Cheniere Energy Partners LP

Volumes loaded and recognized from the Liquefaction Project

Net income

Net income declined by $52 million between the three months ended June 30, 2024 and 2023, primarily as a result of decreased revenues, as further described in Revenues below. Substantially all of the decline in net income of $1.3 billion between the six months ended June 30, 2024 and 2023 was attributable to unfavorable changes in fair value and settlements of derivatives, principally attributable to our IPM agreement with Tourmaline Oil Marketing Corp, where the associated gains decreased from $1.2 billion during the six months ended June 30, 2023 to $205 million during the six months ended June 30, 2024, due to the impact on fair value of moderating changes in volatility in international gas prices during the current period relative to the same period of 2023. Excluding the aforementioned changes in fair value and settlements of derivatives, LNG revenues, net of cost of sales was relatively consistent between the six months ended June 30, 2024 and 2023.

The following is an additional discussion of the significant drivers of the variance in net income by line item:

Revenues

We had $39 million and $661 million decreases in revenues between the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023, which was primarily attributable to $118 million and $854 million decreases between the three and six months ended June 30, 2024, respectively, from lower pricing per MMBtu as a result of declining Henry Hub pricing, partially offset by $96 million and $206 million increases, respectively, from higher production volume largely due to reduced operating and maintenance activities compared to the same periods of 2023 and cooler weather.

Operating costs and expenses

Operating costs and expenses remained relatively consistent between the three months ended June 30, 2024 and 2023. The $645 million increase between the six months ended June 30, 2024 and 2023 was primarily attributable to a $1.4 billion unfavorable variance from changes in fair value of derivatives included in cost of sales, from $1.5 billion in the six months ended June 30, 2023 to $147 million in the six months ended June 30, 2024, primarily due to moderating volatility in international gas prices during the current period resulting in decreased non-cash gains in fair value of our commodity derivatives indexed to such prices, specifically associated with the Tourmaline IPM Agreement as discussed above under Net income. This increase was partially offset by a $642 million decrease in cost of sales excluding the effect of derivative changes described above, primarily as a result of a $562 million decrease in cost of natural gas feedstock largely due to lower U.S. natural gas prices.

Significant factor affecting our results of operations

Below is a significant factor that affects our results of operations.

Gains and losses on derivative instruments

Derivative instruments are utilized to manage our exposure to commodity-related marketing and price risks and are reported at fair value on our Consolidated Financial Statements. For commodity derivative instruments related to our IPM agreements, the underlying LNG sales being economically hedged are accounted for under the accrual method of accounting, whereby revenues expected to be derived from the future LNG sales are recognized only upon delivery or realization of the underlying transaction. Notwithstanding the operational intent to mitigate risk exposure over time, the recognition of derivative instruments at fair value has the effect of recognizing gains or losses relating to future period exposure, and given the significant volumes, long-term duration and volatility in price basis for certain of our derivative contracts, the use of derivative instruments may result in continued volatility of our results of operations based on changes in market pricing, counterparty credit risk and other relevant factors that may be outside of our control. For example, as described in Note 6—Derivative Instruments of our Notes to Consolidated Financial Statements, the fair value of the Liquefaction Supply Derivatives, as applicable, incorporates market participant-based assumptions pertaining to certain contractual uncertainties, including those related to the availability of market information for delivery points, which may require future development of infrastructure, 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.