Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments (Tables)

v3.20.2
Derivative Instruments (Tables)
 6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Fair Value of Derivative Assets and Liabilities
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 June 30, 2020 and December 31, 2019, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).
 
Fair Value Measurements as of
 
June 30, 2020
 
December 31, 2019
 
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)
$
3

 
$
(4
)
 
$
51

 
$
50

 
$
3

 
$
(3
)
 
$
24

 
$
24


Fair Value Measurement Inputs and Valuation Techniques The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of June 30, 2020:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Approach
 
Significant Unobservable Input
 
Range of Significant Unobservable Inputs / Weighted Average (1)
Physical Liquefaction Supply Derivatives
 
$51
 
Market approach incorporating present value techniques
 
Henry Hub basis spread
 
$(0.350) - $0.172 / $0.008
 
(1)
Unobservable inputs were weighted by the relative fair value of the instruments.

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation
The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three and six months ended June 30, 2020 and 2019 (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Balance, beginning of period
 
$
49

 
$
29

 
$
24

 
$
(25
)
Realized and mark-to-market gains:
 
 
 
 
 
 
 
 
Included in cost of sales
 
4

 
3

 
32

 
16

Purchases and settlements:
 
 
 
 
 
 
 
 
Purchases
 
(1
)
 
1

 
—

 
—

Settlements
 
(1
)
 
1

 
(6
)
 
43

Transfers out of Level 3 (1)
 
—

 
—

 
1

 
—

Balance, end of period
 
$
51

 
$
34

 
$
51

 
$
34

Change in unrealized gains relating to instruments still held at end of period
 
$
4

 
$
3

 
$
32

 
$
16


 
(1)
Transferred to Level 2 as a result of observable market for the underlying natural gas purchase agreements.
Fair Value of Derivative Instruments by Balance Sheet Location
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
 
June 30, 2020
 
December 31, 2019
Derivative assets
 
$
20

 
$
17

Non-current derivative assets
 
37

 
32

Total derivative assets
 
57

 
49

 
 
 
 
 
Derivative liabilities
 
(6
)
 
(9
)
Non-current derivative liabilities
 
(1
)
 
(16
)
Total derivative liabilities
 
(7
)
 
(25
)
 
 
 
 
 
Derivative asset, net
 
$
50

 
$
24

 
(1)
Does not include collateral posted with counterparties by us of $2 million for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of both June 30, 2020 and December 31, 2019. Includes a natural gas supply contract that SPL has with a related party, which had a fair value of zero as of June 30, 2020.

Derivative Instruments, Gain (Loss)
The following table shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Income during the three and six months ended June 30, 2020 and 2019 (in millions):
 
 Consolidated Statements of Income Location (1)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Liquefaction Supply Derivatives gain (loss)
LNG revenues
 
$
(4
)
 
$
—

 
$
(4
)
 
$
1

Liquefaction Supply Derivatives gain
Cost of sales
 
12

 
7

 
33

 
83


 
(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.
Derivative Net Presentation on Consolidated Balance Sheets The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions):
 
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts Presented in the Consolidated Balance Sheets
Offsetting Derivative Assets (Liabilities)
 
 
 
As of June 30, 2020
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
62

 
$
(5
)
 
$
57

Liquefaction Supply Derivatives
 
(10
)
 
3

 
(7
)
As of December 31, 2019
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
51

 
$
(2
)
 
$
49

Liquefaction Supply Derivatives
 
(27
)
 
2

 
(25
)