How will the 20‑year LNG supply agreement affect Sempre Infrastructure’s and EQT’s future cash flows and valuation?

Cash‑flow impact

The 20‑year SPA locks in a 2 Mtpa committed volume for the life of the contract, effectively converting a large share of the Phase‑2 output into a off‑take‑secured, “take‑or‑pay” revenue stream for both parties. For EQT, which now has a guaranteed buyer for roughly 30 % of its Phase‑2 production, the agreement eliminates most of the market‑risk on that slice of output and will markedly smooth forward‑looking cash‑flows. Assuming a mid‑range long‑term LNG price of $12‑$13 /MMBtu (≈ $9‑$10 k/tonne) the contract alone can generate $18‑$20 bn of annual revenue over the next two decades, far exceeding the incremental operating cash required for the plant. Sempra Infrastructure, as the seller, receives a parallel long‑dated, credit‑enhanced counter‑party (EQT) that upgrades the quality and predictability of its cash‑inflows, reducing reliance on spot‑price volatility.

Valuation implications

From a valuation standpoint the SPA:

• Extends the cash‑flow horizon and adds a high‑certainty, low‑discount‑rate asset to each balance sheet. When analysts re‑run DCF models with a longer “stable‑growth” period and a modestly lower WACC (e.g., 6 % vs. 7‑8 % pre‑deal), the enterprise‑value multiples (EV/EBITDA, P/E) for both Sempra Infrastructure and EQT are likely to compress upward—i.e., the market will price in a higher terminal value.
• Improves credit metrics (EBITDA coverage, leverage) because a sizable, contracted revenue base now underwrites debt service. This can translate into cheaper financing costs and potentially a rating uplift, further bolstering valuation.
• Creates asymmetric exposure to commodity swings: the fixed‑price nature of the SPA caps upside if LNG spot prices surge (Europe/Asia demand is projected to rise ~3‑4 % CAGR through 2035) while providing a floor if prices dip. Consequently, analysts may up‑weight the “core” cash‑flows (contracted volume) and discount the spot‑exposure, leading to a higher equity “core” multiple versus peers with less of their production under long‑term contracts.

Trading take‑aways

• Long‑bias on EQT (NYSE:EQ T) and Sempra Infrastructure‑related tickers: the deal is a catalyst for earnings‑visibility and credit‑rating upgrades; equities should remain under structural demand support as global LNG demand expands, especially in Europe’s “re‑gas‑ify” push and Asia’s post‑winter consumption.
• Entry on pull‑backs: Look for opportunities if either stock trades below 1‑month moving‑average or shows a technical bounce‑back from recent profit‑taking; the fundamentals now justify a premium relative to historical EV/EBITDA spreads.
• Hedging the upside risk: If you own the stocks and are bullish on the contracted cash‑flow but wary of limited upside, consider selling near‑term call spreads on LNG swap contracts to capture potential price spikes without eroding the core revenue.
• Watch key catalysts: quarterly updates on Phase‑2 capital‑expenditure (CapEx) spend, commodity price outlook (Henry Hub, Asian spot) and any credit‑rating actions by S&P or Moody’s. A downgrade or a sustained LNG price slump could pressure the “core” cash‑flow premium; a sustained price rally would boost the non‑contracted tail and could sharpen equity upside further.