, non-standardized, and uneasily negotiated long-term sale and purchase agreements.

Controversy

The exporting of LNG is a contentious issue in the United States, due to the competing interests of different stakeholders in the quickly evolving natural gas industry. The LNG industry is at the forefront of the criticism of both environmental groups and manufacturing associations. Environmental associations have on multiple occasions attempted to

The 2012 Department of Energy-sponsored NERA economic analysis on LNG exports has shifted the tone of the debate, with

See also

• List of petroleum companies
• List of companies in Houston
• List of LNG terminals
• FERC, the Federal Energy Regulatory Commission
• LNG
• Sale and Purchase Agreement
• FOB - Free on Board

External links

• Cheniere Energy, Inc.
• Cheniere Energy Partners, L.P.
• Cheniere Energy, Inc. filings on the SEC's EDGAR database

Category:List of LNG terminals Category:Companies based in Houston Category:Companies established in 1920 Category:Companies listed on the New York Stock Exchange Category:Oil companies of the United States Category:Oil shale companies