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 Disclosures [Line Items]  
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
CCH Interest Rate Derivatives liability
$

 
$
(191
)
 
$

 
$
(191
)
 
$

 
$
(81
)
 
$

 
$
(81
)
CCH Interest Rate Forward Start Derivatives liability

 
(102
)
 

 
(102
)
 

 
(8
)
 

 
(8
)
Liquefaction Supply Derivatives asset (liability)
11

 
(1
)
 
590

 
600

 
5

 
6

 
138

 
149

LNG Trading Derivatives asset (liability)
(2
)
 
153

 

 
151

 

 
165

 

 
165

FX Derivatives asset

 
15

 

 
15

 

 
4

 

 
4


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
 
$590
 
Market approach incorporating present value techniques
 
Henry Hub basis spread
 
$(0.546) - $0.172 / $(0.023)
 
 
 
 
Option pricing model
 
International LNG pricing spread, relative to Henry Hub (2)
 
46% - 171% / 126%

 
(1)
Unobservable inputs were weighted by the relative fair value of the instruments.
(2)
Spread contemplates U.S. dollar-denominated pricing.
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
 
$
674

 
$
31

 
$
138

 
$
(29
)
Realized and mark-to-market gains:
 
 
 
 
 
 
 
 
Included in cost of sales
 
(84
)
 
7

 
452

 
23

Purchases and settlements:
 
 
 
 
 
 
 
 
Purchases
 
(4
)
 
50

 
(3
)
 
50

Settlements
 
1

 
1

 
(1
)
 
45

Transfers into Level 3, net (1)
 
3

 

 
4

 

Balance, end of period
 
$
590

 
$
89

 
$
590

 
$
89

Change in unrealized gains (losses) relating to instruments still held at end of period
 
$
(84
)
 
$
7

 
$
452

 
$
23

 
(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.
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
 
 
 
 
 
 
CCH Interest Rate Derivatives
 
$
(191
)
 
$

 
$
(191
)
CCH Interest Rate Forward Start Derivatives
 
(102
)
 

 
(102
)
Liquefaction Supply Derivatives
 
715

 
(18
)
 
697

Liquefaction Supply Derivatives
 
(102
)
 
5

 
(97
)
LNG Trading Derivatives
 
163

 
(2
)
 
161

LNG Trading Derivatives
 
(21
)
 
11

 
(10
)
FX Derivatives
 
22

 
(7
)
 
15

As of December 31, 2019
 
 
 
 
 


CCH Interest Rate Derivatives
 
$
(81
)
 
$

 
$
(81
)
CCH Interest Rate Forward Start Derivatives
 
(8
)
 

 
(8
)
Liquefaction Supply Derivatives
 
281

 
(14
)
 
267

Liquefaction Supply Derivatives
 
(126
)
 
8

 
(118
)
LNG Trading Derivatives
 
229

 
(4
)
 
225

LNG Trading Derivatives
 
(60
)
 

 
(60
)
FX Derivatives
 
9

 
(4
)
 
5

FX Derivatives
 
(6
)
 
5

 
(1
)

Interest Rate Derivatives [Member]  
Derivative Instruments and Hedging Activities Disclosures [Line Items]  
Schedule of Notional Amounts of Outstanding Derivative Positions
As of June 30, 2020, we had the following Interest Rate Derivatives outstanding:
 
 
Notional Amounts
 
 
 
 
 
 
 
 
June 30, 2020
 
December 31, 2019
 
Term
 
Weighted Average Fixed Interest Rate Paid
 
Variable Interest Rate Received
CCH Interest Rate Derivatives
 
$4.7 billion
 
$4.5 billion
 
May 31, 2022 (1)
 
2.30%
 
One-month LIBOR
CCH Interest Rate Forward Start Derivatives
 
$250 million

$250 million

September 30, 2020 (2)

2.05%

Three-month LIBOR
CCH Interest Rate Forward Start Derivatives
 
$500 million

$500 million

December 31, 2020 (2)

2.06%

Three-month LIBOR
 
    
(1)
Represents the maturity date.
(2)
Represents the effective date. These forward start derivatives have terms of 10 years with a mandatory termination date consistent with the effective date.

Fair Value of Derivative Instruments by Balance Sheet Location
The following table shows the fair value and location of the Interest Rate Derivatives on our Consolidated Balance Sheets (in millions):
 
June 30, 2020
 
December 31, 2019
 
CCH Interest Rate Derivatives
 
CCH Interest Rate Forward Start Derivatives
 
Total
 
CCH Interest Rate Derivatives
 
CCH Interest Rate Forward Start Derivatives
 
Total
Consolidated Balance Sheets Location
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
$
(100
)
 
$
(102
)
 
$
(202
)
 
$
(32
)
 
$
(8
)
 
$
(40
)
Non-current derivative liabilities
(91
)
 

 
(91
)
 
(49
)
 

 
(49
)
Total derivative liabilities
$
(191
)

$
(102
)

$
(293
)

$
(81
)

$
(8
)

$
(89
)

Derivative Instruments, Gain (Loss)
The following table shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in interest rate derivative loss, net on our Consolidated Statements of Operations 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
CCH Interest Rate Derivatives loss
 
$
(15
)
 
$
(67
)
 
$
(138
)
 
$
(102
)
CCH Interest Rate Forward Start Derivatives loss
 
(10
)
 
(7
)
 
(95
)
 
(7
)

Commodity Derivatives [Member]  
Derivative Instruments and Hedging Activities Disclosures [Line Items]  
Fair Value of Derivative Instruments by Balance Sheet Location
The following table shows the fair value and location of our Liquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity Derivatives”) on our Consolidated Balance Sheets (in millions, except notional amount):
 
June 30, 2020
 
December 31, 2019
 
Liquefaction Supply Derivatives (1)
 
LNG Trading Derivatives (2)
 
Total
 
Liquefaction Supply Derivatives (1)
 
LNG Trading Derivatives (2)
 
Total
Consolidated Balance Sheets Location
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
$
133

 
$
138

 
$
271

 
$
93

 
$
225

 
$
318

Non-current derivative assets
564

 
23

 
587

 
174

 

 
174

Total derivative assets
697

 
161

 
858

 
267

 
225

 
492

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
(27
)
 
(10
)
 
(37
)
 
(16
)
 
(60
)
 
(76
)
Non-current derivative liabilities
(70
)
 

 
(70
)
 
(102
)
 

 
(102
)
Total derivative liabilities
(97
)
 
(10
)
 
(107
)
 
(118
)
 
(60
)
 
(178
)
 
 
 
 
 
 
 
 
 
 
 
 
Derivative asset, net
$
600

 
$
151

 
$
751

 
$
149

 
$
165

 
$
314

 
 
 
 
 
 
 
 
 
 
 
 
Notional amount, net (in TBtu) (3)
10,264

 
19

 
 
 
9,177

 
4

 
 

 
    
(1)
Does not include collateral posted with counterparties by us of $2 million and $7 million for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively. Includes derivative assets of $5 million and $3 million as of June 30, 2020 and December 31, 2019,
respectively, and non-current assets of $2 million as of both June 30, 2020 and December 31, 2019 for natural gas supply contracts that SPL and CCL have with related parties.
(2)
Does not include collateral posted with counterparties by us of $17 million and $5 million deposited for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively.
(3)
Includes 182 TBtu and 120 TBtu as of June 30, 2020 and December 31, 2019, respectively, for natural gas supply contracts that SPL and CCL have with related parties.
Derivative Instruments, Gain (Loss)
The following table shows the changes in the fair value, settlements and location of our Commodity Derivatives recorded on our Consolidated Statements of Operations during the three and six months ended June 30, 2020 and 2019 (in millions):
 
Consolidated Statements of Operations Location (1)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
LNG Trading Derivatives gain (loss)
LNG revenues
 
$
(34
)
 
$
94

 
$
106

 
$
158

LNG Trading Derivatives gain (loss)
Cost of sales
 
34

 
(51
)
 

 
(51
)
Liquefaction Supply Derivatives gain (loss) (2)
LNG revenues
 
(13
)
 
(1
)
 
(14
)
 
1

Liquefaction Supply Derivatives gain (loss) (2)(3)
Cost of sales
 
(62
)
 
57

 
475

 
139

 
(1)
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.
(2)
Does not include the realized value associated with derivative instruments that settle through physical delivery.
(3)
CCL recorded $25 million and $24 million in cost of sales under a natural gas supply contract with a related party during the three months ended June 30, 2020 and 2019, respectively, including $1 million of Liquefaction Supply Derivatives gain and $1 million of Liquefaction Supply Derivatives loss, respectively. During the six months ended June 30, 2020 and 2019, CCL recorded $48 million and $36 million in cost of sales under a natural gas supply contract with a related party, respectively, including $2 million of Liquefaction Supply Derivatives gain and $3 million of Liquefaction Supply Derivatives loss, respectively. As of June 30, 2020 and December 31, 2019, $8 million and $3 million, respectively, were included in accrued liabilities related to this contract.
FX Derivatives [Member]  
Derivative Instruments and Hedging Activities Disclosures [Line Items]  
Fair Value of Derivative Instruments by Balance Sheet Location
The following table shows the fair value and location of our FX Derivatives on our Consolidated Balance Sheets (in millions):
 
 
 
Fair Value Measurements as of
 
Consolidated Balance Sheets Location
 
June 30, 2020
 
December 31, 2019
FX Derivatives
Derivative assets
 
$
13

 
$
5

FX Derivatives
Non-current derivative assets
 
2

 

FX Derivatives
Derivative liabilities
 

 
(1
)

Derivative Instruments, Gain (Loss)
The following table shows the changes in the fair value, settlements and location of our FX Derivatives recorded on our Consolidated Statements of Operations during the three and six months ended June 30, 2020 and 2019 (in millions):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Consolidated Statements of Operations Location
 
2020
 
2019
 
2020
 
2019
FX Derivatives gain
LNG revenues
 
$
2

 
$

 
$
27

 
$
9