Cheniere Energy Partners, L.P. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Financial Instruments

Financial Instruments

12 Months Ended

Dec. 31, 2011

Financial Instruments [Abstract]

Financial Instruments Disclosure [Text Block]

FINANCIAL INSTRUMENTS

Derivative Instruments

We have entered into certain derivative instruments to hedge the price risk attributable to future purchases of natural gas to be utilized as fuel to operate our LNG terminal ("Fuel Derivatives") and to hedge the exposure to variability in expected future cash flows attributable to the future sale of our LNG inventory ("LNG Inventory Derivatives"). Changes in the fair value of our derivatives instruments are reported in earnings because we have not elected to designate these derivative instruments as a hedging instrument that is required to qualify for cash flow hedge accounting. The estimated fair value of financial instruments is the amount at which the instrument could be exchanged currently between willing parties.

The fair value of our derivative instruments are based on inputs that are quoted prices in active markets for similar assets or liabilities, resulting in Level 2 categorization of such measurements. The following table (in thousands) sets forth, by level within the fair value hierarchy, the fair value of our derivative instruments assets and liabilities at December 31, 2011:



	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value
LNG Inventory Derivatives asset (1)	$	—	$	1,610	$	—	$	1,610
Fuel Derivatives liability (2)	—		1,415		—		1,415

(1)

LNG Inventory Derivatives asset is classified as prepaid expenses and other current assets on our Consolidated Balance Sheets. Changes in the fair value of LNG Inventory Derivatives are classified as revenues on our Consolidated Statements of Operations. We recorded revenues of $2.3 million in the year ended December 31, 2011, and zero in each of the years ended December 31, 2010 and 2009 related to LNG Inventory Derivatives.

(2)

Fuel Derivatives liability is classified as other current liabilities on our Consolidated Balance Sheets. Changes in the fair value of our Fuel Derivatives are classified as derivative gain (loss) on our Consolidated Statements of Operations. We recorded derivative loss of $2.3 million and derivative gain of $0.5 million and $5.3 million related to Fuel Derivatives in the years ended December 31, 2011, 2010 and 2009, respectively.

Other Financial Instruments

The estimated fair value of financial instruments, including those financial instruments for which the fair value option was not elected are set forth in the table below. The carrying amounts reported on our Consolidated Balance Sheets for restricted cash and cash equivalents, accounts receivable, interest receivables and accounts payable approximate fair value due to their short-term nature.

Financial Instruments (in thousands):



	December 31, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
2013 Notes (1)	$	550,000	$	555,500	$	550,000	$	541,750
2016 Notes, net of discount (1)	1,642,418		1,650,630		1,637,724		1,523,083


(1)	The estimated fair value of the Senior Notes, net of discount, was based on quotations obtained from broker-dealers who made markets in these and similar instruments as of December 31, 2011 and 2010, as applicable.