Cheniere Energy, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Derivative Instruments

Derivative Instruments

12 Months Ended

Dec. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

We have the following derivative instruments:

•commodity derivatives consisting of the following (collectively, “Commodity Derivatives”):

◦natural gas and power supply contracts, including those under our IPM agreements, for the development, commissioning and operation of the Liquefaction Projects and expansion projects, as well as the associated economic hedges (collectively, the “Liquefaction Supply Derivatives”); and,

◦LNG derivatives in which we have contractual net settlement and economic hedges on the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (collectively, “LNG Trading Derivatives”); and

•FX contracts to hedge exposure to currency risk associated with cash flows denominated in currencies other than U.S. dollar (“FX Derivatives”), associated with both LNG Trading Derivatives and operations in countries outside of the United States.

The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis, distinguished by the fair value hierarchy levels prescribed by GAAP (in millions):


	Fair Value Measurements as of
	December 31, 2024								December 31, 2023
	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)	$	—	$	59	$	(801)	$	(742)	$	25	$	36	$	(2,178)	$	(2,117)
LNG Trading Derivatives asset (liability)	—		17		—		17		30		(20)		—		10
FX Derivatives asset (liability)	—		16		—		16		—		(17)		—		(17)

We value the Liquefaction Supply Derivatives and LNG Trading Derivatives using a market or option-based approach incorporating present value techniques, as needed, which incorporates observable commodity price curves, when available, and other relevant data. We value our FX Derivatives with a market approach using observable FX rates and other relevant data.

We include a significant portion of the 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 may use in valuing the asset or liability. To the extent valued using an option pricing model, we consider the future prices of energy units for unobservable periods to be a significant unobservable input to estimated net fair value. In estimating the future prices of energy units, we make judgments about market risk related to liquidity of commodity indices and volatility utilizing available market data. Changes in facts and circumstances or additional information may result in revised estimates and judgments, and actual results may differ from these estimates and judgments. We derive our volatility assumptions based on observed historical settled global LNG market pricing or accepted proxies for global LNG market pricing as well as settled domestic natural gas

pricing. Such volatility assumptions also contemplate, as of the balance sheet date, observable forward curve data of such indices, as well as evolving available industry data and independent studies.

In developing our volatility assumptions, we acknowledge that the global LNG industry is inherently influenced by events such as unplanned supply constraints, geopolitical incidents, unusual climate events including drought and uncommonly mild, by historical standards, winters and summers, and real or threatened disruptive operational impacts to global energy infrastructure. Our current estimate of volatility includes the impact of otherwise rare events unless we believe market participants would exclude such events on account of their assertion that those events were specific to our company and deemed within our control. As applicable to our natural gas supply contracts, our fair value estimates incorporate market participant-based assumptions pertaining to certain contractual uncertainties, including those related to the availability of market information for delivery points, as well as the timing of satisfaction of certain events or development of infrastructure to support natural gas gathering and transport. We may recognize changes in fair value through earnings that could significantly impact our results of operations if and when such uncertainties are resolved.

The Level 3 fair value measurements of our natural gas positions within the Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas and international LNG prices. The following table includes quantitative information for the unobservable inputs for the Level 3 Liquefaction Supply Derivatives as of December 31, 2024:

Net Fair Value Liability

(in millions)

Valuation Approach

Significant Unobservable Input

Range of Significant Unobservable Inputs / Weighted Average (1)

Liquefaction Supply Derivatives

$(801)

Market approach incorporating present value techniques

Henry Hub basis spread

$(2.005) - $1.144 / $(0.069)

Option pricing model

International LNG pricing spread, relative to Henry Hub (2)

90% - 410% / 197%

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

(2)Spread contemplates U.S. dollar-denominated pricing.

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

The following table shows the changes in the fair value of the Level 3 Liquefaction Supply Derivatives (in millions):


	Year Ended December 31,
		2024		2023		2022
Balance, beginning of period		$	(2,178)	$	(9,924)	$	(4,036)
Realized and change in fair value gains (losses) included in net income (1):
Included in cost of sales, existing deals (2)		716		5,685		(5,120)
Included in cost of sales, new deals (3)		22		15		(1,373)
Purchases and settlements:
Purchases (4)		—		—		—
Settlements (5)		639		2,045		605


Transfers out of level 3 (6)		—		1		—
Balance, end of period		$	(801)	$	(2,178)	$	(9,924)
Favorable (unfavorable) changes in fair value relating to instruments still held at the end of the period		$	738	$	5,700	$	(6,493)

(1)Does not include the realized value associated with derivative instruments that settle through physical delivery, as settlement is equal to the contractually fixed price from trade date multiplied by contractual volume. See settlements line item in this table.

(2)Impact to earnings on deals that existed at the beginning of the period and continue to exist at the end of the period.

(3)Impact to earnings on deals that were entered into during the reporting period and continue to exist at the end of the period.

(4)Includes any day one gain (loss) recognized during the reporting period on deals that were entered into during the reporting period which continue to exist at the end of the period.

(5)Roll-off in the current period of amounts recognized in our Consolidated Balance Sheets at the end of the previous period due to settlement of the underlying instruments in the current period.

(6)Transferred out of Level 3 as a result of observable market for the underlying natural gas purchase agreements.

Commodity Derivatives

We hold Liquefaction Supply Derivatives which are primarily indexed to the natural gas market and international LNG indices. As of December 31, 2024, the remaining fixed terms of the Liquefaction Supply Derivatives ranged up to approximately 15 years, some of which commence or accelerate upon the satisfaction of certain events or development of infrastructure to support natural gas gathering and transport.

Cheniere Marketing has historically entered into, and may from time to time enter into, LNG transactions that provide for contractual net settlement. Such transactions are accounted for as LNG Trading Derivatives along with financial commodity contracts in the form of swaps or futures. The terms of LNG Trading Derivatives range up to approximately one year.

The following table shows the notional amounts of our Commodity Derivatives:

December 31, 2024

December 31, 2023

Liquefaction Supply Derivatives (1)

LNG Trading Derivatives

Liquefaction Supply Derivatives (1)

LNG Trading Derivatives

Notional amount, net (in TBtu)

12,503

(8)

14,019

(1)Inclusive of amounts under contracts with unsatisfied contractual conditions and exclusive of extension options that were uncertain to be taken as of both December 31, 2024 and 2023.

The following table shows the effect and location of our Commodity Derivatives recorded on our Consolidated Statements of Operations (in millions):


			Gain (Loss) Recognized in Consolidated Statements of Operations
	Consolidated Statements of Operations Location (1)	Year Ended December 31,
			2024		2023		2022

LNG Trading Derivatives	LNG revenues		$	(111)	$	139	$	(387)
LNG Trading Derivatives	Cost of sales		(2)		(132)		(2)
Liquefaction Supply Derivatives (2)	LNG revenues		(3)		(5)		2
Liquefaction Supply Derivatives (2)	Cost of sales		1,390		7,912		(6,203)

(1)Fair value fluctuations associated with activities of our Commodity Derivatives are classified and presented consistently with the item economically hedged and the nature and intent of the derivative instrument.

(2)Does not include the realized value associated with the Liquefaction Supply Derivatives that settle through physical delivery.

FX Derivatives

Cheniere Marketing holds FX Derivatives to protect against the volatility in future cash flows attributable to changes in international currency exchange rates. The FX Derivatives are executed primarily to economically hedge the foreign currency exposure arising from cash flows expended for both physical and financial LNG transactions that are denominated in a currency other than the U.S. dollar. The terms of FX Derivatives range up to approximately one year.

The total notional amount of our FX Derivatives was $642 million and $789 million as of December 31, 2024 and 2023, respectively.

The following table shows the effect and location of our FX Derivatives recorded on our Consolidated Statements of Operations (in millions):


			Gain (Loss) Recognized in Consolidated Statements of Operations
	Consolidated Statements of Operations Location	Year Ended December 31,
			2024		2023		2022
FX Derivatives	LNG revenues		$	41	$	(24)	$	57

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


	December 31, 2024
	Liquefaction Supply Derivatives		LNG Trading Derivatives		FX Derivatives		Total
Consolidated Balance Sheets Location
Current derivative assets	$	105	$	32	$	18	$	155
Derivative assets	1,903		—		—		1,903
Total derivative assets	2,008		32		18		2,058

Current derivative liabilities	(885)		(15)		(2)		(902)
Derivative liabilities	(1,865)		—		—		(1,865)
Total derivative liabilities	(2,750)		(15)		(2)		(2,767)

Derivative asset (liability), net	$	(742)	$	17	$	16	$	(709)

	December 31, 2023
	Liquefaction Supply Derivatives		LNG Trading Derivatives		FX Derivatives		Total
Consolidated Balance Sheets Location
Current derivative assets	$	49	$	92	$	—	$	141
Derivative assets	863		—		—		863
Total derivative assets	912		92		—		1,004

Current derivative liabilities	(651)		(82)		(17)		(750)
Derivative liabilities	(2,378)		—		—		(2,378)
Total derivative liabilities	(3,029)		(82)		(17)		(3,128)

Derivative asset (liability), net	$	(2,117)	$	10	$	(17)	$	(2,124)

Consolidated Balance Sheets Presentation

The following table reconciles the fair value of our derivative assets and liabilities on a gross basis, by contract, to net amounts as presented on our Consolidated Balance Sheets after offsetting for any balances with the same counterparty under master netting arrangements or other relevant netting criteria under GAAP that are met (in millions):


	Liquefaction Supply Derivatives		LNG Trading Derivatives		FX Derivatives

As of December 31, 2024
Gross assets	$	3,064	$	42	$	25
Offsetting amounts	(1,056)		(10)		(7)
Net assets (1)	$	2,008	$	32	$	18

Gross liabilities	$	(2,790)	$	(16)	$	(3)
Offsetting amounts	40		1		1
Net liabilities (2)	$	(2,750)	$	(15)	$	(2)

As of December 31, 2023
Gross assets	$	1,272	$	94	$	—
Offsetting amounts	(360)		(2)		—
Net assets (1)	$	912	$	92	$	—

Gross liabilities	$	(3,095)	$	(110)	$	(17)
Offsetting amounts	66		28		—
Net liabilities (2)	$	(3,029)	$	(82)	$	(17)

(1)Includes current and non-current derivative assets of $155 million and $1,903 million, respectively, as of December 31, 2024 and $141 million and $863 million, respectively, as of December 31, 2023.

(2)Includes current and non-current derivative liabilities of $902 million and $1,865 million, respectively, as of December 31, 2024 and $750 million and $2,378 million, respectively, as of December 31, 2023.

The table below shows the collateral balances that are recorded within margin deposits and not netted on our Consolidated Balance Sheets (in millions):


	Year Ended December 31,
	2024		2023
Liquefaction Supply Derivatives	$	18	$	3

LNG Trading Derivatives	110		15