Higher capacity at 8.8Mtpa, lower SPA pricing

Liquefied Natural Gas 11 June 2019 Update
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Liquefied Natural Gas

Higher capacity at 8.8Mtpa, lower SPA pricing

Company update

Oil & gas

11 June 2019

Price

A$0.27

Market cap

A$154m

A$1.32/US$

Net cash (A$m) at 31 December 2018

33.2

Shares in issue

571.8m

Free float

95%

Code

LNGL

Primary exchange

ASX

Secondary exchange

OTC

Share price performance

%

1m

3m

12m

Abs

(36.6)

(47.5)

(46.4)

Rel (local)

(37.9)

(49.4)

(49.4)

52-week high/low

A$0.82

A$0.26

Business description

Liquefied Natural Gas is an ASX-listed company devoted to the development of LNG export terminals in the US, Canada and other potential locations. It has traded ADRs.

Next events

Offtake signed (management guidance)

2019

Analysts

Sanjeev Bahl

+44 (0)20 3077 5742

Carlos Gomes

+44 (0)20 3077 5722

Liquefied Natural Gas is a research client of Edison Investment Research Limited

The focus for Liquefied Natural Gas (LNGL) remains the signature of long-term offtake contracts for Magnolia LNG, the company’s flagship LNG export terminal in Lake Charles, Louisiana. In March 2019, authorisation was received from the US Department of Energy (DOE) for expansion of export capacity to 8.8Mtpa (from 8.0Mtpa) to free trade agreement (FTA) countries. Management expects FERC approval and non-FTA consent from the DOE to follow shortly. Edison’s valuation has been updated to reflect higher Magnolia export capacity, offset by our assumption of lower contract pricing. The net impact is a decrease in valuation from A$1.01/share to A$0.70/share. Key valuation drivers include sale and purchase agreement (SPA) pricing, cost of funding, timing of first gas exports and the risking we apply to Magnolia and Bear Head projects proceeding.

Year end

Revenue
(A$m)

PBT*
(A$m)

Cash from operations (A$m)

Net (debt)/
cash (A$m)

Capex
(A$m)

06/17

0.6

(29.2)

(25.5)

40.3

(0.4)

06/18

1.9

(22.8)

(22.2)

22.5

0.0

06/19e

0.0

(31.5)

(29.1)

19.0

0.0

06/20e

0.0

(35.2)

(33.7)

(439.8)

(358.9)

Note: *PBT is reported. We include all project debt on LNGL’s balance sheet and assume FID in late 2018.

Expansion provides greater offtake flexibility

Expansion of Magnolia to 8.8Mtpa is expected to provide greater flexibility when negotiating sale and purchase agreements with off-takers. A number of SPAs have been signed by competitors such as Venture Global in recent months; however, we believe that LNGL is holding out for offtake agreements that maximise shareholder value and investment returns. Typical US LNG SPA terms include a unit fixed charge and a contract sales price linked to Henry Hub. In our base case we assume a US$2.35/mmbtu fixed component and contract sales price at 1.13x Henry Hub. Edison had previously assumed a tolling fee arrangement priced at US$2.75/mmbtu.

Short-term macro headwinds; a waiting game

LNG oversupply and weak spot pricing combined with a record number of US LNG projects receiving FERC approval in 2019 are likely to increase buyer power, at least in the short term. We believe the current market could present an opportunity for gas buyers looking to secure long-term contracts to meet a projected LNG supply deficit beyond 2025. LNGL is cognisant that SPA pricing needs to be sufficiently high to meet the needs of all stakeholders, including equity holders and project lenders.

Valuation: Risked NAV at A$0.70/share

Edison values LNGL at A$0.70/share (from A$1.01/share). Key risks and uncertainties relate to Magnolia LNG and include SPA pricing, FID timing and the cost of project-related debt.

Magnolia LNG export capacity expansion

Magnolia LNG currently has DOE approval to expand export capacity to 8.8Mtpa to countries with FTA agreements with the United Sates, a 0.8Mtpa increase from the DOE’s initial FTA approval orders. Management expects FERC approval and non-FTA consent for 8.8Mtpa of export capacity to be received in the coming months.

Magnolia LNG has proposed to construct up to four liquefaction production trains, each with a capacity of 2.2Mtpa or greater using LNGL’s patented OSMR process technology. Further details on plant location and OSMR can be found in the video embedded below.

Exhibit 1: Magnolia LNG corporate video

Source: LNGL

Based on latest released LNGL quarterly reports and company presentations we have updated our modelling of Magnolia LNG to reflect increased export capacity, plant efficiency of 8% (company guidance range 6–8%) and now base economics on a sale purchase agreement (SPA) rather than a tolling fee arrangement.

The SPA terms that drive our valuation model are outlined below:

Unit fixed charge (UFC) – Edison assumes a base case UFC of $2.35/mmbtu but provides a valuation sensitivity to this key driver. In addition, we assume that a proportion of the UFC (c 15%) is inflation linked.

Contract sales price (CSP) – In line with management guidance, we assume 1.13 times Henry Hub (HH) in our forecasts.

Based on the current spot HH price of US$2.50/mmbtu, this equates to a total fee net of gas cost and own use gas consumption of c US$2.50/mmbtu, which is marginally lower than the US$2.75/mmbtu we had previously modelled. Also under the terms of an SPA, LNGL will have the ability to secure favourable basis differentials increasing its net margin. We do not include potential ‘trading’ gains in our valuation.

Key drivers of Edison’s Magnolia LNG valuation are described in the table below:

Exhibit 2: Magnolia valuation key drivers

Magnolia LNG plant capacity

8.8

Mtpa

Plant Cost under lump sum contract

4354

US$m

Other costs

675

US$m

Magnolia LNG plant annual opex (2019 money)

0.5

US$/mmbtu

Plant utilisation

96

%

Plant efficiency

8

%

SPA (fixed fee)

2.35

US$/mmbtu

SPA Contract sale price

1.13x HH

US$/mmbtu

KBR success fee

0.07

US$/mmbtu

Cost of equity

10

%

Funding debt to equity ratio

70

%

Cost of debt (pre-tax)

6.5

%

Implied cost of Stone peak financing

11

%

Source: Edison Investment Research

Valuation implications of capacity expansion

Changes to Edison’s valuation from our last published note are highlighted below:

Increase in Magnolia LNG liquification capacity to 8.8Mtpa. At this stage, our understanding is that construction costs under the lump sum contract at US$4.35bn remain unchanged and are fixed through to June 2019.

We model Magnolia using an SPA agreement, with terms as highlighted in Exhibit 2. This is relative to our prior valuation, which was based on a tolling fee structure at $2.75/mmbtu. This has a material impact on the valuation and is a key equity investment consideration.

We roll forward out NAV discount date to 1 January 2019. Timing for Magnolia is pushed back by a year with financial close now expected during FY20 (July 2019 to July 2020).

Our point forward A$/US$ fx rate assumption moves from 1.27 to 1.32.

We have included outstanding preferred shares in our diluted per share valuation.

We value both the Magnolia and Bear Head LNG projects on a leveraged basis, assuming that project debt financing, in addition to Stonepeak’s US$1.5bn preferred equity commitment, is priced at 6.5%. We discount leveraged free cash flows at a project level using a 10% cost of equity. In order to account for corporate costs not included in our LNG asset models we make deductions for SG&A and project overheads netted against existing cash available to fund pre-FID costs.

Exhibit 3: LNG limited NAV breakdown

Asset

NOSH 589.9m inc preferred shares

 

WI

 

Net value

 

 

Country

CoS

Absolute

Risked

Unrisked

Year end - June

%

%

US$m

A$/share

A$/share

Net (debt)/cash (December 2018) to fund overheads

26

0.06

0.06

G&A (includes share based payments)

(35)

(0.08)

(0.08)

Project overheads December 2018 - December 2019e

(13)

(0.03)

(0.03)

Magnolia Trains 1-4 (equity valuation)

United States

100%

60%

268

0.64

1.06

Bear Head Trains 1-4 (equity valuation)

United States

100%

15%

49

0.12

0.78

Risked NAV

 

 

 

295

0.70

1.78

Magnolia only

0.58

1.01

Source: Edison Investment Research

As discussed earlier in this note, the positive valuation impact of increasing Magnolia capacity to 8.8Mtpa is offset by our assumption of lower SPA pricing. A key component of negotiated offtake SPAs will be the UFC that LNGL is able to command. Increasing competition from projects within the US LNG pipeline and those receiving FERC approval is likely to put pressure on this price component.

Exhibit 4: FERC LNG project approvals break records in 2019

Source: FERC, Edison Investment Research

We provide a sensitivity to this key driver in the table below. As would be expected, a small absolute change in UFC has a material impact on Magnolia leveraged NPV and IRR (we use a 10% cost of equity).

Exhibit 5: Magnolia un-risked NPV sensitivity to UFC (base case US$2.35/mmbtu)

Sensitivity to headline SPA fixed fee US$/mmbtu

2.05

2.15

2.25

2.35

2.45

2.55

Unrisked leveraged NPV10 net to LNGL (US$m)

-16

140

294

446

597

746

Unrisked leveraged IRR to LNGL

9%

14%

22%

31%

37%

42%

Source: Edison Investment Research

Evolving global LNG markets

US LNG trade is starting to have a marked impact on global gas pricing, with the US share of European LNG imports rising from 0% in 2015 to over 10% in 2019 (12.6% to March 2019). Growth in LNG spot volumes combined with warmer usual temperatures in the Northern Hemisphere led 2019 winter spot LNG prices to fall to multi-year lows. Low prices were also supported by a build in Chinese volumes in storage ahead of winter and strong Norwegian flows as well as a higher than average wind power contribution in to Europe.

Exhibits 6 and 7 illustrates growth in US exports directed to the EU as the Asian spot price premium was insufficient to support the freight cost delta between the EU and Asia, and the impact of a China-imposed 10% tariff on US LNG imports, recently upgraded to 25%. In the longer term, Asian LNG demand growth expectations remain robust with Chinese LNG imports expected to grow from c 54Mtpa in 2018 to over 90Mtpa by 2025 in support of the state’s mandated plan to replace coal power generation with gas in a drive to improve air quality. Uncertainty around the duration and magnitude of Chinese import tariffs remains an uncertainty.

Exhibit 6: US LNG exports to the EU

Exhibit 7: US LNG vessels exports

Source: EIA, Edison Investment Research

Source: EIA, Edison Investment Research

Exhibit 6: US LNG exports to the EU

Source: EIA, Edison Investment Research

Exhibit 7: US LNG vessels exports

Source: EIA, Edison Investment Research

This demand is to be met through a variety of sources, with the Chinese state recognising the value of diversification given the backdrop of lingering US trade talks. In May 2019, two state-owned Chinese companies (CNPC and CNOOC) signed agreements to participate in Artic LNG2, acquiring a 10% stake. Chinese LNG imports by source are shown in Exhibit 8, showing current diversity in the LNG supply mix; in addition to LNG, piped gas supply to China is dominated by Turkmenistan, Uzbekistan and Russia.

We continue to believe that LNGL’s major shareholder IDC Energy (a 9.9% shareholder in LNGL) should provide LNGL with valuable financing and customer relations in the Chinese market.

Exhibit 8: 2018 China LNG imports (Mt)

Source: International Gas Union (IGU), Edison Investment Research

Exhibits 8 and 9 show recent evolution in spot LNG pricing; under the SPA terms assumed in our base case valuation, a purchaser would be paying c US$5.3/mcf (free on board) at current spot Henry Hub. This is US$4.8/mcf below the 2018 average Northeast Asian spot price and US$9.6/mcf Brent indexed pricing (13% slope). Current Asian spot pricing is close to the long-run marginal cost of US LNG, suggesting that the market was oversupplied over the 2019 winter.

Exhibit 9: Spot LNG pricing vs HH

Exhibit 10: LNG indexation to Brent

Source: Bloomberg, Edison Investment Research

Source: Bloomberg, Edison Investment Research

Exhibit 9: Spot LNG pricing vs HH

Source: Bloomberg, Edison Investment Research

Exhibit 10: LNG indexation to Brent

Source: Bloomberg, Edison Investment Research

We recognise that weakness in current spot markets, and a material increase in the US LNG FERC approvals are likely to increase buyer power when negotiating SPA commercial terms.

Management prioritising equity returns over project timetable

Industry forecasts of global LNG supply and demand indicate a potential supply shortage in the mid part of the next decade, a gap Magnolia and Bear Head LNG could look to fill. In the short term, oversupply and a pipeline of US LNG projects moving towards sanction are likely to put pressure on LNGL’s negotiating power; investors will need to take a view on the pros and cons of accepting lower SPA pricing or waiting for market conditions to improve. Given the sensitivity of equity returns to SPA terms, we believe a patient approach to SPA negotiation is prudent, but project delays increase the pre-FID overhead burden and potential dilution if equity investors do not participate in equity placings required to cover pre-FID costs.

Exhibit 11: LNG supply and demand forecast

Exhibit 12: Spot LNG cargo volumes evolution

Source: Royal Dutch Shell, Edison Investment Research

Source: International Gas Union (IGU)

Exhibit 11: LNG supply and demand forecast

Source: Royal Dutch Shell, Edison Investment Research

Exhibit 12: Spot LNG cargo volumes evolution

Source: International Gas Union (IGU)

US-China trade talks have added an element of uncertainty to the signature of offtake agreements for Magnolia. China’s decision to increase import tariffs on US LNG from 10% to 25% will probably have minimal impact in the short term, other than being negative for investor sentiment. We believe that China’s retaliatory increase in LNG import tariff announced in May 2019 is likely to be temporary, as it will ultimately lead to higher gas prices for Chinese domestic consumers as the global LNG market swings towards a supply deficit.

As shown in Exhibit 7, the 10% tariff put in place last year has led to a significant reduction in US LNG trade with China. China received 18 LNG vessels from the US in H118, decreasing to nine vessels in H218 and only two in H119. In the short term, China’s move to further increase tariffs is likely to have little impact on inter-country energy trade.

While the current trade war increases uncertainty around Chinese demand for US LNG, offtakers may use this backdrop as an opportunity to secure long-term SPAs at discounted prices. China is rapidly increasing its LNG imports and will soon become the world’s biggest LNG importer, overtaking Japan. Ultimately, we expect China to source gas from a wide range of sources, including the US once an amicable trade solution is reached. Given that the US is the greatest component of global LNG supply growth and China the greatest component of global LNG demand over the next decade, we feel amicable trade is in the interests of both parties.

Financials

As of 31 December 2018, LNGL had A$33.2m of cash, and enough capital to support ongoing SG&A and pre-FID engineering costs for an estimated nine to 12 months. The last 12-month (LTM) cash SG&A expense stood at A$14.5m (including share-based payments) and project development overheads (not included in Edison asset models for Magnolia and Bear Head) stood at A$14.5m. We believe further delays to Magnolia FID could drive LNGL to raise further capital in order to cover pre-construction costs.

Magnolia capital costs secured through to June 2019

In 2015, LNGL secured a binding engineering, procurement and construction (EPC) contract with KBR for Magnolia LNG at a fixed capex of US$4.4bn for the first four operational trains. The EPC contract has a six-month pricing adjustment mechanism, which is due to be re-evaluated in June 2019. We note that recent re-evaluations (last September 2018) have not led to an increase in project capex.

Under the current agreement, Stonepeak is to provide equity funding of up to US$1.5bn for the project in return for a preferred interest in Magnolia with a fixed coupon with pay-in-kind provisions during construction. The tenor is set at 12 years and is redeemable at Magnolia’s discretion after three years of operation (there are no equity conversion features). Debt funding for Magnolia is still to be secured; we currently assume a 70:30 debt to equity funding ratio with debt priced at 6.5%. Our Magnolia funding assumptions remain unchanged from our last publication.

Exhibit 13: Financial summary

Accounts: IFRS; year end 30 June; A$m

 

2015

2016

2017

2018

2019e

2020e

Profit & loss

Total revenues

 

 

7.9

7.3

0.6

1.9

0.0

0.0

Cost of sales

 

 

0.0

0.0

(0.2)

(0.1)

(0.1)

(3.0)

Gross profit

 

 

7.9

7.3

0.3

1.7

(0.1)

(3.0)

SG&A (expenses)

 

 

(8.1)

(19.1)

(13.4)

(12.1)

(12.4)

(12.8)

R&D costs

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Other income/(expense)

 

 

(71.9)

(89.3)

(14.0)

(11.4)

(18.2)

(18.2)

Exceptionals and adjustments

(14.8)

(14.3)

(2.5)

(1.2)

(1.2)

(1.2)

Depreciation and amortisation

(0.1)

(0.2)

(0.2)

(0.1)

(0.1)

(0.2)

Reported EBIT

(86.9)

(115.7)

(29.6)

(23.1)

(32.0)

(35.3)

Finance income/(expense)

0.6

0.6

0.4

0.3

0.5

0.0

Other income/(expense)

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals and adjustments

0.0

0.0

0.0

0.0

0.0

0.0

Reported PBT

 

 

(86.3)

(115.1)

(29.2)

(22.8)

(31.5)

(35.2)

Income tax expense (includes exceptionals)

 

 

(0.1)

0.0

(0.1)

(0.0)

0.0

0.0

Reported net income

 

 

(86.3)

(115.1)

(29.3)

(22.8)

(30.8)

(35.2)

Basic average number of shares, m

 

 

464.4

503.2

513.0

570.1

571.8

571.8

Basic EPS (c)

 

 

(0.2)

(0.2)

(0.1)

(0.0)

(0.1)

(0.1)

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

(72.0)

(101.1)

(26.8)

(21.7)

(30.7)

(33.8)

Adjusted EBIT

 

 

(72.1)

(101.4)

(27.0)

(21.9)

(30.8)

(34.0)

Adjusted PBT

 

 

(71.5)

(100.8)

(26.7)

(21.5)

(30.3)

(34.0)

Adjusted EPS (c)

 

 

(0.2)

(0.2)

(0.1)

(0.0)

(0.1)

(0.1)

Adjusted diluted EPS (c)

 

 

(0.2)

(0.2)

(0.1)

(0.0)

(0.1)

(0.1)

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

12.1

12.0

12.0

11.9

11.8

352.5

Goodwill

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

 

0.0

0.0

0.0

0.0

0.0

17.9

Other non-current assets

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Total non-current assets

 

 

12.1

12.0

12.0

11.9

11.8

370.4

Cash and equivalents

 

 

47.0

67.2

40.3

22.5

19.0

19.0

Inventories

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Trade and other receivables

 

 

2.5

0.7

0.1

0.1

0.1

0.1

Other current assets

 

 

135.2

4.6

4.6

28.8

4.1

4.1

Total current assets

 

 

184.6

72.6

45.0

51.3

23.1

23.1

Non-current loans and borrowings

 

 

0.0

0.0

0.0

0.0

0.0

458.8

Other non-current liabilities

 

 

0.2

0.1

0.0

0.0

0.0

0.0

Total non-current liabilities

 

 

0.2

0.1

0.0

0.0

0.0

458.8

Trade and other payables

 

 

13.9

2.6

2.2

2.4

2.4

2.4

Current loans and borrowings

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Other current liabilities

 

 

1.0

0.9

0.4

0.4

0.4

0.4

Total current liabilities

 

 

14.9

3.5

2.5

2.8

2.8

2.8

Equity attributable to company

 

 

181.7

81.1

54.6

60.5

31.7

(68.4)

Non-controlling interest

 

 

(0.1)

(0.1)

(0.1)

(0.1)

(0.1)

(0.1)

 

 

 

 

 

 

 

 

 

Cash flow statement

 

 

Profit for the year

 

 

(86.3)

(115.1)

(29.3)

(22.8)

(30.8)

(35.2)

Taxation expenses

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Net finance expenses

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Depreciation and amortisation

 

 

0.1

0.2

0.2

0.1

0.1

0.2

Share based payments

 

 

14.8

14.3

2.5

1.2

1.2

1.2

Other adjustments

 

 

(7.4)

(6.8)

1.5

(0.4)

0.4

0.0

Movements in working capital

 

 

8.9

(9.8)

(0.4)

(0.3)

0.0

0.0

Interest paid / received

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Income taxes paid

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Cash from operations (CFO)

 

 

(70.0)

(117.1)

(25.5)

(22.2)

(29.1)

(33.7)

Capex

 

 

(11.6)

(0.1)

(0.4)

0.0

0.0

(358.9)*

Acquisitions & disposals net

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Other investing activities

 

 

(131.7)

130.6

0.0

(23.7)

25.0

0.0

Cash used in investing activities (CFIA)

 

 

(143.3)

130.5

(0.4)

(23.7)

25.0

(358.9)

Net proceeds from issue of shares

 

 

205.0

0.2

0.7

27.2

0.0

0.0

Movements in debt

 

 

0.0

0.0

0.0

0.0

0.0

458.8

Other financing activities

 

 

(0.0)

(0.0)

(0.0)

0.0

0.0

(66.2)

Cash from financing activities (CFF)

 

 

205.0

0.2

0.7

27.2

0.0

392.6

Increase/(decrease) in cash and equivalents

 

 

(8.3)

13.5

(25.3)

(18.6)

(4.1)

0.0

Currency translation differences and other

 

 

7.5

6.7

(1.6)

0.8

0.6

0.0

Cash and equivalents at end of period

 

 

47.0

67.2

40.3

22.5

19.0

19.0

Net (debt) cash

 

 

47.0

67.2

40.3

22.5

19.0

(439.8)

Source: Edison Investment Research, Liquefied Natural Gas accounts. Note: *Assumes start of Magnolia construction in FY20.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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This report has been commissioned by Liquefied Natural Gas and prepared and issued by Edison, in consideration of a fee payable by Liquefied Natural Gas. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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