Bringing together a leading global alternative asset manager and a global leader in LNG liquefaction
Brookfield Asset Management Inc. (Brookfield) is one of the world’s largest infrastructure investors, owning and operating assets across the utilities, transport, energy and data infrastructure sectors. Brookfield invests in infrastructure assets that deliver essential goods and services - from the movement of passengers and freight over toll roads and rail networks to the distribution of energy and other products through ports and pipelines, and much more.
Cheniere Energy Partners (CQP) is the owner of the world scale, 6 train, 27 mtpa (nameplate), Sabine Pass Liquefied Natural Gas bi-directional export/import facility in Cameron Parish, Louisiana. CQP holds long-term agreements for the delivery of FOB LNG with a cross section of leading suppliers, spanning oil and gas majors (Shell, BP), major utilities (Enel, Centrica) and trading houses (Vitol), among others. Through Cheniere Marketing International (CMI, Cheniere Energy’s LNG marketing entity) CQP monetises any uncontracted output from Sabine Pass.
Brookfield engaged Gas Strategies as its commercial and markets advisors in its acquisition of a 42% aggregate interest in CQP in July 2020. The focus for our diligence was on value in CQPs exports potential of CMI’s sales to the mid-2030s and the long term value of export capacity thereafter.
Assessing the value in CQP exports from 2020 to the mid-2030s
With the majority of CQP revenues secured by long-term contracts, our diligence on the contracted period (from 2020 to the mid-2030s, when the contracts begin to expire) focussed on the revenues that would be earned from sales by CQP to CMI.
This represented an evaluation of global LNG market outlook over the period of prospective sales, the commercial track record and capabilities of CMI, and the potential performance of CMI within the future market opportunity. This involved Gas Strategies’ transaction team:
- Evaluating CMI’s overall performance and specifically with respect to netbacks realised vs. the wider market
- Forecasting CMI netbacks in the long-term through analysis of spot prices in Asia and in Europe over the long-term
- Building assumptions on the volumes likely to be lifted by CMI from Sabine Pass and the split between term contract and spot sales
Assigning a price to export capacity in the long-term
As a potential owner of CQP, Brookfield also needed to be able to appropriately understand and recognise the value of capacity beyond the term of the original contracts and likelihood of recontracting this capacity when the existing agreements came to expiry. A major part of the commercial due diligence was to understand the different outcomes for capacity values in the long-term (in the mid 2030’s). In approaching this, Gas Strategies undertook a deep analysis of LNG supply/demand fundamentals, combining our well recognised deep LNG and global gas industry understanding supported by our Global Gas Model. This enabled the requirement for new supply out to 2050 to be clearly mapped, together with the prevailing cost of capacity that met future demand. Additionally, Brookfield was provided with range of pricing assumptions for their valuation, by scenario modelling that reflected the effects of demand downturns and market cycles.
Working to a demanding compressed timeline and conducting the diligence completely remotely due to coronavirus related travel restrictions, Gas Strategies supported Brookfield in their successful acquisition of a significant interest in this publicly listed entity and owner of the largest single LNG project globally. This acquisition further builds on Brookfield’s position as a leading investor into midstream gas assets, which have recently included the purchase of 25% stake in Dominion Energy’s Cove Point LNG project in the US and a share in ADNOC gas pipelines in the UAE.