LNG 3Q2017: 2018 looks to be breakout year, but depends on commercialization

In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles), but conversion unlikely before March 1, 2020. So, we feel investors won’t be concerned until 2H2019.
We like that Cheniere’s looking at ways to deploy future FCF, but not thrilled about foreign and liquids-based ventures. We believe there are many US opportunities involving E&P, pipelines or M&T
We believe CQH and CQP roll-up will happen in due time
LT, Chenier faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its 3rd-act, but no share buybacks.
As expect global LNG markets are tightening quicker than past expectations, but we wonder how much of it is due to Qatar sanctions imposed by neighbors
2018 likely to be driven by SPL 6 and CCL 3 FID and associated LT-contracts
We believe CNPC MOU will lead to LT-contract and both SPL 6 and CCL 3 will FID in 2018. We also look for additional LT-contracts to boost value.

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Natural gas: Tailwind; Interest rate: Mild headwind; Election: Tornado

• As expected, natural gas prices started to rally, but about a month ahead of expectations in June
• We expect natural gas prices to generally move upward through 2H2016 and for 2017
• The impact of 1-3 rate increases should not be significant for valuations, but the portend for further rate increases is what would drive valuations down, in our opinion
• We expect that the global migration towards using more natural gas will continue and favor US energy companies, including energy infrastructure companies
• Power industry move towards renewables and natural gas is unlikely to abate, but there are a plethora of issues that would determine whether this is good or bad for investors depending on the industry, pricing mechanism, use of storage and back-up power, and development of new or refurbishment/replacement of old infrastructures
• Regardless, we look for heat rates to become more central in determining power economics moving forward, and likely grows in importance with higher percentage of generation delivered from intermittent renewable power sources

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