Cheniere Energy Partners LP (CQP) Q4 2020 Earnings Call Transcript

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Cheniere Energy Partners LP (CQP -0.66%)
Q4 2020 Earnings Call
Feb 24, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Cheniere Energy, Inc. Fourth Quarter and Full-Year 2020 Earnings Conference Call and Webcast. [Operator Instructions]

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

Randy Bhatia -- Analyst

Thanks, operator. Good morning, everyone and welcome to Cheniere's fourth quarter and full year 2020 earnings conference call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me this morning are Jack Fusco, Cheniere's President and CEO; Anatol Feygin, Executive Vice President and Chief Commercial Officer and Zach Davis, Senior Vice President and Chief Financial Officer.

Before we begin, I would like to remind all 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 certain non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP measure can be found in the appendix to the slide presentation. As part of our discussion of Cheniere's results, today's call may also include selected financial information and results for Cheniere Energy Partners LP or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy Inc.

The call agenda is shown on Slide 3. Jack will begin with operating and financial highlights. Anatol will then provide an update on the LNG market and Zach will review our financial results and guidance. 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 -- President and Chief Executive Officer

Thank you, Randy, and good morning, everyone. Thanks for joining us today and thank you for your continued support of Cheniere. I'm pleased to be here this morning to review our results from 2020, an unforgettable year for many reasons, and to share my views on our bright future and why Cheniere is uniquely situated to capitalize on both current and evolving LNG market dynamics. On these earnings calls, over the past few years and even the last several quarters, you've often heard me speak about Cheniere's resiliency, the resiliency of our business model, our assets, our product and our markets never has the word resilience been more appropriate than when we reflect on Cheniere's 2020 performance, both operationally and financially. We faced logistical and operational challenges borne by the pandemic, a volatile energy in financial market and a historic hurricane season, while maintaining our focus to deliver on our guidance. And just last week, a historic winter weather event on the Gulf Coast led to widespread and prolonged power outages and other utility and infrastructure disruptions that impacted millions of lives here in Texas and the surrounding states. I'm heartbroken at the devastation to life, homes and possessions and pray for a speedy recovery to normalcy.

As you may have read, Cheniere worked closely with state, local officials, suppliers, customers and other partners to manage our operations through the event, moderating our electricity consumption and providing natural gas back into the system to help provide heat and power for human needs. Lastly, the critical role that natural gas performs to ensure reliable energy was on full display for Texas, the United States and the world.

Any one of these events in the last year would have been significant individually, but to face them all in such a short period of time and still deliver on our promises should leave no doubt as to the resiliency of our business model and more importantly, our people. To say I'm proud of how Cheniere's employees have responded to these challenges is an understatement. The results in financial projections that we reported this morning are a product of the dedication and hard work of the over 1,500 professionals at Cheniere that I am humbled to lead.

Please turn now to Slide 5, where I will review some key operational and financial highlights from the quarter and the year. We delivered on our 2020 guidance, which was issued in November of 2019, prior to the pandemic. Our 2020 guidance may be one of the only things I can think of that didn't change last year. The chart on the right side of this slide illustrates our resilience and forward visibility. The graph plots total LNG cargoes exported from our facilities five month from November 2019 through year-end 2020 as well as our guidance ranges for consolidated adjusted EBITDA and distributable cash flow over the same time. Despite volatility in LNG cargo production caused by widespread cargo cancellations in the summer as well as impacts from the pandemic and two major hurricanes making landfall near Sabine Pass as well as LNG spot prices reaching both record lows and approaching record highs in the time period. Our visibility on achieving our annual targets remain unchanged. A testament to the foundation of our business model and the commercial structure of our long-term contracts.

For the fourth quarter of 2020, we generated consolidated adjusted EBITDA of $1.05 billion and distributable cash flow of approximately $330 million and revenue of approximately $2.8 billion. We generated a net loss of $194 million, which was impacted by non-cash mark-to-market losses on commodity and FX derivatives, primarily related to the required accounting treatment of our IPM agreements in our forward sales of LNG as LNG net back curve steadily grows over the course of the quarter. Zach will cover this in more detail in his remarks in a few minutes.

Operationally, we exported 130 cargoes of LNG from our two facilities during the fourth quarter. As cargo cancelations largely seized with expanded margins on U.S. cargoes as gas prices internationally rose dramatically on both winter weather as well as market balancing mechanisms deployed earlier in 2020. For the full year 2020, we generated consolidated adjusted EBITDA of approximately $4 billion within our guidance range and distributable cash flow of approximately $1.35 billion above the high end of the range. During 2020, we raised a significant amount of capital over $8.5 billion across the Cheniere complex in transaction supporting our long-term balance sheet priorities. This is a great accomplishments for Zach and the finance team who navigated turbulent financial markets in the first half of the year and carried out a seamless CFO transition to deliver meaningful progress on some of our strategic long-term financial goals.

With regard to our construction efforts at Sabine Pass and Corpus Christi, the Bechtel Cheniere reputation for market leading project execution continues to be reinforced. As we discussed last year, the construction schedule for Train 6 at Sabine Pass was accelerated with substantial completion now targeted for the second half of 2022. At Corpus Christi, Train 3 is in late stage commissioning and produced its first commissioning cargo in December of last year. Commissioning and start-up continues to test and tune Train 3 systems and we expect to be able to announce substantial completion in the coming weeks.

Now turn to Slide 6, where I'll introduce our upwardly revised 2021 guidance and discuss my priorities for this year. As I mentioned a moment ago, the LNG market has strengthened considerably, especially since our last call in November and we have been taking advantage of improvements over the past few months, which has contributed to our improved outlook for 2021. Today, we are raising our full-year 2021 guidance the $4.1 billion to $4.4 billion of consolidated adjusted EBITDA and $1.4 billion to $1.7 billion of distributable cash flow. Looking ahead to the balance of 2021, I have laid out on this slide some key priorities we are focused on for the year. Clearly, we intend to deliver upwardly from revised financial guidance. Just as we had the tremendous visibility into 2020 that I discussed, we have similar visibility into 2021 despite being less than two months through the year, actively reducing our exposure to what has been a fairly volatile LNG market.

On the development side, it is critical that our Stage 3 expansion at Corpus Christi maintains its clear competitive advantages. In 2021, our business development origination teams will be working closely together to identify opportunities for further efficiency improvements and commercialization opportunities with the goal of ensuring that we are marketing the most cost effective and environmentally responsible LNG capacity addition in America. Commercially, we continue to believe the long-term supply and demand dynamics in the market today are conducive to long term contracts progressing, though some obvious, preliminary COVID-related headwinds persist. Recent volatility in the LNG market and the rapid tightening of the market toward the end of last year and early this year helps to reinforce the value to customers of a flexible, visible, long-term supply agreement with Cheniere. In addition, the market has been responsive to our mid-term marketing efforts and we have recently executed a few transactions in the five to approximately 11-year range. In 2020, we'll be focused on continuing to commercialize our volumes, both portfolio volumes from the existing platform and Corpus Christi Stage 3 volumes, and Anatol will talk more about the current market and our positioning in his remarks in a minute.

Financially, I've spoken at length about the importance of 2021 as our inflection point for free cash flow as we expect to be meaningfully free cash flow positive for the first time in the company's history this year and based on the improvements in the short-term market a little more so than we expected back in November. Our capital allocation strategy remains a top priority. Initially, we intend to prioritize debt paydown, but maintained the flexibility to capitalize on growth opportunities and we'll provide clarity on capital return to our shareholders later this year.

And finally, we are prioritizing efforts on the environmental opportunities we introduced on our third quarter call, integrating climate into our full-service commercial offering. We've made steady progress on developing a number of those opportunities, which I look forward to updating you on in the near future as those opportunities are crystallize.

Turn now to Page 7. As you may have seen this morning, Cheniere plans to begin providing our LNG customers with greenhouse gas emissions data associated with each LNG cargo produced at our facilities, utilizing emissions data from the wellhead to the cargo delivery point. Our goal is to improve the quantification of the lifecycle emissions for LNG, supporting the efforts of Cheniere, our customers and suppliers to quantify and reduce the emissions across the value chain. Our product is already helping our customers by meeting their energy requirements and improving air quality by reducing traditional balloons in particular. The cargo emissions tags will help our customers further by enabling them to better manage their emission profiles and maximize the benefits of buying our LNG. Cheniere's Cargo Emission Tags or CE tags are a significant step forward for this company and our industry as a whole and progressed our efforts on each of the environmental opportunities we discussed in November.

These tags will provide access to transparent emission data for our cargoes, a crucial step in understanding and managing emissions profiles. Clear, transparent data will enable Cheniere in our value chain partners from upstream producers, midstream infrastructure providers, LNG ship owners and of course downstream LNG consumers to identify tangible opportunities to drive continuous improvement in environmental performance. Our size, scale and reach both upstream and downstream of our facilities makes us ideally suited to lead on this front. This represents the first time a major LNG producer has announced the provision of greenhouse gas emissions profiles associated with every cargo of LNG producers. We are proud to take a leadership position on this important effort continuing to be at the forefront of the industry, as it evolves and benefits all participants in the value chain.

And now, I'd turn the call over to Anatol who will provide an update on the LNG market.

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Thanks, Jack, and good morning everyone. Please turn to Slide 9. Over the past few quarters, we outlined the exceptional challenges the global LNG and gas markets have faced, highlighted factors that helped balance the market and underscored our view for constructive market ahead. Today, we will discuss how we wrapped up 2020 on solid footing and share some additional key points on why we continue to expect tightening balances ahead and strong long-term demand for our LNG. The LNG market exited the third quarter largely rebalanced with LNG production levels if 6.4 million tonnes or about 7% lower year-on-year, mainly due to unplanned supply outages and facilities outside of U.S. Stronger economic activity and colder temperatures in Q4 continued to strengthen LNG demand, which increased 1.8% year-on-year in the fourth quarter and 1.4% for full year 2020 to approximately 364 mtpa. A severe cold snap across Asia in December and continued GDP expansion in China induced the spike in demand and opened the arbitrage window, making European reloads to Asia Economic for the first time in many months, and driving a sharp decline in LNG imports to Europe. China's LNG consumption rallied 17% year-on-year to 21 million tonnes during the fourth quarter, making China the largest global LNG consumer for the quarter. Chinese LNG demand increased 12% for the full year 2020 to about 70 million tonnes, closely approaching Japan as the largest consumer. Japan and South Korea also returned to demand growth in Q4 after two consecutive quarters of year-on-year declines.

A previously placed cap on coal generation in South Korea and planned nuclear maintenance in Japan contributed to high storage draws and resulted in a supply crunch that drove daily spot gas and power prices to record highs. These bullish trends occurred amid of supply shortage due to multiple liquefaction outages and constraints on shipping and resulting in a large LNG spot price increase. In total, Asia's LNG demand in the fourth quarter rose 13% over Q3 and 8% year-on-year. The region imported almost 260 million tonnes of LNG in 2020, over 4% or 10 million tonnes higher year-on-year powerful evidence of LNG demand growth resiliency in the region, when considering the COVID-driven commodity demand shocks of 2020.

The draw on LNG cargoes from Asia and lower spot LNG availability toward the end of the year resulted in a sharp decline in European LNG imports, over 30% or 7.7 million tonnes year-on-year. Strong winter demand generated a significant draw on storage and inventories ended the year at 74% full versus over 88% at the end of 2019. Currently storage levels remain approximately 30% lower year-on-year, signaling tighter European balances for the spring. These events in the fourth quarter all contributed to the rapid spike in spot LNG prices and shipping rates to record highs, quickly turning the LNG market from surplus to shortage.

While JKM settled December at $6.90 an MMBtu, the increase in inter-basin flows, tighter shipping market and waterway congestion drove JKM daily spot assessment for February up to $15 in late December and to an all-time high of $32.50 in mid-January. We believe the recent volatility in the spot market underscores the importance of reliable and stable term supplies, the value of a diversified and balanced LNG portfolio and the attractiveness and stability of Henry Hub linked pricing. As sellers were conscious of the importance of affordable prices in supporting LNG demand growth, we believe that our contracting structure and our term contract pricing allows buyers to benefit year around with low price volatility, and diversification for most risks associated with the oil market.

We discussed with you last quarter, our decision to augment our commercial offering with medium-term contracts. As Jack mentioned, the market has been receptive to this product, and we executed several transactions ranging in tenure from five to approximately 11 years on both FOB and DES terms for a total volume of over 4 million tonnes over time. We will continue to execute on this strategy to opportunistically de-risk our portfolio, and enable our customers to de-risk theirs.

Turn now to Slide 10. With peak winter demand requirements largely satisfied with and prices moderating, we believe more stable market conditions would prevail for the rest of the year. In addition to improving demand patterns, the market will also be supported by tapering supply additions as the current project construction cycle comes to an end. The LNG industry realized incredible growth over the past four years, adding more than 117 million tonnes of capacity, an annual average of almost 30 million tonnes. That average is estimated to drop by over 60% to 11.5 million tonnes per year over the next four years.

Declines in output from existing projects are also expected to accelerate further tightening supply balances. Feed gas availability for exports in some legacy exporting nations such as Trinidad Tobago, Indonesia, Algeria and others has been constrained because of upstream reasons, or competing growing domestic needs. Our analysis shows that in next five-year period supply growth from existing and under construction projects drops by nearly 40% versus 2015 through ' 20 period. Supply growth is expected to decline by a further 64% in the 2025 to 2030 period, and new capacity will be required to fill a growing supply demand gap.

Please turn to Slide 11. We expect continued LNG demand improvements as COVID vaccines are distributed and global economic activity continues to strengthen. Longer term and as we highlighted on our third quarter call, myriad policy initiatives and massive gas-oriented infrastructure investments have been initiated around the globe, which we expect to be constructive for long-term LNG demand. We also expect sustained growth in the number of regasification markets. Over the past decade, the need to improve living standards across the world, along with the technological advances and efficiencies gain in producing, transporting, and regasifying LNG contributed to almost doubling the number of LNG consuming nations. We see at least 17 additional new markets that are likely to commence imports over the coming decade, bringing the total from 43 at the end of 2020 to 60 markets by 2030.

Each of these markets have different dynamics, but most share common factors promoting LNG demand. Among them, natural gas or LNG is a cleaner burning fuel, is increasingly available and affordable. LNG provides a flexible and reliable source of fuel and power generation that can displace polluting coal, and help nations reach their environmental goals faster, without compromising grid reliability, while also supporting growth in renewable energy. These attributes make LNG indispensable for decades to come, helping nations improve access to electricity, combat pollution, and maintain a reliable, and affordable energy system. We at Cheniere are proud to provide a product with these enduring characteristics, and remain ready-to-work with our customers to create practical commercial solutions.

And now, I will turn the call over to Zach, who will review our financial results and guidance.

Zach Davis -- Senior Vice President and Chief Financial Officer

Thanks, Anatol and good morning everyone. I'm pleased to be here today to review our fourth quarter and full-year financial results and key 2020 financial accomplishments, our increased 2021 guidance and our 2021 financial priorities.

Turning to Slide 13. For the fourth quarter, we generated a net loss of $194 million, which was impacted by approximately $515 million related to non-cash mark-to-market losses on commodity and FX derivatives, primarily related to the impact of shifting commodity curves on our long-term IPM agreements for the purchase of natural gas and our forward sales of LNG, as LNG net back curves steadily rose over the course of the quarter. As we have discussed on prior calls, our IPM agreements and certain gas supply agreements qualifies derivatives, and require mark-to-market accounting. From period-to-period, we will experience non-cash gains and losses as movements occur in the underlying forward commodity curves. This accounting treatment coupled with the long-term duration and international price basis of our IPM agreements will result in fluctuations in fair market value from period-to-period.

While operationally, we seek to eliminate commodity risk by matching our natural gas purchases and LNG sales on the same pricing index. Our long-term LNG SPA's do not currently qualify for our mark-to-market accounting, meaning that the fair market value impact of only one side of the transaction is recognized on our financial statements until the delivery of natural gas and sale of LNG occurs.

During the fourth quarter, as global LNG market strengthened, cargo cancelations largely abated, resulting in adjusted EBITDA of $1.05 billion for the quarter, and distributable cash flow of approximately $330 million. We recognized an income 477 TBtu of physical LNG during the fourth quarter, including 453 TBtu from our projects, and 24 TBtu sourced from third parties. 83% of these LNG volumes recognized an income were sold under long-term SPA or IPM agreements.

While cargo cancelations largely abated during the fourth quarter, we recognized $38 million of revenues related to cancelled cargoes that would have been lifted in the first quarter of 2021. In combination with $47 million of revenues recognized in the third quarter for the cargoes that would have been lifted in the fourth quarter, the net impact on our fourth quarter financial results was immaterial.

For the full-year, we generated a net loss of $85 million, which was also impacted by non-cash mark-to-market losses on commodity and FX derivatives as well as certain non-operating losses on modification or extinguishment of debt, interest rate derivatives, and our equity method investments. For the full year, we generated consolidated adjusted EBITDA of $3.96 billion, just above the midpoint of our original, unchanged guidance range. Distributable cash flow of approximately $1.35 billion, above the upper end of our guidance range. As Jack mentioned earlier to produce these results in the middle of a pandemic and one of the worst LNG market downturns in history is a tremendous testament to the resilience and effectiveness of our business model, and to the tenacity and dedication of our people. I'd like to thank the entire Cheniere team for their hard work and contributions, which have enabled us to attain these results.

For the full-year, we recognized an income almost 1,500 TBtu of physical LNG, including almost 1,400 TBtu from our projects and just over 100 TBtu sourced from third parties. 78% of these LNG volumes recognized an income were sold under long-term SPA or IPM agreements.

Turn now to Slide 14. As Jack mentioned, today we are increasing our guidance ranges for full year 2021 consolidated adjusted EBITDA and distributable cash flow by $200 million, increasing our consolidated adjusted EBITDA range to $4.1 billion to $4.4 billion and our distributable cash flow range to $1.4 billion to $1.7 billion. The largest variable to achieving financial results within our guidance ranges remains the completion of Corpus Christi Train 3, which is now in the late stages of commissioning. That project is progressing very well and remains on target for completion before the end of the first quarter, consistent with the timing we projected last quarter when we issued our original 2021 guidance. The significant tailwind that enables us to increase our guidance today is the improvement of global LNG market pricing. And our team has been actively selling up in volumes for the year to forward sales and hedges, reducing market exposure and increasing earnings visibility. We now sold over 95% of our total expected production for this year, and we currently forecast that a $1 change in market margin would only impact EBITDA by approximately $50 million for full year 2021.

Turn now to Slide 15. Before discussing our financial priorities for 2021, I'd like to recap some of our key achievements in 2020. As Jack mentioned, we raised over $8.5 billion in capital across our structures through the year, strengthening our balance sheet and executing on our capital allocation priorities. Among the transactions, I'd particularly like to highlight refinancing the SPL 2021 notes amid COVID-related uncertainty in the capital markets in May, issuing an inaugural CEI bond in September and refinancing the CCH HoldCo convertible notes and a significant portion of the CEI convertible notes with debt, preventing over 40 million shares of equity dilution.

The rating agencies continue to recognize our significant progress and Moody's upgraded Corpus to investment grade in August. Now both of our projects are rated investment grade by all three agencies, and Fitch recently revised SPL's outlook to positive while reaffirming its existing IG rating. Additionally, we followed through with our debt reduction plan in the second half of 2020, utilizing $200 million of available cash to pay down outstanding borrowings under the CEI term loan.

As we look toward 2021, our primary capital allocation priority is to continue with our debt reduction plan, and we have committed at least $500 million this year to paydown outstanding debt. Our second capital allocation priority is to manage upcoming debt maturities. Our only debt maturity in 2021 is the remaining approximately $475 million balance of the CEI Convertible Notes, which we expect to redeem in cash using cash on hand and availability under the CEI term loan. We've also developed a refinancing plan this year to manage the $1 billion of SPL notes, which mature in March 2022. We anticipate managing that maturity with a combination of options including debt issued at SPL, debt migrated to CQP and debt pay down with cash flow. We have already started to derisk this maturity by locking in an approximately $150 million of private replacement of long-term amortizing fixed-rate notes at SPL, that are committed to fund in late 2021 at a rate of 2.95%, the lowest yield bond ever secured by Cheniere. As always, we will remain opportunistic in assessing other opportunities to economically refinance debt throughout the structure. Our third primary capital allocation priority is to provide updated guidance on our long-term capital allocation plan and we anticipate communicating that to you in the second half of this year.

As we discussed on our last call, 2021 is an inflection point for Cheniere. And we expect to generate significant positive free cash flow for the first time in our history and this will give us added flexibility and capital allocation decisions. We are evaluating our capital return policy with our Board and we will provide you additional information later this year regarding our path to investment grade across the complex, debt paydown priorities and resumption of capital return via share repurchases, and our timing of an inaugural dividend. We continue to view a dividend at LNG as an eventuality due to the long-term, highly contracted nature of our business model and we will evaluate timing and magnitude with our Board and in consideration of market conditions, our balance sheet, the stock price and other variables, including ensuring sufficient capital to continue pursuing economically and credit accretive investments in our brownfield expansion opportunities.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Christine Cho with Barclays. Please go ahead.

Christine Cho -- Barclays -- Analyst

Good morning. Can you give us an idea of the kinds of customers you signed the mid term LNG sales agreements, were they all actual end users or were they're marketers in there as well, concentrated -- with a concentrated in any one region? And was the timing primarily driven by the events that went on? Were they short LNG and needed to lock in cargoes or was it more ensuring a diversity of supply? And if you can also provide an update on what current conversations are looking like, have they slowed down after signing of those, same or accelerated?

Jack A. Fusco -- President and Chief Executive Officer

Thank you, Christine. And we're going to have to divide that question up to a few different bite. So we'll start with Anatol, do you want to talk about...

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Sure...

Jack A. Fusco -- President and Chief Executive Officer

Next term.

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

It just so happens that in this case, the counter parties were end users. The appetite for the product though, I would say ranges across all of the buckets that we are typically engaged with including intermediaries. So it also happens to be that these transactions are staying in this hemisphere, but there is very broad appetite across both the Atlantic and Pacific Basin and engagement if anything is picking up. These were not done, I would say against the backdrop of the extremes that you saw in December, January and into early February. These were engagements that we've had for a while that enabled us to find the right solution to meet the the end users' needs.

Christine Cho -- Barclays -- Analyst

And then, like updated, like conversations have they slowed down, stayed the same, accelerated?

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

If anything, the market is continuing on the trajectory of improving, having digested the -- this massive supply wave and and the COVID issues. It's really staggering to me that the LNG market against that backdrop managed to grow, not the blockbuster growth year but still a growth year. And what we saw in Asia in 2020, Asia overall grew 4% in 2020, 3% in 2019. So even though the market grew more in 2019, most of that as you know went into the more price elastic North West European market. And now, the market is rebalancing with the fundamental growth that we always expected to see out of Asia. So things are picking up and these events over the winter was quite a shot across the bow, where our customers continue to enjoy reliable, stably priced product and those that thought that relying on the spot market equals low prices, obviously do not experience that.

Jack A. Fusco -- President and Chief Executive Officer

Christine, I will just add. As you all know, I'm an operator by heart and I'm extremely proud of the team. I mean, we have A-trained operating today as we speak, we're over 6.2 BEs today that have been nine to the two facilities and our de-bottlenecking and operator effectiveness efficiency program is working extremely well. So there's plenty of more from a portfolio supply perspective that we would like to get termed out.

Christine Cho -- Barclays -- Analyst

Okay. And then, for my follow-up. I'm assuming the headline cancellations we saw in 1Q where due to shortage of ships, due to the extended transit times with what was going on with Panama Canal and things like that. And not because the economics didn't work. And I know you don't comment on cargo cancellations. But periodically, if this did happen, do you actually have enough ships to have taken advantage of any extra cargoes that might have materialized the via CMI?

Jack A. Fusco -- President and Chief Executive Officer

Go ahead.

Zach Davis -- Senior Vice President and Chief Financial Officer

Thanks, Christine. Yeah, as you said, there is a range of reasons why -- why customers choose to exercise the feature of cancellation for portfolio balancing and other constraints, as you correctly point out the margins were not the issue at this point. And our team does an exceptional job of managing our shipping requirements. So there are opportunities for us to take advantage of those available volumes.

Christine Cho -- Barclays -- Analyst

Great, thank you.

Operator

Thank you. We'll take our next question from Michael Lapides with Goldman Sachs. Please go ahead.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Thank you for taking my question. Actually, I have a couple. First of all, on the new contracts. Do those all start immediately or do those stagger in over time, meaning some may start this year, some may start four or five years from now, that's question one. Question two is how should we think about the economics of those versus the existing long-term SPAs that you've signed over the years?

Jack A. Fusco -- President and Chief Executive Officer

Thanks, Michael. Not immediately they stagger in, but they don't start on a -- on a very deferred basis, so this year and next to give you some color on that. In terms of economics, we think that our product is one that has a fair amount of extrinsic value, as we just discussed with Christine, and we look to price that into those mid-term offerings. So there are attractive economics to us, but obviously on a mid-term basis and are not structurally the types of transactions that would underpin incremental investment.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And just -- and just any follow-on thoughts regarding Corpus mid-scale and just kind of what it would take to get Corpus mid scale to FI8.

Jack A. Fusco -- President and Chief Executive Officer

So on Corpus mid-scale, we are 100% focused on making sure that that will be the most competitive expansion project in the U.S. and we feel really good about our positioning there. I think there is an opportunity for us to really move their commercialization forward this year. The volatility in the LNG markets has created a sense of urgency with the customers and I think will be in good shape on that project. And now, Anatol, do you have anything to add to that?

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Just that as we've said to you guys, we are fully committed to maintaining the rules of engagement on deploying capital. I'm sure Zach will add to this and in order to -- in order to push the go button on Stage 3, we need to meet all of the criteria that we've laid out of return of capital on the fully contracted basis, the types of returns that we want to see as well as the percentage contracted both for the project and for the overall portfolio. But we are quite optimistic that this is the right point in the cycle as the supply wave ebbs, and we've already seen what the market can do in the short and medium-term.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, guys. Much appreciated.

Operator

Thank you. We'll hear next from Ben Nolan with Stifel.

Ben Nolan -- Stifel -- Analyst

Yeah, hi. So I have, well on my first one just relates maybe to Jack something that you've mentioned in terms of your priorities. And one of the things that you'd said was continuing to prioritize growth, and you were just talking about Corpus Stage 3. Is that and when you're thinking about prioritizing growth does that really equate to Corpus Stage 3 or maybe are there other things that are also serving that bucket that you maybe could elaborate on?

Jack A. Fusco -- President and Chief Executive Officer

No, I think that Corpus Stage 3 will be one of the most economic projects ever on for U.S. LNG. And as you know, we will be able to leverage our existing infrastructure there and but that's a significant amount of organic growth, that's 10 million tonnes, in fact 2 more trains effectively Cheniere trains for us. So, as you know, we're finished basically with Train 8. We're doing some fine-tuning and then it will be handed off to us. Train 9 is way ahead of schedule, that's Sabine Pass 6 and we'll be looking for 10 and 11. But as Anatol said, we'll be very disciplined. We have a lot of access in the portfolio that we'd like to get termed out and but we're very hopeful that there is a huge demand worldwide for the product.

Ben Nolan -- Stifel -- Analyst

Okay, that's helpful. And then, as my follow-up. Just maybe from a macro perspective, a lot has happened really even in the last few months, we've seen this huge differential between the price of Henry hub and the prices internationally that you guys have talked about and any of all that has crazy weather that's going on and limitations to gas export and also major expansions from Qatar and other places. Maybe Anatol or Jack whoever, could you maybe talk through if -- how if any, the market has changed with respect to maybe your customers appetite to buy from the U.S., has it improved or not relative to sort of all of the rest of the competition elsewhere in the world?

Jack A. Fusco -- President and Chief Executive Officer

I would say Ben first, when customers buy LNG from Cheniere, they're not only buying flexible, reliable LNG to meet their energy needs, right? They're buying stability and the sanctity, right of the U.S. regulatory framework and the U.S. will along. So I would say, here, recently that that we've seen an increase in our customers' wanting to access to U.S. LNG and Cheniere LNG more specifically.

I don't know. Anatol, will you want to add?

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Yeah. Just Ben to add to that, as we looked into our crystal ball in '18, '19 and '20, we saw the record year of FIDs that was '19. And then, as we've discussed with you guys, we saw another potentially record year in 2020. We now know that that of course did not happen and even against that backdrop, we were quite constructive on the LNG market medium to long term.

Now we are in a position, where 2020 saw the lowest number of FIDs since '97 and whatever is FID now, the Qatari mega projects were always in our -- in our SMB balances going forward. The next 2 trains of the Qatari expansion are in our balances going forward as are a number of other projects, and we still see a substantial incremental need to meet growth as well as to offset the declines in the -- in the legacy supply portfolio. We think there are decades and decades of LNG growth ahead of us. And as Jack said, we dealt the great hand with the expansion opportunity, with the track record that our ops marketing and shipping teams have provided, and our customers again enjoy this reliability and price stability that is going to be a major part of lots of portfolios as they meet their energy needs going forward.

Ben Nolan -- Stifel -- Analyst

Okay. I appreciate it. Thanks guys.

Operator

Thank you. We'll hear next from Jeremy Tonet with JP Morgan.

Jeremy Tonet -- JPMorgan -- Analyst

Hi, good morning.

Jack A. Fusco -- President and Chief Executive Officer

Good morning, Jeremy.

Jeremy Tonet -- JPMorgan -- Analyst

Just want to start off real quick. With the Pre-commissioning cargoes, if you could help us out there. The 22 TBtus, are you able to kind of share with us the kind of the quantum of the value there, if that was done into the spot market that could be a bigger number and just if you could refresh us whether that shows up in EBITDA or free cash flow, trying to make sure we get that straight.

Zach Davis -- Senior Vice President and Chief Financial Officer

Hey, Jeremy, it's Zach. So, yeah. I'll give you a little more insight on that. So you won't see those figures from commissioning show up in P&L. So they instead they offset capex for the project. So they're not showing up in EBITDA or DCF, but those were actually the -- the few cargoes that we really left opened going into Q1, considering the uncertainty that comes with commissioning Train 3.

And based on our latest estimate, I'd say it's adding over $100 million or so to cash flow to our balance sheet, it's just based on where those margins were at that time. I mean, if you think about our free cash flow where it does show up we said that was around $1 billion or so last quarter. We're comfortably above $1 billion at this point. Thanks to that and the improvements in overall EBITDA.

Jeremy Tonet -- JPMorgan -- Analyst

Got it. $100 million. That's helpful for sure. Maybe just kind of pivoting over to the storm, and I was just curious if you could share a bit more color on what happened there? I think, glad to hear everything is all right with everyone there. But I think there's a lot of concern in the marketplace with regards to how this might impact your business model, but it seems from what you've said, there is no material impacts there. I'm just wondering if you could expand a bit more how you were able to do that, despite operationally -- despite these headwinds.

Jack A. Fusco -- President and Chief Executive Officer

Yeah, well, thanks Jeremy. And I have to tell you it was a extremely trying time and I'm looking at everybody in the room, not only on this call but we were with us, power, water and heat. I personally for a little over three days and I know Zach was close to the week without any of the three. And so, it is good to have 70-ish degrees in Houston today and some normalcy. But we -- when it became clear to us that this was going to be a historic weather event and that there was a real crisis on human needs for heating and power, we wanted to be part of the solution, not part of the problem.

So we actually called Corpus Christi offline on Sunday night. There was a power frequency drop in the area that took Corpus out and then things got really cold and very, very fast.

So we worked closely with the state and local officials with the upstream producers, with the producers and with the midstream infrastructure providers to make sure that the gas that would have went to Corpus stayed in Texas and stayed on those pipes, and went to human needs and areas like hospitals and homes. So we -- but that's the few customers that we were going to lift at Corpus, most of them were willing to move to Sabine Pass. As you know, the Louisiana did not have the issues that Texas was experiencing, and came back fairly quickly from the cold event as far as as power and water, etc. and we were able to load them at Sabine and cover that demand from the customers.

But we've had...as I said...

Jeremy Tonet -- JPMorgan -- Analyst

Okay.

Jack A. Fusco -- President and Chief Executive Officer

We've got eight trains up and running, 6.2bs going to the facilities and were back at normal operations.

Jeremy Tonet -- JPMorgan -- Analyst

Got it. That's helpful. I'll stop there. Thanks.

Operator

Thank you. We'll hear next from Spiro Dounis with Credit Suisse.

Spiro M Dounis -- Credit Suisse -- Analyst

Hey, good morning, guys. Zach, first one is for you. Just want to come back to capital return, mentioned it again and perhaps we have clarity later this year. I just want to get more color on that front. Not to put it down, but in the interest of setting expectations, I guess is the plan to announce something later this year with implementation in 2022. Could we actually see something in terms of capital return this year, and then just a tag along to that, you highlighted several factors that are going to decide that the timing and magnitude, balance sheet is one that certainly within your control. So just curious what the metrics are that you're looking for there by year-end? I assume investment grade is maybe one of the gating items.

Zach Davis -- Senior Vice President and Chief Financial Officer

Yes. So everything I'll say today is pretty consistent with what we've told you in the previous quarters. But we'll come back in the second half with a more comprehensive plan. To-date, we pretty much given you a year-by-year update and we see line of sight that finally getting to the nine trains operational in '22. So when we do come back to you later this year, it will be based on that over $12 billion now of available cash over the next five years and how we plan to deploy that methodically for that period of time.

But whether a capital return if this year or next year, we'll give you that type of, yeah, that type of update at that point. But it's definitely part of the strategy, and with having over $1 billion of free cash flow now this year, you can expect that $500 million of debt paydown is the bare minimum, and there's going to be still left over money for other capital allocation goals.

Spiro M Dounis -- Credit Suisse -- Analyst

Got it. That's helpful. Second question just on the medium-term deals that you announced. Sounds like you plan to continue to contract along those lines. I just wondering could you just remind us again how are you thinking about a target percentage of the overall portfolio when it comes to contracting, and then to what degree the agencies have maybe set -- the ratings agencies, that is set lease target for you? Is that also a factor as you approach investment grade? Did do want to see a bigger contract book?

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Thanks, Spiro, its Anatol. Just to start as we've said to you, as we get into kind of steady states and have a very good feel for what our ops guys can do, we are targeting 90% contracted for the portfolio overall, and the medium-term volumes will certainly be a portion of that. And as Jack discussed earlier, our flexibility -- the flexibility that we need to maintain with the system, and the ability to respond to some of these punches in the mouth, means that we're also comfortable with that 5% or so remaining open on a forward basis. So 90% plus mid-term will be a key part of that. We've got good traction on that. It's another arrow in our commercial quiver and and we'll continue to add to that portfolio.

Jack A. Fusco -- President and Chief Executive Officer

And I'll just add even on those mid-term deals, they don't change our guidance whatsoever. They are in our range of what we want for our capacity. But the beauty of it is on a downside case, it's still there. So bringing up the downside case even more so.

The rating agencies do give us some credit, not maybe in our range, 2 to 250 for the open capacity, but they give us some credit. But basically, it's around $5.5 billion of consolidated EBITDA in a couple of years, and we need to get under five times. We have $31 billion of debt. So that $3 billion to $4 billion of debt paydown is still the right number. But that's as simple as it should be for us. We will just complete the trains, and follow through with the capital allocation.

Spiro M Dounis -- Credit Suisse -- Analyst

Got it. Thanks for the time guys. Be well.

Operator

Thank you. We'll hear next from Julien Dumoulin-Smith with Bank of America.

Anya Shelekhin -- Bank of America -- Analyst

Hi, guys. This is Anya Shelekhin on for Julien. So I was just wondering what drives the high versus the low end of the news and when that change. Just asking because you reduced the EBITDA sensitivity to around $250 million for marketing margin. But then you maintained that $300 range for the guidance. What are the variables are there because of the timing on that could impact the high versus the low end?

Jack A. Fusco -- President and Chief Executive Officer

Sure. I think it's just consistency that we keep a $300 million range. I mean it's less than 10% of the overall EBITDA. But you can assume that it's around the midpoint of that range. And again, we're literally less than two months into the year, and we raised our guidance by $200 million, and that's really thanks to the CMI team of locking in more of those cargoes, meaning that we're over 95% contracted and then obviously our E&C and operations team getting ready to bring Train 3 to operations. But the variables are, we're still in commissioning. We still have 50 TBtu open, and we're going to really have to just see how the year plays out and we can give you more precise guidance in future quarters.

Anya Shelekhin -- Bank of America -- Analyst

Okay. Thanks. I was just wondering if I'm missing anything there. And then second, as a follow-up. I wanted to ask about the bottle-necking efforts. I think your latest update is in 4.9 to 5.1 and preference as target. Could you talk a little bit more of opportunities there and then you can expect to get to sort of a full run-rate impact, and is there upside to that at all?

Jack A. Fusco -- President and Chief Executive Officer

There is upside to it. So the first guidance that we gave was based on a lot of low hanging fruit, without additional investments in the infrastructure, and now we'll be evaluating on what when investments that we would like to make to the existing facilities, to possibly get more output out of them. So there'll be more to come on that, but it will be in lockstep with our guidance in our capital allocation discussions.

Anya Shelekhin -- Bank of America -- Analyst

Okay, sounds good. Thank you.

Operator

Thank you. We'll hear next from Sean Morgan with Evercore.

Sean Morgan -- Evercore Inc. -- Analyst

Hey, guy. Just going back to this CE tags that you've introduced on Slide 7. I think this is CO2 mitigation solutions. So I'm wondering is that actively capturing carbon and storage or that's still under investigation. And if you look into that all, what sort of price would that imply and how do you kind of put that in the context of offering a solution that as you mentioned that Corpus Christi Phase 3 that's going to be the most competitive in the U.S., sort of the balancing those two factors.

Jack A. Fusco -- President and Chief Executive Officer

So there is a whole lot in that question that you probably didn't realize. But the first one was the CE tags are different than carbon sequestration, so the CE tags are our ability to basically give a carbon footprint, per specific cargo to our customer. So every time that a Cheniere cargo either is purchased FOB, so at that flange or whether it's delivered that there will be a carbon footprint of what the carbon, the CO2 equivalent offsets need to be for that carbon to make it carbon-neutral. Okay.

Sean Morgan -- Evercore Inc. -- Analyst

Yeah.

Jack A. Fusco -- President and Chief Executive Officer

That tag, it's not as easy as it sounds, right? We -- today on the 6.2 Bs that we bought today, we bought from 68 different counter parties on 15 different pipelines. So that is not an easy exercise, right? Because as you know every producer, every pipe maybe has a little different footprint-- carbon footprint, and we hope over time that we're going to get better and better at these tags. And then, our customers will be able to see more transparently how we're calculating it and what's all encompassed in it and then we can start managing it more appropriately.

The different lifecycle elements of the value chain of LNG. So that's the announcement with the carbon tags or the CE tags -- the cargo tags or the CE tags that we announced this morning. We are constantly evaluating other improvements to our overall emission profile, carbon sequestration is one of them. As you may or may not know, Stage 3 at Corpus Christi is electric-driven compression, not gas driven compression. So it's emissions profile looks a lot different than our existing trains.

If we buy renewables power to back-up the power consumption there, that profile looks significantly better. So we are constantly evaluating how we can make ourselves more environmentally friendly to make the product more sustainable and get to where people are talking about now gas and LNG is what we believe, which is part of the solution overall.

So, did I answer the question for you, or I wasn't?

Sean Morgan -- Evercore Inc. -- Analyst

Yeah. No, I think that's helpful. I guess -- so you probably haven't got to the stage yet where you're just monitoring and figuring out how to basically explain your customers that the total carbon emissions chain, but have't priced out that's necessarily a mitigation yet because it's still early stages.

Jack A. Fusco -- President and Chief Executive Officer

Yeah. Yeah, there is a -- we've got to walk before we can run. There is a lot of misinformation out there. The initial lifecycle analysis that was done in 2014 from the National Energy Technology Laboratory has numbers that are quite a bit higher than what we think our actual carbon emissions or greenhouse gas emissions profile really is. So we want to make sure that that we get the right information out there as soon as we possibly can.

Sean Morgan -- Evercore Inc. -- Analyst

Yeah, yeah, and I certainly don't want to take anything away from this effort, because it's unique and I think it's going to help everyone in the marketplace. So and then just really quick follow-up. On the bonds, obviously that's a pretty impressive 2.95% print. Are you seeing similar excitement on the project finance side beyond just refinancing for Phase 3 and terms, you might be able to improve upon previous FIDs?

Zach Davis -- Senior Vice President and Chief Financial Officer

Absolutely. I think a question being if we can raise attractive project financing, our term loans for Stage 3. Yeah, that -- to say that we're confident on that is an understatement considering, we went through the pandemic and raised over $2.5 billion at pretty attractive rates last year.

So that that won't hold us back, but that goes with having a bank group of 40 plus banks have supported us for almost a decade and obviously all the capital markets activity that we do to keep on bringing them down and manage their exposures.

Sean Morgan -- Evercore Inc. -- Analyst

Okay. Thanks, Zach.

Operator

Thank you. We'll take our next question from Michael Blum with Wells Fargo.

Michael Blum -- Wells Fargo -- Analyst

Thanks, good morning everyone. Just one point of clarification on the guidance. The increase in '21 guidance, is that driven by the newly signed mid-term deals or have you just locked in more cargoes for the coming year via CMI or I guess if it's both, can you give us a rough sense of the relative contributions? Thanks.

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

It's really the latter. And CMI just went to work on hedging, as the market went up and putting like physical cargoes to bad at fixed prices. There are few cargoes in there from the medium-term deals. But majority it was really CMI, yeah been quite active literally starting the day we gave guidance last year.

Michael Blum -- Wells Fargo -- Analyst

Great. That's all I had.

Jack A. Fusco -- President and Chief Executive Officer

Thank you, Michael.

Operator

Thank you. We'll hear next from Alex Kania with Wolfe Research.

Alex Kania -- Wolfe Research -- Analyst

Hi. I guess a follow-up question on the carbon tags. I guess, do you think just high level that it's a competitive type of disclosure relative to maybe what other alternative LNG sources globally might be. So as a competitive edge versus is this a sense to try to get more transparency? And then I guess the second question would just be any kind of sense early on in the Biden administration about kind of changes in tone on trade policy or whatnot and I'm just thinking about again the potential market for China. I know, of course, you did a little bit late last year, but just curious if that's an avenue that might be seen more open now than before?

Jack A. Fusco -- President and Chief Executive Officer

Okay. So first, I do view this as a competitive advantage for us. I think there's a lot of misinformation out there of what of the emissions profile for U.S. LNG. And I think as we begin to discuss in international workshops what our methodology, and we try to make it more transparent, so we put everybody else on the same level playing field. I think we're going to find out that U.S. LNG can be very competitive and Cheniere's LNG extremely competitive worldwide in helping with some of these countries environmental aspirations.

In regards to President Biden, we're -- we have a very strong relationship, Cheniere does in China already and in all of Asia, we have a great office. There we've sold quite a few cargoes, here recently on the spot market to China and we're hopeful that that relationship between the two countries can continue to improve and hopefully we will be back at the table for more long-term contracting capabilities. Do you have anything to add?

Alex Kania -- Wolfe Research -- Analyst

Thank you.

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Just, you see the numbers for China, 21 million tonnes in the fourth quarter continues to be the primary engine of LNG market growth. And as Jack said, we have terrific commercial engagement and everything we see today from the administration is supportive of LNG exports. And of course we received our export licenses when President Biden was Vice President Biden so expect good opportunities ahead.

Alex Kania -- Wolfe Research -- Analyst

Thank you.

Operator

Thank you. We now take our final question from Jason Gabelman with Cowen.

Jason Gabelman -- Cowen -- Analyst

Yeah. I just wanted to clarify one point. Of the 90% plus, that you want to term up across the portfolio, how much is left to term up after you've signed this 4 million tonnes of mid-term contracts?

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

This is Anatol. So the 4 million tonnes is over time, right? That's the aggregate volume of those two transactions.

Jason Gabelman -- Cowen -- Analyst

Right.

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

They are modest in size. So it doesn't move the needle appreciably relative to the overall 45 million tonnes portfolio. But as we continue to have success with that mid-term offering, it will add percentage points. It will not be the major driver of getting us into the -- of course ultimately stage Corpus Christi Stage 3 FID. But, it is a -- as Zach said a nice component to derisking and augmenting the commercial offerings.

Jack A. Fusco -- President and Chief Executive Officer

Yeah. And in terms of run-rate, we are around 85% contracted, maybe this gets us to 86%. But that's about it. There's still 1 million tonnes we want to lock-up.

Jason Gabelman -- Cowen -- Analyst

Great, thanks.

Jack A. Fusco -- President and Chief Executive Officer

Thanks, Jason. And thanks everybody for your interest in Cheniere. Be safe.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Randy Bhatia -- Analyst

Jack A. Fusco -- President and Chief Executive Officer

Anatol Feygin -- Executive Vice President and Chief Commercial Officer

Zach Davis -- Senior Vice President and Chief Financial Officer

Christine Cho -- Barclays -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Ben Nolan -- Stifel -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Spiro M Dounis -- Credit Suisse -- Analyst

Anya Shelekhin -- Bank of America -- Analyst

Sean Morgan -- Evercore Inc. -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Alex Kania -- Wolfe Research -- Analyst

Jason Gabelman -- Cowen -- Analyst

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