Cheniere slashes outlook for LNG investment amid pandemic

(Reuters) - Cheniere Energy Inc LNG.A, the largest U.S. liquefied natural gas (LNG) company, said it expects investment in new projects worldwide to slump this year and next as the industry grapples with the coronavirus-led economic slump that has sliced 30% off worldwide fuel demand.

Cheniere said demand for the super-cooled fuel could potentially fall in coming quarters, a reversal from years of record-setting growth, as slower economic activity and high storage inventory levels reduce the need for imports.

Before the pandemic, demand for LNG had grown sharply as nations like China and India shift from dirtier coal to cleaner gas for power generation and home heating. Major LNG exporters like Qatar, Australia and the United States have been investing heavily in export capacity to feed that demand.

The global recession is expected to cause investment to fall, cutting the expected growth in new projects worldwide in 2020 and 2021 to 65 million tonnes of LNG capacity, compared with its previous forecast of about 130 million tonnes.

“Supply and demand dynamics are tightening the competitive landscape,” Cheniere’s Chief Commercial Officer Anatol Feygin said on a call after the company posted first-quarter results. Cheniere’s net income nearly tripled in the quarter.

Cheniere said more customers told them they would not take delivery of LNG cargoes recently, but did not give a specific number. It does not expect the cancellations to have a material impact on its forecasted financial results for 2020, as most of its business is through long-term contracts.

During the first quarter, the company said it recognized revenue of approximately $53 million associated with canceled LNG cargoes.

“We’re seeing one of the worst LNG markets test Cheniere’s cash flow durability and so far its proving to be as resilient as designed,” analysts at Credit Suisse said.

Cheniere also said robust LNG supply growth over the past several years, along with warmer winters and strict virus containment measures, have caused global gas prices to drop. Gas contracts in Europe TRNLTTFMc1 and Asia JKMc1 have plunged to record lows over the past week or so.

Separately, Cheniere said it still expects to complete the third liquefaction train at its Corpus Christi LNG export plant in Texas in the first half of 2021 and the sixth train at its Sabine Pass LNG export plant in Louisiana in the first half of 2023.

The company said while it was taking measures to combat the spread of the coronavirus, it was not expected to hit costs or the schedule for its Corpus 3 or Sabine 6.

Cheniere shares rose 2.6% in afternoon trading on Thursday.

Analysts at Credit Suisse, a Swiss bank, and Cowen & Co, a U.S. financial services firm, both said it was a positive sign in a difficult market environment that Cheniere reiterated its 2020 earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $3.8-$4.1 billion.

Credit Suisse noted the market was most likely expecting a cut following news reports of over 20 canceled cargos from the United States in June.

Sources told Reuters most of those canceled cargoes were from Cheniere’s plants and some were from Freeport LNG in Texas.

Reporting by Arathy S Nair in Bengaluru and Scott DiSavino in New York; Editing by Nick Zieminski and Marguerita Choy