Yahoo Finance Cheniere Energy Inc (LNG) Q4 2018 Earnings Conference Call Transcript
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Cheniere Energy Inc (NYSEMKT: LNG)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning and welcome to the Cheniere Energy Incorporated Fourth Quarter 2018 Earnings Call and Webcast. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Randy Bhatia, VP of Investor Relations. Please go ahead, sir.
Randy Bhatia -- VP of Investor Relations
Thanks, operator. Good morning and welcome to Cheniere Energy's Fourth Quarter and Full Year 2018 Earnings Conference Call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me for today's call are Jack Fusco, Cheniere's President and CEO, Anatol Feygin, Executive Vice President and Chief Commercial Officer and Michael Wortley, Executive 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 non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in the appendix of the slide presentation. As part of our discussion of Cheniere Energy Inc'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 an overview of our 2018 operating and financial highlights and perspective on 2019 and beyond. Following Jack's comments Anatol will provide an update on the LNG market and Michael will review our financial results. 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 Fusco -- President and CEO
Thank you, Randy and good morning everyone. I'm pleased to be here this morning to review our significant accomplishments from a very successful 2018. To share my optimism for the continued success as we look forward to 2019 and beyond. 2018 was a truly remarkable year for Cheniere. On last year's call I described 2017 as our breakthrough year which is certainly was. In 2018, we maintained our momentum achieving excellence in reaching new heights in virtually all phases of our business.
From commercial success achieved by signing over 7 million tons per year, a new long-term SPAs. To the FID of Corpus Christi Train 3 in May and the start up of Corpus Christi Train 1 few months later. To continued financial discipline and simplification of our corporate structure. We've achieved those and much more and in doing so have cemented our reputation as a reliable full service LNG operator which delivers on its promises to its customers, employees and stakeholders.
In 2018, we executed on our strategic growth plans, operational plans and financial plans and the results of our execution are apparent in the financial results we reported earlier this morning. Slide 5 presents some key highlights of the fourth quarter 2018. There are a couple of achievements I'd like to highlight from this slide. We generated consolidated adjusted EBITDA of over $630 million and the the distributable cash flow of approximately $130 million. And produced and exported a record 80 cargoes on the quarter almost a cargo a day. In addition, we reached the commissioning milestone of our first cargo at both Train 5 at Sabine Pass and Train 1 at Corpus Christi.
As of year-end we had exported four commissioning cargoes from Train 5 at Sabine Pass and two from Train 1 at Corpus Christi. Our substantial commercial momentum continued in the fourth quarter, as we signed long-term SPAs with both Polish oil and Gas Company and Petronas for over 2.5 million tons per year in aggregate. We look forward to successful long-term relationships with our newest SPA customers and expect these SPAs to support our growth plans.
The market for LNG contracting remains active and we continue to pursue additional long-term commercial arrangements with new and existing counterparts worldwide. Turning now to slide 6, a look of some of 2018s most notable highlights. Financial results for the first year 2018 came in at the top end of our guidance ranges for both consolidated adjusted EBITDA and distributable cash flow. As we generated more than $2.6 billion in consolidated adjusted EBITDA and approximately $600 million in distributable cash flow for the full year.
Michael will cover these results in more detail. But our financial performance in 2018 improved throughout the year. And we are pleased to deliver full-year financial results at or above our upwardly revised guidance range. In 2018, we executed two important market transactions that I'll highlight briefly. First, we closed the merger with CQH in which we opportunistically and economically, simplified our corporate structure. Our corporate structure remains complex and we would prefer to be simpler, however, we will remain opportunistic and only pursue further simplification transaction to the extent they are economic LNG shareholders.
In addition to the CQH transaction in 2018, we also refinanced the remaining term loans at CQP into the bond market. Economically addressing the nearest term maturity in our complex and further demonstrating our commitment in managing our balance sheet throughout the corporate structure. Operationally in 2018, we produced and exported a total of 273 cargoes which required over 1 quadrillion BTUs of gas to our terminals. Our teams in gas supply and operations made the significant operational and logistical achievement look easy and their dedication and commitment to excellence are significant contributors to our reputation as a reliable operator.
Strategically 2018 was an incredible success, as we made a positive final investment decision on Train 3 at Corpus Christi and originated over 7 million tons per year of new long-term SPAs, giving us sufficient visibility on Train 6 at Sabine Pass that enables us to finalize the EPC contract. An issue limited notices to proceed on that project late last year. Having that project under way, the limited notice to proceed is strategically important for us. As we have cost and date certainty on Train 6 ahead of a formal FID which is where efforts are concentrated today.
The FID of Train 6 is one of my key priorities for 2019 which I'll address on slide 7. On this slide I have included a few key priorities which highlight that our focus remains centered on growth, execution and being disciplined toward the capital. We are focused on completing the remaining steps necessary to achieve FID of Train 6 which we expect to occur over the coming months. As we have previously communicated we expect to finance Train 6 with approximately 50% debt and 50% equity, which is consistent with our strategy of deleveraging through growth.
Ahead of that FID, Bechtel is hard at work on Train 6 and making excellent progress at its scope of work. Bechtel now estimates that Train 6 is approximately 14% complete, highlighted by over that 3300 piles already driven as part of the site preparation. Beyond Train 6, we are focused on progressing Stage 3 at Corpus Christi through the permitting process which we are permitting for approximately 9.5 million tons of additional LNG capacity. This project is moving through the process very well. We expect to have all the required regulatory approvals in place by the end of 2019.
We expect to bring three trains into commercial operations during 2019. Train 5 at Sabine Pass and the first two trains at Corpus Christi. As we have done with all the trains to date, we expect these three to be brought online safely, ahead of schedule within budget. Completing commissioning and start-up as well as commencing long-term contracts associated with new trains, is a significant undertaking and requires a tremendous amount of work and coordination among Cheniere, our EPC partner Bechtel in our foundation customers.
These efforts are especially critical for 2019, as we will be starting up three trains and commencing long term SPAs for Train 5 at Sabine Pass, Train 1 at Corpus Christi and I am focused on maintaining our track record for seamless transitions from construction to operations. The performance test for Train 1 at Corpus Christi has been successfully completed and we expect substantial completion to occur in the next few days.
Last priority, I'd like to highlight is our plan to communicate the capital allocation policy. This is a high priority for the executive team who are working closely with our advisors and our Board of Directors to ensure we develop a durable flexible policy that enables us to allocate capital. The most effective impactful way for our shareholders. We look forward to communicating it to the investment community in the coming months. As I said earlier, 2018 was a remarkable year for Cheniere. And we are proud of the accomplishments we achieved throughout the year, we have many more successes we're pursuing both in 2019 and beyond. And my confidence in our ability to continue delivering on our promises underscored our people and the relentless focus on execution that continues to define Cheniere. And now, I'll turn it over to Anatol, who will provide an update on the market.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Thanks, Jack, and good morning everyone. Please turn to slide 9, 2018 was a banner year for LNG in many regards. Globally 9 Trains started service increasing global supply by roughly 30 million tonnes. The largest year-on-year increase since 2009 when Qatar began to bring its mega trains online. New and expansion trains in Australia, Russia and the U.S. push total global supplies over the 320 million tonne mark, according to preliminary data. In the U.S., exports from our facilities totaled nearly 19 million tons during the year, a 33% increase over 2017. The Sabine Pass Train 4 started commercial deliveries in March and Train 5, which is currently undergoing commissioning exported its first cargo in November. Also in November, we saw start-up of the first greenfield LNG terminal in the lower 48 U.S. as Train 1 at our Corpus Christi facility started producing LNG and exported two commissioning cargoes before the end of the year.
We expect LNG production from our facilities and others in the U.S. to continue ramping up in the coming months and contribute to further enhancing the reliability, flexibility and liquidity of the global LNG market. Strong global LNG supply growth was met with robust demand in 2018, that led to some late year market rebalancing. Demand growth in Asia absorbed virtually all of the incremental supply, the step up in global production, especially in the fourth quarter when the global complex added more than 10.5 million tonnes year-on-year. Ensured adequate supply availability for Asia and the rest of the world as mild winter temperatures kept price spikes in check and supported an uptick in imports into Europe which added over 4 million tonnes year-on-year in 2018.
The graph on the top right displays the fourth quarter of 2018 demand compared to that what we saw in fourth quarter of 2017. As you can see China along with the rest of Asia had strong year-on-year increases in imports. For the month of November, China overtook Japan as the world's top importer although the position went back to Japan in December. Total European demand increased nearly 7 million tonnes in the quarter, which as I mentioned was partially supported by mild weather in Asia, new LNG supply coming online and high shipping rates that incentivized Atlantic source cargoes to target Europe.
I'll come back to weather in Europe in just a minute. Global gas price benchmarks in the fourth quarter saw higher levels and increased volatility compared to the same period in 2016 and 2017. However, even with a brief spike in Henry Hub prices in December. The U.S. benchmark continue to trade at a heavy discount compared to other global gas price indices. Despite a mild winter and a reduction in the storage deficit seen earlier in the year. TTF prices traded more than a $1.50 higher than levels seen during the same time a year ago.
Similarly, fourth quarter Asian spot prices settled at more than $3 higher on average year-on-year though the premium decreased over the course of the quarter. Please now turn to slide 10. More than 20 countries, almost half of all LNG importing countries had record annual LNG import levels in 2018 including China, South Korea, India and Pakistan. In addition to record import levels China and Pakistan also set records for LNG demand growth rates in 2018.
The graph to the far left highlights how remarkable China's demand has been over the past two years. China alone absorb more than 50% of the worldwide incremental supplies in 2018 adding 16 million tonnes above the 2017 level. China remains an important demand center for our product and the country's need for natural gas and LNG is expected to continue to rise as the country balances its economic growth needs and environmental commitments.
South Korea's steady demand over the last two years has also been impressive. Demand growth was largely due to low nuclear utilization as well as lower coal-fired power generation resulting from policies intended to improve air quality. Looking ahead to 2019 for South Korea, LNG consumption taxes are set to decrease while coal taxes are set to increase which of course is expected to be supportive of LNG demand. Pakistan which began importing LNG in 2015 has shown consistent in growing demand and regasification build-out in the early 2020s could make Pakistan a significantly larger importer than it is today.
The middle graph shows the total accumulation of population weighted heating degree days for the heating season in Asia. Populous areas of East Asia have seen mostly minor cold spells this winter and the month of January finished on an extremely mild note. Asia's heating degree days an indicative of factor of weather-driven demand ran close to average at best for much of the early part of the winter. Nonetheless, prices remained fairly robust, compared to last year. The graph on the far right shows spot prices in relation to crude oil for the past three years. Price levels in the first half of '18 were higher than in 2017 and particularly more bullish from June to November probably due to China's early buying ahead of the winter in order to secure more LNG and avoid shortages and price spikes in the winter.
High Asian LNG storage levels, combined with the arrival of new supply in the fourth quarter and a fairly mild winter resulted in more moderate prices in the fourth quarter. Please turn to slide 11 where I'll highlight the European market. LNG imports to Europe reached record levels in December. European LNG imports during the first three quarters of 2018 were actually lower year-on-year. But the fourth quarter showed very strong levels for a number of reasons. Storage levels were at a 17-year low after the 2017-18 winter in Europe leaving the region to play catch-up throughout the year.
The relative tightness in the global LNG market through the first three quarters left limited opportunities for storage replenishment. Early buying and mild temperatures in Asia left that region adequately supplied and elevated shipping rates. High coal and carbon prices and an uptick in global LNG production incentivized flows into Europe in the fourth quarter. Nuclear maintenance and domestic supply declines also supported imports. The middle graph shows a total accumulation of population weighted, heating degree days for the heating season in Europe through January 24.
Europe has also seen mild weather this winter, particularly in December making the regions heating degree days below average in the fourth quarter. Cooler temps in the back half of January have helped bring Europe's temperatures closer to average for the season which should help with the weather sensitive demand. However, given all of the factors encouraging LNG flows into Europe, we do not view the increase is entirely weather driven.
The graph on the far right displays storage levels on the left and TTF prices on the right axis. As mentioned earlier, the store situation Europe faced coming out of the winter of 2017 exerted upward pressure on TTF prices. Europe entered the third quarter with storage levels near the bottom of the 5-year range which contributed to upward pressure on TTF prices. In the fourth quarter, prices were still more than $3 an MMBTU, higher the level seen in the fourth quarter of 2017. Although they have moderated particularly after October settlement.
Europe is undergoing a structural shift in the overall dynamics of its gas market, which makes it an increasingly attractive region for both our long-term and shorter term LNG strategies. There is debate in Europe heightened in recent weeks about limiting coal use and achieving climate targets that could have a significant positive impact on Europe's appetite for LNG in the longer term. In the near term a number of the issues that were in play in the fourth quarter could remain in 2019. Potentially, resulting in continued robust European LNG imports again this year. I'll now turn the call over to Michael to review our financial results.
Michael Wortley -- Executive Vice President and Chief Financial Officer
Thanks Anetol and good morning everyone. Turning to slide 13 for the fourth quarter, we generated net income of $67 million consolidated adjusted EBITDA of $634 million and distributable cash flow of approximately $130 million. Our results for the quarter were positively impacted by higher than forecast LNG volumes and revenue and lifting(ph) margins. As well as lower than forecast O&M expenses. For the full year, we generated net income of $471 million consolidated adjusted EBITDA of over $2.6 billion, distributable cash flow of approximately $600 million.
As Jack mentioned consolidated adjusted EBITDA and distributable cash flow for the full year were both at the top of the revised guidance ranges we provided on our third quarter call. Exported 285 TBtu of LNG from our liquefaction projects during the fourth quarter, of which 21 TBtu were commissioning volumes. Total volumes exported were higher than exports in the third quarter due to commissioning volumes from Sabine Pass Train 5 and Corpus Christi Train 1 and higher seasonal production from the four trains in operation at Sabine Pass.
Approximately 72% of the volumes exported during the quarter are 260 TBtu were listed by our third party long term SPA customers and the remaining 79 TBtu were lifted by our marketing functions. Long-term SPA customer volumes were consistent with prior quarter and marketing volumes were higher due to increased production and commissioning volumes. The full year and we exported 976 TBtu from our liquefaction projects, of which 21 TBtu were commissioning volumes. Approximately 77% of total volumes 756 TBtu were lifted by a third-party long term SPA customers and 220 TBtu were lifted by our marketing functions.
In the fourth quarter, we recognized an income 242 TBtu of LNG produced at Sabine Pass, consisting of 263 TBtu loaded during the quarter, plus 3 TBtu or one cargo loaded in the prior quarter, but delivered and recognized in the current quarter. Last 25 TBtu or 7 cargoes sold on a delivered basis that were in transit as of the end of the fourth quarter. We also recognized an income 40 TBtu or 12 cargoes of LNG that were sourced from third parties. The full year, we recognized an income 973 TBtu of LNG produced at Sabine Pass and 84 TBtu of LNG that were sourced from third parties. Five commissioning cargoes from Sabine Pass Train 5 in Corpus Christi Train 1 totaling 17 TBtu of LNG were recognized on our balance sheet as an offset of $140 million to LNG terminal construction in progress during the fourth quarter. One commissioning cargo exported during the fourth quarter was on the water at year-end and will be recognized as an offset to construction in progress during the first quarter of 2019.
Net income attributable to common stockholders for the fourth quarter was $67 million or $0.26 per share consistent with the third quarter. Increased operating income due to additional LNG volumes recognized in revenue was offset by increased derivative loss related to interest rate swaps. Full year 2018, we generated net income attributable to common stockholders of $471 million or $1.90 per share on a diluted basis. An increase of more than $860 million from a net loss of 393 million in 2017.
Increase in net income was primarily due to increased income from operations as a result of additional trains in operation at Sabine Pass. Decreased loss on modification or extinguishment of debt, increased derivative gain and decreased net income attributable to non-controlling interests, partially offset by increased interest expense, net of amounts capitalized. During the fourth quarter we amended our existing revolving credit facility. Increasing total commitments to $1.25 billion and extending the maturity date to December 2022.
This undrawn revolving facility enhances our liquidity position and provides a backstop for Corpus equity funding obligations. Turn now to slide 14 where I'll review our 2019 guidance and touch on the highest priorities for 2019. Jack mentioned earlier, we remain focused on delivering results and today we are reiterating our full year 2019 consolidated adjusted EBITDA guidance of $2.9 billion to $3.2 billion. A distributable cash flow guidance of $0.6 billion to $0.8 billion. We are also reconfirming our full year 2019 CQP distribution guidance of 235 to 255 per unit.
Our actual results could be impacted by changes to train completion timing or LNG market pricing. Before turning the call over to Q&A, I'd like to briefly review our top three financial priorities for 2019. First is to achieve financial results within these guidance ranges. Second priority is to complete the debt financing transaction for 50% of the total cost of Sabine Pass Train 6. (inaudible) that process and it is an essential step prior to reaching FID. Jack also mentioned this that our final key priority for this year is to develop and communicate capital allocation strategy. A process, which has been under way for several months now.
As we have previously indicated, we expect our capital allocation plan to support our ability to invest in growth, enable us to maintain investment grade credit metrics at the projects and ensure that consolidated leverage is at an appropriate level and return capital to shareholders in a way most appropriate (inaudible) our shareholders. We expect to communicate this policy to the investment community in the coming months. 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 now take our first question from Christine Cho from Barclays. Please go ahead.
Christine Cho -- Barclays -- Analyst
Good morning, everyone.
Michael Wortley -- Executive Vice President and Chief Financial Officer
Good morning, Christine.
Christine Cho -- Barclays -- Analyst
I know it's early for Corpus Christi Stage 3 and it depends on the contracts, but how are you thinking about targeted financing for it, especially as you are in the process of developing your capital allocation policy. Should we also think of it as 50-50 bet equity similar to Train 6?
Michael Wortley -- Executive Vice President and Chief Financial Officer
Yeah, Christine. It's Michael. That's how we're thinking about it, continue to deleverage through growth, with no more than 50% debt on all incremental projects and maybe you can bring that down over time.
Christine Cho -- Barclays -- Analyst
Okay and then I think on the last quarter call you said that 2.5 to 3 mtpa was the assumption for early cargoes this year. Has the contracting for this book increased since last quarter and how should we think about your strategy around this, as we move through the year? And should we still think $5 margin for the uncontracted portion, this is what we should assume?
Michael Wortley -- Executive Vice President and Chief Financial Officer
Yes, this is Michael again. So I think the number is more like 6 million tonnes. I think is of post COD volumes with another 1.5 million on top of that a commissioning volumes which won't hit the P&L. I don't know exactly how the portfolios evolved over the past few months, but certainly we've been selling one thing to keep in mind is we don't like to sell volumes until we know we have them, right until we go through this commissioning process. There's always uncertainty about exactly when the train is going to come on. So we don't want to get out of our skies having placed a lot of volume prior to getting the train.
So with that starting to become behind us as Jack mentioned Corpus passed the performance test recently. So we have more certainty there. So the guys will definitely be more active in putting those volumes away. In terms of market you guys can all see the screen like we can. I told you for the unsold piece of our portfolio we were assuming $4.5 to $5.5 margins when we did our budget, three or four months ago. Clearly that has come in, probably almost $2 and so we gave you that sensitivity on the last call that said, for every dollar move in margin it affect our EBITDA by $130 million. So you can do that math. So if we were in upper half of our guidance range three or four months ago certainly were lower in that range today, but still within it.
Christine Cho -- Barclays -- Analyst
Okay, thank you so much.
Operator
We'll now take our next question from Jeremy Tonet from JPMorgan.
Jeremy Tonet -- JPMorgan -- Analyst
Good morning. Just wanted to build on SPL 6 a little bit more here and see what else is needed for positive FID seems like a contractual support is largely there. Is it just lining up the financing and then also looks like the EPC contract price $2.5 billion is a bit lower than what you had pressed PL5 and just wondering what drives the deltas there.
Jack Fusco -- President and CEO
Hi, Jeremy. Thanks. SPL 6 we're extremely excited about as I mentioned on my talking points we've released Bechtel with limited notice to proceed. So we've locked in the price. We've locked in the schedule in regards to that and Bechtel is making extremely good progress as you know. There's a lot of synergies with having the workforce just roll off of five into six. Additionally, what you're seeing are with the cost of 6, we think it's extremely competitive just like Corpus Christi Train 3 and we were able to utilize not only the synergies of having the workforce, already mobilized in the equipment already there to move right into train 6, but also into utilizing some of the existing infrastructure that it affords us having the brownfield site. So we've got the infrastructure that was already built for the first five trains that we've rolled into Train 6 and that's part of the cost reduction. Michael, I don't know if you have anything to add.
Michael Wortley -- Executive Vice President and Chief Financial Officer
Yeah, I mean on the financing that we're progressing that as we speak. As I said on the last call, as Jack said, we have Bechtel working right there full speed ahead, we know price, we know schedule, we don't owe them a full mtpa until all of the summer. And so, as I said on the last call, we're just kind of waiting to see what contracts come in and what the best portfolio is to really attached to that train for financing purposes and since the last call you saw Petronas come in, it's a very clean FOB deal, which we like to put down at the project.
So we have three or four months to see what else comes in and then decide the optimum mix and close that financing. But that's not slowing us down in anyway because we're under way on Train 6 and then I'd add to Jack's comment on remember when we built Train 5, the first four trains leveraged a lot of infrastructure that we had at the regas facility all the utilities and things like that with Train 5, we had to really add all of that and we did that in anticipation of Train 6. So Train 5 was always going to be the higher cost train ,Train 6 was is far more attractive on a cost perspective, because so much infrastructure is in place from the Train 5. So yeah just like Train 3.
Jeremy Tonet -- JPMorgan -- Analyst
That's helpful, thanks. Just wanted to switch gears over to ESG seems like this is the greater focal point for the marketplace for investors going forward here. And we're just wondering if you could tell us how Cheniere thinks about these issues? How you're positioning yourself and how you guys see yourselves stacking up versus other energy infrastructure company?
Jack Fusco -- President and CEO
So we're very excited here recently organizationally, we were able to bring on a Fiji George who is from Southwest who's got a lot of experience in ESG type programs and he's been spearheading our effort, as well as Chris Smith, who is our Senior Vice President of External Affairs in Washington DC, and you all may know Chris he was Assistant Secretary of Energy under the previous administrations. So we think we need to be a leader in it as you know we feel like we're on the right side of the equation when it comes to ESG we think natural gas is the solution. It's economic, it's secure and it's sustainable and what you see around the world is a policy shift I think it's going to be a secular shift in the way energy is utilized worldwide and I think you're going to see natural gas and liquefied natural gas take a much more prominent role in that.
Well, we will be rolling out our ESG methodology and program here very, very soon. Anatol, do you have anything there?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
No, just exactly as you said, we're focused, we are looking to leverage our position on the gas procurement side as well as our ability to supply this clean reliable fuel to the rest of the world and have the rest of the world achieve that type of carbon dioxide reductions that the U.S. has enjoyed over the last decade.
Jeremy Tonet -- JPMorgan -- Analyst
That's all from me. Thanks for taking my question.
Operator
We'll take our next question from Michael Webber from Wells Fargo Securities. Mr Webber. Please go ahead, your line is open.
Michael Webber -- Wells Fargo Securities -- Analyst
Thanks. Hi, good morning guys, how are you ?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Good morning.
Michael Webber -- Wells Fargo Securities -- Analyst
Jack, just wanted to start off with you a market-based question, overnight we saw tensions escalate in Pakistan and India, because obviously I have some exposure there to India. I'm just curious, can you maybe you run the risk and the impact your business, can you maybe walk us through the impact theoretically of a force majeure there on your import contracts if we saw a replay of 1999 or a broader conflict. And then maybe I guess within the context of kind of walking through that -- volumes just gets put into the spot market and make them on the back end. I know it's early but seems pretty pressing so..?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Yes, there is no force majeure Michael right it's FOB, so our contract with GAIL they pick up at the flange as Sabine Pass, and they can take it wherever they want to take it and that's one of the benefits of the U.S. LNG and the Cheniere model. So from that perspective, we don't see anything meaningful one way or the other.
Michael Webber -- Wells Fargo Securities -- Analyst
Okay, that's it wouldn't be applicable to an FOB-based contracts that basically, what you're saying ?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
It's not, no we would expect them to honor their contract and we would enforce our contract but so far relationship with GAIL is extremely strong, and we will continue to try to meet their needs so.
Michael Webber -- Wells Fargo Securities -- Analyst
Okay now that's helpful I appreciate that. And then maybe just around the competitive dynamics in and around the U.S. Gulf I guess it's been again a bit more crowded in the last quarter or two with FID at Golden Pass and VG kind of knocking on the door I guess maybe a little bit more insight. I guess within the industry in terms of where those deals are getting done, do you have a better sense yet around whether you've been able to price or able to command a premium for your volumes relative to your peers in U.S. Gulf, and if so maybe kind of a vague sense on where you think that is ?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
So a couple of things, one, I think when you see a lot of other folks that want to have a position like Cheniere and then it just reconfirms that our business model, our position is second to none right worldwide and so I'm very, very excited about that as you know we were a first mover and we've executed extremely well right, you can compare us to just about everybody else in the U.S. and see that our construction effort has been second to none. Our operating ability in the hand off from construction operations has been second to none, our ability to produce real volume in a growing demand market has been second to none so I feel very good about our ability to execute.
And I do think our full-service model and our ability to deliver anywhere around the world has afforded us a slight premium to were the spot market is clearing today.
Michael Webber -- Wells Fargo Securities -- Analyst
Okay, thanks for the time guys. I appreciate it.
Operator
We'll take the next question from Craig Shere from Tuohy Brothers, please go ahead.
Craig Shere -- Tuohy Brothers -- Analyst
Good morning guys.
Hi Craig, Michael In May, 2018 at your Analyst Day I think you guided that on a 9 train program that you won't required to think about debt amortization out of operating cash flows at both the MLP, SPL level and also at the LNG Corpus Christi level to late 2020s, can you kind of share what maybe all equity funding of $300 a ton upsizing of all the liquefaction trains and the possible successful addition of a 50-50 Corpus Christi Phase 3, would do to that would push amortization requirements under the 20s and 30s ?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Yes, absolutely I don't know what the exact date is that we'd look to get into the details on that when we hit the road probably after our next call to roll-out capital allocation and Train 6, the Train 6 numbers and probably add some Stage 3 numbers into the whole model but absolutely I mean it's every piece of equity differs that amortization date.
Craig Shere -- Tuohy Brothers -- Analyst
Yes speaking of Phase 3, since Corpus Train 3, you signed four agreements with a total of five in a quarter mtpa which obviously is more than you could possibly need for 4.5 6, how much do you feel like you already have in the bag so to speak Corpus Phase 3 and what minimum percentage of the 9.5 mtpa, would you like to Train 6 contracted before perhaps an FID next year ?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Yes, I mean, we definitely have more contracts than we need for Train 6 for sure we've drawn down kind of some of our CMI inventory to service some of that, but the plan would be to, we would think that piece of our business competitive advantage to keep some capacity there. How much do we need on Stage 3 I think we're running a couple of cases, one where we built the whole thing and one where we built, half of it and certainly we're making our way toward at least building, half of it but not quite there yet so.
Jack Fusco -- President and CEO
And I would say, Craig, we're extremely excited about Corpus Christi, and our ability to expand, we think there are no constraints with the site, there's no constraints with natural gas pipeline capacity coming into the side, the amount of infrastructures is there and then our location to the Permian should be a real advantage -- all the way around so that we're not going to slow down on the growth side I think I've got some of the best originators in this industry, and we're going to capitalize upon that.
Craig Shere -- Tuohy Brothers -- Analyst
That sounds great. Jack, if I could kind of dovetail on the those comments do you see prospects related to Corpus Phase 3, for signing both supply and off take agreements linked to Brent or perhaps a Texas-based gas (inaudible)?
Jack Fusco -- President and CEO
Anatol you want to take that.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Thanks, Jack. Thanks, Greg yes, I think one of the things that was surprising in some sense amazing in the LNG market in 2018 was that the majority of the contracts that were executed were Henry Hub linked and obviously it was us and our neighbors at VG that had the that success, the world has got comfortable with this as an attractive model it offers liquidity, price transparency and it has seen a number of times now when if Henry Hub has a quick excursion to prices above $3 it comes down very rapidly and continues to be very competitive with Brent linked and other contracts. We continue to think that that is the right flag to fly, your question about alternative indices that's a very long part and in our view of the world isn't ready to price meaningful volume. Aguadulce(ph) while it's something that you and we know well just does not have the liquidity, transparency term structure that would make it marketable internationally.
Michael Webber -- Wells Fargo Securities -- Analyst
That's very helpful. Very quick last one for Michael, I think May last year at Analyst Day, you said $1.9 billion of incremental forecast equity funding for Corpus Christi Trains 1 to 3 with things progressing seemingly better than expected. Any range of how much that might come under?
Michael Wortley -- Executive Vice President and Chief Financial Officer
I don't think we're ready to I mean Train 3 has a long way to go. So I would stick with that number for now. Train 6 we're going to end up with probably close to $300 million of contingency though. And so that will get rolled into Train 6 to help meet our 50-50 debt equity to Train 5 we had excess contingency which will roll into Train 6 to achieve our 50-50 debt equity. But on Corpus side stick with the numbers we put out in May.
Michael Webber -- Wells Fargo Securities -- Analyst
Great. Thank you.
Operator
Will, now take our next question from Danilo Juvane from BMO Capital Markets.
Danilo Juvane -- BMO Capital Markets -- Analyst
Thanks and good morning. My first question is for Michael. You have pretty clear visibility to the contractive portion of your cash flow profile, just curious with that in mind, how you sort of evaluating the various capital allocation decisions going forward?
Michael Wortley -- Executive Vice President and Chief Financial Officer
Yeah, we do have a lot of visibility. Again, we'll roll that out in a few months, probably after our next call will hit the road and talk about it. But it's pretty straightforward for us, there's three buckets. Right there is the growth bucket, the balance sheet bucket and the shareholder returns bucket. And I can tell you we're really excited about the growth. So that's going to be a big number as we look at not only Train 6 but stage 3, reinvesting in the business is the best use of our money at the returns. We think we can generate and then we'll have to decide if we want to do something else on the balance sheet, relative to what we've already said publicly. So we're thinking through that and then there's probably some money left over for some kind of shareholder return, flexibility is going to be key for us. We will keep that in mind as we think about bucket number 3. But look to put some real numbers to that here in the coming months.
Danilo Juvane -- BMO Capital Markets -- Analyst
And as you think about bucket number 3. Is that something that you think you'd be able to actually implement this year or farther out to assuming some sort of a run rate and (inaudible).
Michael Wortley -- Executive Vice President and Chief Financial Officer
Yeah, we'll see. I mean, probably both, but we'll see.
Danilo Juvane -- BMO Capital Markets -- Analyst
Okay. I thank you for that other question is for Jack. You spoke earlier in your prepared remarks about being opportunistic to a CQP simplification I mean it seems that there will be a little bit more difficult to achieve versus what you were able to do with CQH. How should we think about how you ultimately end up rolling up the MLP. Thank you.
Jack Fusco -- President and CEO
I think that I said it fairly clearly we're going to be very opportunistic. The math doesn't work and we're going to have a complicated structure for the foreseeable future and until we convince all of you that our growth really is there. I think we'll get hopefully get you'll comfortable and we can actually execute what we say and that we're a conservative bunch overall. But right now the exchange ratio just don't work.
Danilo Juvane -- BMO Capital Markets -- Analyst
Got you. Last question from me. With respect to Stage 3 have we ultimately just abandoned midscale , that seems to be, let's talk about now. There seems to be shift in zones just having sort of conventional trains going forward. How should we think about that?
Jack Fusco -- President and CEO
No, we are moving full speed ahead with our midscale solution right now which is our Corpus Christi stage 3 sorry not train 3, stage 3 that would filing, which we have in front of FERC right now.
Danilo Juvane -- BMO Capital Markets -- Analyst
Those are my question. Thank you.
Jack Fusco -- President and CEO
Thanks.
Operator
As a reminder, ladies and gentlemen. Please limit yourself to one question with one follow-up and rejoin the queue for additional questions. Our next questioner comes from Jean Salisbury from Bernstein. Please go ahead.
Jean Ann Salisbury -- Bernstein -- Analyst
Hi, good morning. How much advanced locking in is there of pricing for spot cargoes. Have we seen the full effect of the fourth quarter winter gas spike on margins or it will sum up your next quarter.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Well. Thank you. It's Anatol, it's really a mix as Michael said, we have three trains coming on with a fair amount of timing uncertainty on cargoes and we're not in the business of going short in the market. We, as we've said to you before, we do have some tranches, obviously we have early cargoes associated with some term deals that we've executed over the last year, as well as some medium-term deals for '19 and '20, but for competitive reasons, we're not going to get into the specifics of the volumes quarter by quarter.
Jean Ann Salisbury -- Bernstein -- Analyst
Okay, fair enough. And then, do you see a risk in 2019 that have everything starts up as scheduled some U.S. LNG facilities won't be running at full capacity for parts of the year.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
It Anatol again. I really cannot envision that scenario. Actually, I have to say I can't envision the first premise of that scenario either. But even if that did play out, the probability that on a marginal basis, there is no value in exporting a $2.5 Henry Hub molecule to a strong global market is pretty close to zero to me.
Jean Ann Salisbury -- Bernstein -- Analyst
Okay, that's all from me. Thank you.
Operator
Next question comes from Fotis Giannakoulis from Morgan Stanley. Please go ahead, sir.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Yes, hi. Thank you all. Anatol, I have one question for you. The last three FIDs they can be reached without long term SPAs from the respective parties. Is this a new trend and how does this change the the long-term dynamics of the market and your potential margins and growth initiatives beyond the stage 3 of Corpus Christi.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Thanks Fotis. It's not a surprise to you or to us, it's a global and competitive market and lots of places have attractive molecules that they want to monetize with eight different capital allocation algorithm and different risk tolerance than we do. So we are always expecting what in the U.S., we may have called a producer push component, the LNG market calls it the equity lifting model. Those are projects that we always believed would be able to get off the ground, whether that's East Africa, Western Canada, Arctic Russia et cetera and where we are expecting fully expecting to compete with them. We have been competing with them and there weren't a surprise to anyone in 2018 where we had pretty close to a record year. So we love the hand that we're dealt, we love as Jack said the business model and the track record that we've built and we're confident that we'll be able to leverage that into continued success. But it is a competitive market.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
So from your answer. Shall I take that your strategy of backing every new expansion, with long-term SPAs will remain intact or this new FIDs might change your risk appetite.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Well, look, we told you a couple of years ago, our model was continued to refine that we think that the range of CMI having the warehouse staff 5% to 20% sort of as the side boards of volume in it is a very good number and we're still comfortable with that and we've had good success. As Michael mentioned, we've in essence drawn down that inventory will look to reallocate volumes to that in order to continue to prosecute the type of bridging volume and secure reliable attractive value proposition that we've been successful with. So there is no reason to change what's been working and is expected to continue working for the foreseeable future.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Thank you very much, Anatol. Congratulation for the great year.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Thanks, Fotis.
Operator
Our next question comes from Michael Lapides from Goldman Sachs.
Michael Lapides -- Goldman Sachs -- Analyst
Hey, guys. Two questions, one on the last quarterly call, you kind of updated the range of potential output. Our capacity for each training kind of raise the high end. Can you talk to us about kind of how you get comfortable with hitting that high-end and is even upside to that level. I'd love response on that and then I've got a follow-on about the balance sheet.
Jack Fusco -- President and CEO
Michael, it's Jack. Yeah. So from an operating perspective. I would say that we are very comfortable now with the upper end of the range that we gave all of you. We have some de-bottlenecking initiatives that we have plans of achieving this year with some of our turnaround and maintenance schedules and you should expect us to revise our output but I think most of you are probably on Genscape and can see our gas flows into our facility and noq hat we're very close to 5 Bcf/d right now so we're very, very pleased with the way our trains have been performing.
Michael Lapides -- Goldman Sachs -- Analyst
Got it. And then one quick one on the balance sheet, just curious how do you think about, let's say, once you get Train 6 online and that's we're talking a couple years down the road what you think about as a normal credit metrics that you'd like to achieve kind of a long run target or a long-run goal and whether that is measured on an FFO to debt or debt to EBITDA perspective ?
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Before Michael answers that question, I just want to make sure already this morning with the L&T of Train 6 that the price in the schedule are fixed and not a risk for us so we haven't had any cost overruns yet we don't expect to start now on our Trains number 8 and 9. So I just want to make sure I got that clear.
Michael Lapides -- Goldman Sachs -- Analyst
Understood. I've known you for a long time have, I've not seen, you have very many cost overruns in the 12 to 15 years.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Go ahead Michael.
Michael Wortley -- Executive Vice President and Chief Financial Officer
The balance sheet, the rating agencies, look at it several different ways the projects they care about debt service coverage ratios and then deconsolidated numbers consolidated numbers and for us, I think we had, we need to keep it simple and just communicate like everybody else, which is just a consolidated debt-to-EBITDA number.
And so that over the long run I think that's what we'll start to look at more and more though the rating agencies are more nuance given our multiple levels of debt.
Michael Lapides -- Goldman Sachs -- Analyst
Do have a kind of a mental target in mind of where you'd like that debt-to-EBITDAR number to be Train 6 is up and running ?
Michael Wortley -- Executive Vice President and Chief Financial Officer
Well they are the part of our grant roll-out in a few months currently we're at 5 times to 6 times consolidated probably on the upper end of that range from what we said last time so that's what we'll stick with for now.
Michael Lapides -- Goldman Sachs -- Analyst
Got it. Thank you, Michael, much appreciated guys.
Operator
Our final question today will come from Alex Kania from Wolfe Research. Please go ahead.
Alex Kania -- Wolfe Research -- Analyst
Thanks. I just wanted to touch on the commentary related to maybe the financing package for Sabine Pass 6 Michael, I think you talked about thinking about optimizing what contracts you which has that facility are you talking mainly about the CMI contracts that you've already got secured or maybe are you, is there kind of discussions far enough along in another FOB type contract that you may want to wait to see play out for you, you finalize that ?
Michael Wortley -- Executive Vice President and Chief Financial Officer
Yes, I mean we have a free option right now which is that we don't have to give full mtpa summer so yes, we just wait and see what happens I mean I like our position now if we had to make a decision tomorrow I don't think we have any problem with that but given that we have free time to wait working hard yes, I mean we'll wait and see if anything else comes down the pipe between now and then we have Vitol and PETRONAS which you're FOB deals and then we have a fair amount of does deals so yes we'll just wait.
Alex Kania -- Wolfe Research -- Analyst
Thanks very much.
Michael Wortley -- Executive Vice President and Chief Financial Officer
Thanks, Alex.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
And thank you all for your support of Cheniere.
Operator
Ladies and gentlemen we will now turn it back to Management for additional or closing remarks.
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Thanks everyone for joining us today. We look forward to speaking to you next quarter.
Operator
This will conclude you today's call. Thank you for your participation. You may now disconnect.
Duration: 55 minutes
Call participants:
Randy Bhatia -- VP of Investor Relations
Jack Fusco -- President and CEO
Anatol Feygin -- Executive Vice President and Chief Commercial Officer
Michael Wortley -- Executive Vice President and Chief Financial Officer
Christine Cho -- Barclays -- Analyst
Jeremy Tonet -- JPMorgan -- Analyst
Michael Webber -- Wells Fargo Securities -- Analyst
Craig Shere -- Tuohy Brothers -- Analyst
Danilo Juvane -- BMO Capital Markets -- Analyst
Jean Ann Salisbury -- Bernstein -- Analyst
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Michael Lapides -- Goldman Sachs -- Analyst
Alex Kania -- Wolfe Research -- Analyst
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