Cheniere management disclosed that designating roughly 75% of IPM volumes under normal purchases and normal sales accounting will reduce quarterly net income volatility by removing future fair-value marks for those volumes, starting with Q2 2026. The change aims to reflect more stable fixed-fee cash flows from contracted infrastructure and is supported by historical context since 2021.
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What did management say about IPM designation impact on earnings volatility?
Management explained that Cheniere designated an accounting “normal purchases and normal sales accounting exception” for about 75% of the volumes related to its long-term IPM agreements (normal purchases/sales election). 12 They said this designation was made in mid-June (during Q2) and that it “will mitigate things” by reducing the amount of mark-to-market (fair value) accounting going forward. 1
In management’s words, the designation should reduce quarter-to-quarter variability in net income because the designated volumes “will no longer be marked to fair value each period,” eliminating derivative accounting adjustments for these volumes in future quarters. 2 They also characterized this as making results more representative of stable fixed-fee cash flow from contracted infrastructure. 12
Management said their net income historically showed “significant variability” due to unrealized noncash derivative impacts arising from an accounting methodology mismatch between purchase natural gas accounting and the corresponding LNG sale accounting for long-term IPM agreements. 2
Management confirmed that the accounting change began with the 2Q net income number, referencing the election being in place mid-June and pointing to Q1-to-Q2 price moderation dynamics after mid-June. 1
They linked Q2’s large unrealized gain to that timing and volatility in commodity prices earlier in the year, then stated that going forward the designation should lessen the volatility driver. 1
Management went beyond generalities with a historical illustration. They said that since 2021 there have been 22 quarters with 6 negative net income quarters due to unrealized derivatives under the prior accounting treatment, and that this “would have dropped down to two if we were able to make this designation earlier.” 1
They also summarized the practical effect as “less mark-to-market accounting occurring on our derivative and contracted positions going forward” and said it is “much more representative” of the company’s stable fixed-fee business base. 1
Management estimated the designation covers about 6 of 8 deals they have, which they described as IPM deals where volumes are delivered directly to their sites (Corpus and Sabine), are not optimized, and are essentially passed through into LNG and sold at a global price. 1
This matters to the volatility point because management framed the designation as an exception made possible by how markets have evolved toward more long-term gas supply deals priced off indices (not only Henry Hub), supporting the accounting treatment for those “passed-through” volumes. 1
Putting management’s statements together:
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