cqp-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33366

Cheniere Energy Partners, L.P.

(Exact name of registrant as specified in its charter)


Delaware			20-5913059
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

700 Milam Street, Suite 1900

Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

(713) 375-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Units Representing Limited Partner Interests	CQP	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2021, the registrant had 484,025,623 common units outstanding.

CHENIERE ENERGY PARTNERS, L.P.

TABLE OF CONTENTS




























	Definitions	1
Part I. Financial Information
Item 1.	Consolidated Financial Statements	3
	Consolidated Statements of Operations	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Partners’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
	Note 1—Nature of Operations and Basis of Presentation	7
	Note 2—Unitholders’ Equity	7
	Note 3—Restricted Cash	8
	Note 4—Accounts and Other Receivables, Net of Current Expected Credit Losses	8
	Note 5—Inventory	8
	Note 6—Property, Plant and Equipment, Net of Accumulated Depreciation	8
	Note 7—Derivative Instruments	9

	Note 8 —Accrued Liabilities	12
	Note 9 —Debt	13
	Note 1 0 —Revenues from Contracts with Customers	15
	Note 1 1 —Related Party Transactions	18
	Note 1 2 —Net Income per Common Unit	22
	Note 1 3 —Customer Concentration	24
	Note 1 4 —Supplemental Cash Flow Information	24

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	39

Part II. Other Information
Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

	Signatures	42

DEFINITIONS

As used in this quarterly report, the terms listed below have the following meanings:

Common Industry and Other Terms


Bcf						billion cubic feet
Bcf/d						billion cubic feet per day
Bcf/yr						billion cubic feet per year
Bcfe						billion cubic feet equivalent
DOE						U.S. Department of Energy
EPC						engineering, procurement and construction
FERC						Federal Energy Regulatory Commission
FTA countries						countries with which the United States has a free trade agreement providing for national treatment for trade in natural gas
GAAP						generally accepted accounting principles in the United States
Henry Hub						the final settlement price (in USD per MMBtu) for the New York Mercantile Exchange’s Henry Hub natural gas futures contract for the month in which a relevant cargo’s delivery window is scheduled to begin
LIBOR						London Interbank Offered Rate
LNG						liquefied natural gas, a product of natural gas that, through a refrigeration process, has been cooled to a liquid state, which occupies a volume that is approximately 1/600th of its gaseous state
MMBtu						million British thermal units; one British thermal unit measures the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit
mtpa						million tonnes per annum
non-FTA countries						countries with which the United States does not have a free trade agreement providing for national treatment for trade in natural gas and with which trade is permitted
SEC						U.S. Securities and Exchange Commission
SPA						LNG sale and purchase agreement
TBtu						trillion British thermal units; one British thermal unit measures the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit
Train						an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
TUA						terminal use agreement

Abbreviated Legal Entity Structure

The following diagram depicts our abbreviated legal entity structure as of September 30, 2021, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:

Unless the context requires otherwise, references to “Cheniere Partners,” “the Partnership,” “we,” “us” and “our” refer to Cheniere Energy Partners, L.P. and its consolidated subsidiaries, including SPLNG, SPL and CTPL.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per unit data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues
LNG revenues	$	1,791	$	807	$	5,057	$	3,588
LNG revenues—affiliate	453		103		878		352

Regasification revenues	68		67		202		202

Other revenues	12		5		39		28

Total revenues	2,324		982		6,176		4,170

Operating costs and expenses
Cost of sales (excluding items shown separately below)	1,342		454		3,178		1,551
Cost of sales—affiliate	8		33		62		38
Cost of sales—related party	—		—		1		—
Operating and maintenance expense	148		146		465		463
Operating and maintenance expense—affiliate	34		34		103		115
Operating and maintenance expense—related party	12		—		34		—
Development expense	—		—		1		—

General and administrative expense	2		2		7		12
General and administrative expense—affiliate	22		24		64		73
Depreciation and amortization expense	140		137		417		413
Impairment expense and loss on disposal of assets	—		—		6		5

Total operating costs and expenses	1,708		830		4,338		2,670

Income from operations	616		152		1,838		1,500

Other income (expense)
Interest expense, net of capitalized interest	(210)		(221)		(636)		(691)
Loss on modification or extinguishment of debt	(27)		—		(81)		(43)

Other income, net	2		2		2		8

Total other expense	(235)		(219)		(715)		(726)

Net income (loss)	$	381	$	(67)	$	1,123	$	774

Basic and diluted net income (loss) per common unit	$	0.69	$	(0.08)	$	2.07	$	1.55


Weighted average number of common units outstanding used for basic and diluted net income (loss) per common unit calculation	484.0		414.8		484.0		370.9

The accompanying notes are an integral part of these consolidated financial statements.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except unit data)



	September 30,		December 31,
	2021		2020
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	1,713	$	1,210
Restricted cash	133		97
Accounts and other receivables, net of current expected credit losses	358		318
Accounts receivable—affiliate	198		184
Advances to affiliate	130		144
Inventory	134		107
Current derivative assets	44		14
Other current assets	105		61

Total current assets	2,815		2,135


Property, plant and equipment, net of accumulated depreciation	16,820		16,723
Operating lease assets, net of accumulated amortization	93		99
Debt issuance costs, net of accumulated amortization	13		17
Derivative assets	25		11
Other non-current assets, net	163		160

Total assets	$	19,929	$	19,145

LIABILITIES AND PARTNERS’ EQUITY
Current liabilities
Accounts payable	$	14	$	12
Accrued liabilities	846		658
Accrued liabilities—related party	5		4
Current debt, net of discount and debt issuance costs	944		—
Due to affiliates	45		53
Deferred revenue	166		137
Deferred revenue—affiliate	4		1
Current operating lease liabilities	8		7
Current derivative liabilities	23		11

Total current liabilities	2,055		883

Long-term debt, net of premium, discount and debt issuance costs	17,171		17,580
Non-current deferred revenue	1		—
Operating lease liabilities	85		90
Derivative liabilities	13		35
Other non-current liabilities	—		1
Other non-current liabilities—affiliate	15		17



Partners’ equity
Common unitholders’ interest (484.0 million units issued and outstanding at both September 30, 2021 and December 31, 2020)	856		714

General partner’s interest (2% interest with 9.9 million units issued and outstanding at September 30, 2021 and December 31, 2020)	(267)		(175)
Total partners’ equity	589		539
Total liabilities and partners’ equity	$	19,929	$	19,145

The accompanying notes are an integral part of these consolidated financial statements.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(in millions)

(unaudited)


Three and Nine Months Ended September 30, 2021
	Common Unitholders’ Interest			Subordinated Unitholder’s Interest		General Partner’s Interest			Total Partners’ Equity
	Units	Amount			Units	Amount		Units			Amount













Balance at December 31, 2020	484.0	$	714		—	$	—	9.9	$	(175)		$	539
Net income	—	340			—	—		—	7			347
Distributions
Common units, $0.655/unit	—	(316)			—	—		—	—			(316)

General partner units	—	—			—	—		—	(35)			(35)
Balance at March 31, 2021	484.0	738			—	—		9.9	(203)			535
Net income	—	387			—	—		—	8			395
Distributions
Common units, $0.660/unit	—	(320)			—	—		—	—			(320)
General partner units	—	—			—	—		—	(39)			(39)
Balance at June 30, 2021	484.0	805			—	—		9.9	(234)			571
Net income	—	373			—	—		—	8			381

Distributions
Common units, $0.665/unit	—	(322)			—	—		—	—			(322)

General partner units	—	—			—	—		—	(41)			(41)

Balance at September 30, 2021	484.0	$	856		—	$	—	9.9	$	(267)		$	589


Three and Nine Months Ended September 30, 2020
	Common Unitholders’ Interest			Subordinated Unitholder’s Interest		General Partner’s Interest			Total Partners’ Equity
	Units	Amount			Units	Amount		Units			Amount
















Balance at December 31, 2019	348.6	$	1,792		135.4	$	(996)	9.9	$	(81)		$	715
Net income	—	307			—	119		—	9			435
Distributions
Common units, $0.630/unit	—	(220)			—	—		—	—			(220)
Subordinated units, $0.630/unit	—	—			—	(85)		—	—			(85)
General partner units	—	—			—	—		—	(25)			(25)
Balance at March 31, 2020	348.6	1,879			135.4	(962)		9.9	(97)			820
Net income	—	287			—	111		—	8			406
Distributions
Common units, $0.640/unit	—	(223)			—	—		—	—			(223)
Subordinated units, $0.640/unit	—	—			—	(86)		—	—			(86)
General partner units	—	—			—	—		—	(29)			(29)
Balance at June 30, 2020	348.6	$	1,943		135.4	$	(937)	9.9	$	(118)		$	888
Net loss	—	(65)			—	(1)		—	(1)			(67)
Conversion of subordinated units into common units	135.4	(1,026)			(135.4)	1,026		—	—			—
Distributions
Common units, $0.645/unit	—	(225)			—	—		—	—			(225)
Subordinated units, $0.645/unit	—	—			—	(88)		—	—			(88)
General partner units	—	—			—	—		—	(30)			(30)
Balance at September 30, 2020	484.0	$	627		—	$	—	9.9	$	(149)		$	478

The accompanying notes are an integral part of these consolidated financial statements.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	1,123	$	774
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	417		413
Amortization of debt issuance costs, premium and discount	22		24
Loss on modification or extinguishment of debt	81		43
Total losses (gains) on derivatives, net	(64)		38
Net cash provided by (used for) settlement of derivative instruments	10		(2)
Impairment expense and loss on disposal of assets	6		5
Other	13		10

Changes in operating assets and liabilities:
Accounts and other receivables, net of current expected credit losses	(41)		93
Accounts receivable—affiliate	(13)		23
Advances to affiliate	11		31
Inventory	(26)		2
Accounts payable and accrued liabilities	165		(96)
Accrued liabilities—related party	1		2
Due to affiliates	(6)		(3)
Deferred revenue	29		24
Other, net	(62)		(45)
Other, net—affiliate	1		(3)
Net cash provided by operating activities	1,667		1,333

Cash flows from investing activities
Property, plant and equipment	(495)		(795)

Net cash used in investing activities	(495)		(795)

Cash flows from financing activities
Proceeds from issuances of debt	2,700		1,995
Repayments of debt	(2,172)		(2,000)
Debt issuance and other financing costs	(35)		(34)
Debt extinguishment costs	(61)		(39)

Distributions to owners	(1,073)		(1,011)
Other	8		—
Net cash used in financing activities	(633)		(1,089)

Net increase (decrease) in cash, cash equivalents and restricted cash	539		(551)
Cash, cash equivalents and restricted cash—beginning of period	1,307		1,962
Cash, cash equivalents and restricted cash—end of period	$	1,846	$	1,411

Balances per Consolidated Balance Sheets:


	September 30,
	2021
Cash and cash equivalents	$	1,713
Restricted cash	133

Total cash, cash equivalents and restricted cash	$	1,846

The accompanying notes are an integral part of these consolidated financial statements.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, and has natural gas liquefaction facilities consisting of five operational natural gas liquefaction Trains and one additional Train that is undergoing commissioning and expected to be substantially completed in the first quarter of 2022, for a total production capacity of approximately 30 mtpa of LNG (the “Liquefaction Project”). The Sabine Pass LNG terminal also has operational regasification facilities that include five LNG storage tanks, vaporizers and two marine berths, with an additional marine berth that is under construction. We also own a 94-mile pipeline through our subsidiary, CTPL, that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines (the “Creole Trail Pipeline”).

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Cheniere Partners have been prepared in accordance with GAAP for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2020.

Results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2021.

We are not subject to either federal or state income tax, as our partners are taxed individually on their allocable share of our taxable income. Accordingly, no provision or liability for federal or state income taxes is included in the accompanying Consolidated Financial Statements.

Recent Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance primarily provides temporary optional expedients which simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The optional expedients were available to be used upon issuance of this guidance but we have not yet applied the guidance because we have not yet modified any of our existing contracts for reference rate reform. Once we apply an optional expedient to a modified contract and adopt this standard, the guidance will be applied to all subsequent applicable contract modifications until December 31, 2022, at which time the optional expedients are no longer available.

NOTE 2—UNITHOLDERS’ EQUITY

The common units represent limited partner interests in us. The holders of the units are entitled to participate in partnership distributions and exercise the rights and privileges available to limited partners under our partnership agreement. Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement). Generally, our available cash is our cash on hand at the end of a quarter less the amount of any reserves established by our general partner. All distributions paid to date have been made from accumulated operating surplus as defined in the partnership agreement.

Although common unitholders are not obligated to fund losses of the Partnership, its capital account, which would be considered in allocating the net assets of the Partnership were it to be liquidated, continues to share in losses.

The general partner interest is entitled to at least 2% of all distributions made by us. In addition, the general partner holds incentive distribution rights (“IDRs”), which allow the general partner to receive a higher percentage of quarterly distributions of available cash from operating surplus as additional target levels are met, but may transfer these rights separately from its general partner interest. The higher percentages range from 15% to 50%, inclusive of the general partner interest.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

As of September 30, 2021, our total securities beneficially owned in the form of common units were held 48.6% by Cheniere, 41.4% by CQP Target Holdco L.L.C. (“CQP Target Holdco”) and other affiliates of The Blackstone Group Inc. (“Blackstone”) and Brookfield Asset Management Inc. (“Brookfield”) and 8.0% by the public. All of our 2% general partner interest was held by Cheniere. CQP Target Holdco’s equity interests are 50.00% owned by BIP Chinook Holdco L.L.C., an affiliate of Blackstone and 50.00% owned by BIF IV Cypress Aggregator (Delaware) LLC, an affiliate of Brookfield. The ownership of CQP Target Holdco, Blackstone and Brookfield are based on their most recent filings with the SEC.

NOTE 3—RESTRICTED CASH

Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of September 30, 2021 and December 31, 2020, we had $133 million and $97 million of restricted cash, respectively.

Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of SPL’s debt holders, SPL is required to deposit all cash received into reserve accounts controlled by the collateral trustee. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the Liquefaction Project and other restricted payments.

NOTE 4—ACCOUNTS AND OTHER RECEIVABLES, NET OF CURRENT EXPECTED CREDIT LOSSES

As of September 30, 2021 and December 31, 2020, accounts and other receivables, net of current expected credit losses consisted of the following (in millions):



	September 30,		December 31,
	2021		2020
SPL trade receivable	$	338	$	300
Other accounts receivable	20		18

Total accounts and other receivables, net of current expected credit losses	$	358	$	318

NOTE 5—INVENTORY

As of September 30, 2021 and December 31, 2020, inventory consisted of the following (in millions):



	September 30,		December 31,
	2021		2020
Materials	$	83	$	81
LNG	33		8
Natural gas	16		17
Other	2		1
Total inventory	$	134	$	107

NOTE 6—PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION

As of September 30, 2021 and December 31, 2020, property, plant and equipment, net of accumulated depreciation consisted of the following (in millions):



	September 30,		December 31,
	2021		2020
LNG terminal
LNG terminal and interconnecting pipeline facilities	$	16,950	$	16,908

LNG terminal construction-in-process	2,623		2,154
Accumulated depreciation	(2,757)		(2,344)
Total LNG terminal, net of accumulated depreciation	16,816		16,718
Fixed assets
Fixed assets	30		29
Accumulated depreciation	(26)		(24)
Total fixed assets, net of accumulated depreciation	4		5
Property, plant and equipment, net of accumulated depreciation	$	16,820	$	16,723

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

The following table shows depreciation expense during the three and nine months ended September 30, 2021 and 2020 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Depreciation expense	$	139	$	135	$	414	$	409

NOTE 7—DERIVATIVE INSTRUMENTS

We have entered into commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the Liquefaction Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (“Financial Liquefaction Supply Derivatives,” and collectively with the Physical Liquefaction Supply Derivatives, the “Liquefaction Supply Derivatives”).

We recognize our derivative instruments as either assets or liabilities and measure those instruments at fair value. None of our derivative instruments are designated as cash flow or fair value hedging instruments, and changes in fair value are recorded within our Consolidated Statements of Operations to the extent not utilized for the commissioning process, in which case it is capitalized.

The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 (in millions):


	Fair Value Measurements as of
	September 30, 2021								December 31, 2020
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Liquefaction Supply Derivatives asset (liability)	$	(18)	$	(8)	$	59	$	33	$	1	$	(1)	$	(21)	$	(21)

We value our Liquefaction Supply Derivatives using a market-based approach incorporating present value techniques, as needed, using observable commodity price curves, when available, and other relevant data.

The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by observable and unobservable market commodity prices and, as applicable to our natural gas supply contracts, our assessment of the associated events deriving fair value, including evaluating whether the respective market is available as pipeline infrastructure is developed. The fair value of our Physical Liquefaction Supply Derivatives incorporates risk premiums related to the satisfaction of conditions precedent, such as completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow. As of September 30, 2021 and December 31, 2020, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure was under development to accommodate marketable physical gas flow.

We include a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which incorporate significant unobservable inputs. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks, such as future prices of energy units for unobservable periods, liquidity, volatility and contract duration.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

The Level 3 fair value measurements of natural gas positions within our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas prices. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of September 30, 2021:

Net Fair Value Asset
(in millions)

Valuation Approach

Significant Unobservable Input

Range of Significant Unobservable Inputs / Weighted Average (1)

Physical Liquefaction Supply Derivatives

$59

Market approach incorporating present value techniques

Henry Hub basis spread

$(1.333) - $0.415 / $0.015

(1)Unobservable inputs were weighted by the relative fair value of the instruments.

Increases or decreases in basis, in isolation, would decrease or increase, respectively, the fair value of our Physical Liquefaction Supply Derivatives.

The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three and nine months ended September 30, 2021 and 2020 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Balance, beginning of period	$	33	$	51	$	(21)	$	24
Realized and mark-to-market gains (losses):
Included in cost of sales	25		(47)		79		(22)
Purchases and settlements:
Purchases	4		5		6		4
Settlements	(3)		(8)		(5)		(6)
Transfers out of Level 3, net (1)	—		(1)		—		—
Balance, end of period	$	59	$	—	$	59	$	—
Change in unrealized gains (losses) relating to instruments still held at end of period	$	25	$	(47)	$	79	$	(22)

(1)Transferred into Level 3 as a result of unobservable market, or out of Level 3 as a result of observable market for the underlying natural gas purchase agreements.

All counterparty derivative contracts provide for the unconditional right of set-off in the event of default. We have elected to report derivative assets and liabilities arising from our derivative contracts with the same counterparty on a net basis. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our derivative instruments are in an asset position. Additionally, counterparties are at risk that we will be unable to meet our commitments in instances where our derivative instruments are in a liability position. We incorporate both our own nonperformance risk and the respective counterparty’s nonperformance risk in fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of any applicable credit enhancements, such as collateral postings, set-off rights and guarantees.

Liquefaction Supply Derivatives

SPL has entered into primarily index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the Liquefaction Project. The remaining terms of the physical natural gas supply contracts range up to 10 years, some of which commence upon the satisfaction of certain events or states of affairs. The terms of the Financial Liquefaction Supply Derivatives range up to approximately three years.

The notional natural gas position of our Liquefaction Supply Derivatives was approximately 5,135 TBtu and 4,970 TBtu as of September 30, 2021 and December 31, 2020, respectively, of which 99 TBtu and 91 TBtu, respectively, were for a natural gas supply contract that SPL has with a related party.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

Fair Value and Location of Derivative Assets and Liabilities on the Consolidated Balance Sheets

The following table shows the fair value and location of our Liquefaction Supply Derivatives on our Consolidated Balance Sheets (in millions):




	Fair Value Measurements as of (1)
Consolidated Balance Sheets Location	September 30, 2021		December 31, 2020
Current derivative assets	$	44	$	14
Derivative assets	25		11
Total derivative assets	69		25

Current derivative liabilities	(23)		(11)
Derivative liabilities	(13)		(35)
Total derivative liabilities	(36)		(46)

Derivative asset (liability), net	$	33	$	(21)

(1)Does not include collateral posted with counterparties by us of $29 million and $4 million, which are included in other current assets in our Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, respectively. Includes a natural gas supply contract that SPL has with a related party, which had a fair value of zero as of both September 30, 2021 and December 31, 2020.

The following table shows the effect and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Operations during the three and nine months ended September 30, 2021 and 2020 (in millions):


	Gain (Loss) Recognized in Consolidated Statements of Operations
Consolidated Statements of Operations Location (1)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
LNG revenues	$	—	$	7	$	—	$	3
Cost of sales	10		(74)		64		(41)

(1)Does not include the realized value associated with derivative instruments that settle through physical delivery. Fair value fluctuations associated with commodity derivative activities are classified and presented consistently with the item economically hedged and the nature and intent of the derivative instrument.

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES